80% RULE FOR RETIREMENT: HOW MUCH MONEY DO YOU NEED TO RETIRE? SIMPLE FORMULA

Investment and retirement planning are two things that you must start focusing on as soon as possible, because time doesn’t stop for anyone. Furthermore, if you don’t start now, there are high chances that you may end up suffering financially in your old age. Thus, you need to know how much money you need to save first, and then how to save that amount.

How much money do you need to save for retirement?

Roughly, most of us plan to retire by the age of 60, which is the traditional retirement age. However, to determine exactly what amount you need to save to retire by 60 depends upon a lot of factors, including your financial status, inflation, etc.

While some financial advisors suggest saving 15% of one's annual income every year, some advice saving 7-8 times of the salary by the start of one's 60s. Meanwhile, as per HDFC Life Insurance website, to live a comfortable retirement, a person’s total savings should be 30 times of their current annual expenditure.

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Saving tips for retirement by 60

Start saving for retirement early, as when you are young, you have fewer liabilities. Furthermore, your income increases over time, thus, you should focus on saving a higher percentage of your income to combat inflation.

Apart from this, it is good to buy medical insurance, at lower premiums while you're young. Also, you should consider purchasing life insurance with a return of premiums option, which offers life cover while also providing a lump sum corpus at maturity.

Start investing in pension plans when you are young, this will be safeguarding capital as you age. You can use a pension plan calculator to assess needs, consider future inflation, and select the right plan.

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You can also go for capital guarantee solutions when investing in the NPS scheme, and pension/annuity plans for a steady retirement income.

Most importantly, try to reduce debt by paying EMIs on time.

So, how much corpus do you need to retire?

It is recommended that you should save at least ten times your pre-retirement salary and live on 80% of your pre-retirement annual income to live a comfortable retirement. Doing this, you will be able to efficiently manage inflation by incrementally raising yearly withdrawals.

Thus, you're not limited to withdrawing only 80% of your final salary annually. Instead, you can gradually increase your withdrawal amount each year to sustain your purchasing power despite inflation reducing the value of your savings.

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2024-05-15T17:03:16Z dg43tfdfdgfd