Approach of Different Life Stage Investors to Build a Post Retirement Corpus

Many of you tend to delay your retirement planning as you consider it a distant goal that can be attained in later working years. However, forming an effective retirement plan often includes decades of investments for a corpus through distinct life stages. As every life stage is unique in terms of expenditures, incomes, and investments, these parameters must be considered for forming an optimal investment strategy for a happy post retirement life.

Listed here is an investment approach for distinct life stage investors to form a sufficient retirement corpus: 

Young investors (aged between 20 and 30 years) 

Retirement often appears a far-fetched goal for many aged between the 20s and 30s. You may, at this stage, accord higher priority to short-term life goals like buying a car or saving for a vacation abroad than investing in post-retirement life. What you fail to understand is that owing to your young age, you have minimal obligations and the greatest potential to invest for your post retirement life than other life stage investors.

For instance, if a 25-year-old invests Rs 4,000 per month at an assumed annualized return rate of 15 percent, he would generate a post retirement corpus of Rs 5.87 crore by the age of retirement. However, if he begins his retirement investment at 45, he will need a monthly investment of Rs 87,800 to form the same corpus of Rs 5.87 crore at the same return rate. Thus, delaying your retirement investments to a later stage would result in you making a higher retirement contribution, thus potentially stressing you to omit your lifestyle expenses or other life goals.

To form a sufficient retirement corpus, consider putting your investment in equity funds. A longer investment horizon may endow more time for your retirement investment to recover from market volatilities and even make the most from the compounding effect. Choose the SIP mode of investment in mutual funds as its feature of automatic deduction of funds from your account at regular intervals would ensure financial discipline. This would even save you from the dilemma of timing your investments as continued SIP would average your investment cost in times of market correction or bearish market phases.

Middle age investors (aged between 30 and 55 years)

If you are a middle-aged investor falling between the age of 30 and 55 years, you may be addressed as the sandwich generation. It is because at this stage, you tend to have various long form obligations like creating an education corpus or marriage corpus for kids, meeting hospital expenditures of your aging parents, taking care of mandatory monthly expenses of your home, etc. Moreover, you may even require putting aside a considerable amount of your income to meet your EMIs and to save for your different lifestyle linked financial goals.

Despite the steep rise in your financial responsibilities at this phase, your savings rate is likely to be considerably higher as compared to your early working years. Thus, try to enhance your retirement contribution with an increase in your income to create a higher corpus to stay on the safer side. Avoid compromising your contribution towards retirement for building your wards’ education corpus. While your ward can opt for an education loan for his/her higher education, no lender would provide you with a loan for meeting your post retirement expenditures.

Ensure to form a sufficient emergency fund as doing so would prevent you from withdrawing your retirement corpus in case of financial exigencies. Also, avoid using your retirement corpus to make prepayments of your secured loans.Equity mutual funds for retirement corpus have all chances of earning you higher returns as compared to the interest charged by such loans.

Old age investors (aged 55 years and above)

When approaching the age of retirement, you are recommended to redeem your equity fund investments in your retirement corpus for debt funds or other fixed income avenues. The rationale here is to save your retirement corpus from market volatility. However, a complete switch to fixed income avenues would enhance the risk of using up your retirement corpus in your lifetime. While the fixed income avenues hardly overcome inflation, rising life expectancy, and increasing medical expenditures would further fasten the retirement corpus depletion.

Instead of switching entirely your equity investments to fixed income avenues by your retirement age, you must follow a steadier route by initially estimating your expected annual expenses in your post retirement years. Once done, then begin transferring the estimated amount year on year to fixed income instruments once you are two to three years away from your retirement age. Doing this will maintain a considerable equity exposure during your retirement years, which will, in turn, ensure higher inflation adjusted growth to your retirement corpus and lower the risk of depleting it in your lifetime.