Not long ago, most Indians relied on their children to care for them after retirement. Although that expectation may still exist, most know they must have a plan B. With the changing family structures, relationships, and income status, most understand the importance of retirement planning, and, yet, only a few can develop and embark on a concrete plan in reality and do not estimate retirement corpus.

A Bajaj Allianz Life India survey last year showed 73 per cent of millennials, those aged 28-43, felt they hadn’t done sufficient financial planning for retirement, 58 per cent thought they did not have enough financial security for their family, and 46 per cent felt they lacked support in planning. For 65 per cent, life insurance is the most preferred investment option to reach goals.

So there is both good and bad news. The good news is most people are aware of retirement planning, and the bad news is many of them haven’t yet laid the first stone of that foundation, how they estimate retirement corpus.

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However, those in government jobs or in the organized sectors could be better off, as they still have a basic security net that activates soon after starting work in the form of a provident fund or the National Pension System, which are compulsory. Unfortunately, those in the unorganized sectors need urgent attention as they form the biggest numbers and have been largely left out.

Employees’ Provident Fund (EPF), Public Provident Fund (PPF), and NPS are popular government-backed small savings schemes for retirement in India. Although the inflows into these instruments have been growing, they are far from adequate.

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However, with increasing awareness, more people are also entering the stock market in addition to these instruments. Today, many people invest in mutual funds, equities, bonds, etc. But here comes the risks. These instruments have an inbuilt risk and reward system. The more you take risks, the more the reward, although taking greater risks may not necessarily lead to higher gains.

Hence, it is vital to understand your risk appetite and strategies to ensure minimal losses in case of major market turmoil. So, let’s first understand what risk is and how much you should take.

Risk Appetite Vs Investment

One must make investment decisions based on risk appetite. Before investing, they must consider and compare the risks and rewards of a particular instrument. Risk appetite will vary from one individual to another based on their income and financial background.

Amol Joshi, founder of Plan Rupee, a financial planning and investment firm, says, “Investors use various financial products to build their retirement corpus. Some products preferred by (a) ‘low-risk taker’ are EPF, PPF, long-term retirement plans, or traditional insurance plans.”

Risk-averse investors, he says, can also invest in post office recurring or time deposits or other similar government-backed savings instruments like bank fixed deposits (FDs). Equity-linked Savings Schemes (ELSS), pension savings funds with tax benefits, etc., can also be beneficial.

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For aggressive investors, he says, they can start with equity mutual funds, which have many different plans in the market. They could also invest in stocks, provided they know.

Those who want to save on taxes can opt for life insurance and small savings schemes, where they would get a deduction of up to Rs 1.5 lakh in a financial year under section 80C of the Income-tax Act. NPS offers an additional deduction of Rs 50,000. So, investors have the options. Joshisays that investors could also buy a house property for rental income if the pocket allows.

How To Determine A Retirement Corpus?

Investor planning an estimate retirement corpus must consider their life expectancy, inflation, lifestyle, health status, and risk appetite, to determine a suitable corpus. After that, they must accordingly select appropriate investment vehicles, looking at their historical returns, volatility, etc.
Joshi offers a simple thumb calculation to determine a retirement corpus. He says,“Accumulate a corpus big enough that if you withdraw 4 per cent from it annually, it will be sufficient for your expenses. For example,if your monthly expenses are Rs 40,000 (i.e. 4.80 lakhs per annum), then a corpus of Rs 1.20 crore with 4 percent annual withdrawal rate will help you meet the expenses (4 per cent of Rs 1.20 crore being Rs 4.80 lakh).”