Use Retirement planning calculator to ensure financial independence

Retirement Planning is one of the most important life-stage goals. Unfortunately, retirement planning does not get the importance it deserves. As a result many investors approach retirement with some trepidation about maintaining financial independence and their lifestyles after retirement. You should start planning retirement from the early stages of your working career to ensure financial security after retirement. In this article we will discuss why you should use a retirement planning calculator or pension plan calculator to plan savings and invests for your retirement goal.

What is retirement planning?

After retirement you will not get regular salaries and will have to depend on the income from your investments to meet your expenses. The goal of retirement planning is to maintain financial independence by accumulating a sufficiently large retirement corpus to meet all your needs.

Why is retirement planning important?

In India, the traditional family construct is joint families. In a joint family construct, expenses are shared between the family members; the working members of the family pay for the expenses of the entire family. The joint family construct ensured financial security. In nuclear families, you will have to depend on your own savings or be financially dependent on your children.

In the developed economies, retirement planning begins as soon as a person starts working. Even in India, salaried people in the organized sector start contributing to Provident Fund, which is essentially a retirement fund, as soon as they start working. However, in developed economies like the US, the upper limit of retirement or pension plan investments (e.g. 401K) is much higher than India; here your EPF contribution is 12% of your basic salary.

In pension plans of developed economies (e.g. 401K), you choose different investment options. In India, you get a fixed interest rate (current EPF interest rate is 8.1%) on your EPF contributions. Your expenses will keep increasing throughout due to inflation. Historical data shows that equity as an asset class can give inflation adjusted returns in the long term. In addition to EPF / VPF contributions, you should also save for your retirement by investing in equity mutual fund SIP plans from your regular savings.

How to use retirement planning calculator?

Calculate how much you need: Retirement planning calculator or pension plan calculator will estimate how much corpus you should have at the time of retirement after factoring in inflation.

Calculate how much to save: You can use a retirement planning calculator or pension plan calculator to know how much you need to save on a monthly basis to accumulate the corpus you need. The retirement planning calculator will estimate your monthly investments by working backwards assuming a certain ROI to reach your goal.

Invest in SIP plans: SIPs plans can be good investment options for retirement planning for investors at different life-stage and risk appetites. With SIP plans, you can start investing early in your working career. The longer you remain invested, the higher will be your returns due to the power of compounding. You can reach your retirement goal comfortably, with relatively less savings, if you start investing early.

In this article we have discussed why should use a retirement planning calculator or pension plan calculator and how to use them in retirement planning. You should consult with a financial advisor is need help in retirement planning, asset allocation and selecting mutual fund schemes to start SIP plans.