Process of Retirement Planning – Step-by-Step
Note
Exam Relevance: This is a direct process question. "Describe the steps in Retirement Planning". Use the 5 steps below.
Introduction
Planning for retirement is like planning a Trip to the Moon. You need precise calculation of fuel (money), trajectory (growth), and destination (retirement age).
Step 1: Determine Retirement Goals (The 'When' & 'How')
- Retirement Age: When do you want to stop? (Standard: 60, FIRE: 40).
- Lifestyle: Do you want a simple life in a village or a globe-trotting lifestyle?
- Note: More luxury = Higher Corpus needed.
Step 2: Estimate the Corps Required (The 'How Much')
This involves Math (Time Value of Money). Creates a target number.
- Current Monthly Expense: ₹50,000.
- Years to Retire: 20.
- Inflation: 6%.
- Life Expectancy: 85.
- Result: "I need ₹ 5 Crores".
Step 3: Analyze Current Resources (The Gap)
Check what you already have.
- EPF Balance: ₹ 10 Lakhs.
- PPF: ₹ 5 Lakhs.
- Inheritance: ₹ 20 Lakhs.
- Gap: Target (5 Cr) - Existing (35 Lakhs) = 4.65 Cr.
- Task: You need to save for this Gap.
Step 4: Asset Allocation & Investment (The Action)
Select products based on the time horizon.
- Equity MFs: For Growth (to bridge the gap).
- NPS: For Tax Benefit + Pension.
- PPF: For stability.
- Start the SIPs immediately.
Step 5: Periodic Review & Rebalancing (The Control)
A plan made at 30 won't work at 45.
- Marriage/Kids: Expenses change.
- Market performance: If market crashes, you might need to increase savings.
- Review: Check progress once a year.
Visualizing the Process
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Case Study: Mr. Roy's Common Mistake
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Summary
- Systematic Approach: Don't guess. Calculate.
- Gap Analysis: Knowing the gap is the most scary but useful step.
- Dynamic: Plans must change as life changes.
Quiz Time! 🎯
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Next Chapter: Estimating Retirement Expenses (The Math)! 🧮