There are some factors that affect the retirement corpus and help make decisions to have the corpus required at the time of retirement. These are as follows:-

1] Current Monthly Expenses –

Think about what you will be spending money on during retirement. Consider what you want to do with your money during retirement. Estimate the costs related to travel, housing, food, transportation and more. You can use your expenses now as a guide for what you will pay later. If you plan to have your debt paid off, your expenses might be smaller than what you pay now. Downsizing your home and your lifestyle can also limit your expenses.

2] Inflation –

Rise in prices has to be factored in while planning for retirement. There are many unavoidable factors that can threaten your retirement corpus, and inflation is a primary concern. As the prices of services and goods increase, salaries also increase to stay level with inflation. For this reason, most people don’t notice the normal effects of inflation on their income and budget.

The big issue comes when you start to live off of your savings, and you don’t have an inflated income to keep you afloat. As you will not be earning post retirement and will have to spend from your corpus, this will be subject to inflation and impact your income. To stay ahead of inflation during retirement, it is critical to factor inflation into your retirement corpus.

Inflation Rates

3] Age of retirement –

There is no official age of retirement, but people (working class) generally retire around 60 years of life. Some people seek early retirement while others work as long as they are physically able to do so. Choosing the age of retirement and then calculating the number of working years left, will help decide the retirement corpus.

4] Life expectancy –

You can’t calculate your retirement corpus assuming that you will live forever. Thus, you will have to put a number to life expectancy that will give you an idea about the span of life post retirement. Improved healthcare is helping people live longer. But to calculate a corpus, you need to work with a fixed age.

In the image below, blue area depicts the ages lived healthily and the red area depicts unhealthy ages of life. And the area as a whole is the total life expectancy of a person in India.

healthy-life-expectancy-and-years-lived-with-disability INDIA.png

5] Rate of Returns –

This depends on your allocations to different asset classes such as equity, debt, gold and real estate. The higher the allocation to growth assets such as equity, the higher the expected returns. If most of your money is in debt instruments, you will have to assume slightly lower returns. Interest rates always play a role in financial planning.

Without a doubt, interest rates are going up. When interest rates go up, people tend to borrow less and this can have a negative impact on spending, which means stock prices typically fall. But, rising interest rates mean opportunity, too. If you know what you’re doing, you could pursue an earlier retirement than you originally planned by rearranging your investments.

Asset Classes - ROR
5 factors to decide retirement corpus

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