Retirement Planning: Ideal Corpus & Location Impact

Planning for retirement is one of the most important tasks that you need to take care of before your professional journey comes to an end. Having a foolproof plan is essential if you want a carefree and happy retirement. Moreover, you also have to think about how your location will affect your future retirement plans.

Whether you choose to settle down in a bustling city or a serene village, the cost of living in your chosen location can significantly affect your ideal retirement corpus. Let's delve into how you can determine the perfect retirement corpus, and why your retirement location matters.

Ideal Retirement Corpus

At retirement, the total amount of money you have saved should be able to sustain your lifestyle for the foreseeable future. To calculate this, consider your future living expenses, medical costs, travel plans, and other individual expenditure. A common rule of thumb is the 4% calculation method. According to this rule, your total retirement savings should comfortably last for 30 years even if you remove 4% (of your initial corpus) from your savings each year.

But this principle isn't something you can just apply in all situations. The amount of funds required may vary as per your particular circumstances and the living costs in your chosen location.

Things to Consider When Calculating Your Ideal Retirement Corpus

Before diving into the calculations, let's outline some key considerations for determining your ideal retirement corpus.

• Lifestyle Choices: How you live is one of the most critical factors in determining how much money you'll need for a comfortable retirement. A person with a luxurious lifestyle will need a larger corpus.
• Healthcare Costs: As you grow older, medical costs become increasingly significant. Be sure to include the costs of health insurance and out-of-pocket expenses.
• Longevity: The longer you live, the more money you'll need. Consider your family's medical history and your own health while planning your retirement savings.
• Inflation: The increasing cost of goods and services is bound to erode one's savings both directly and indirectly. Hence, it is essential to consider long-term inflation while planning for your retirement. Your savings should compensate for the increased cost of living.
• Emergency Fund: Always remember to have an emergency fund set aside for unexpected expenses.

Why is Location Important?

The cost of living and inflation in India vary greatly from one state to another. According to current statistics, the average cost of living for an Indian consumer rose 5.69 per cent this past year. However, this upward climb is not evenly distributed in every state:

• Odisha had to face an even greater 8.73% surge in living costs.
• Gujarat at 7.07%, pointed to an inflation rate higher than the national average.
• Rajasthan, with a 6.95% rise slightly above the national average.

Furthermore, states like Haryana, Karnataka, Telangana, Maharashtra, Punjab, and Bihar all saw inflation levels ranging from 5.89% to 6.72%. All of these figures are higher than the national average. The higher cost of living in these states will be a key reason to adjust your retirement corpus. If your savings get eaten away by inflation, you'll be left with nothing.

Suppose you plan to retire in a place where the cost of living and inflation rate is high. For example, Odisha has seen an 8.73% hike in living costs. Therefore, if you are retiring in Odisha, you will need a much larger corpus than in places with lower inflation rates.

Conversely, if you choose a place with lower living costs, a comparatively smaller retirement corpus can see you through without any worries.

Investing Strategies to Build Your Retirement Corpus

Building a robust retirement corpus requires a disciplined approach to saving. Here are some strategies to help you accumulate the necessary funds:

• Start Early: The sooner you start planning for retirement, the more chance there is that your currency will be worth several times over after years.
• Consider ULIPs: ULIPs (unit-linked insurance plans) offer both life coverage and market-linked returns with a lock-in period of 5 years. You can choose fund allocations across equity, balanced, and debt funds, and can also change your allocation strategy depending on market conditions. ULIPs are a good way to amass wealth for the future during your working life, since they have the potential to beat inflation.
• Regular Contributions: Make regular contributions to your retirement fund. Setting up automatic transfers can ensure consistency.
• Diversify Your Portfolio: Do not put all your eggs in one basket; diversify your portfolio across investments like real estate, PPF, ELSS, and even gold to hedge against inflation in the future.
• Invest in Guaranteed Income Plans: Guaranteed income plans are an ideal option to ensure a second income stream after retirement. You can choose how and when you want your income payouts, while benefiting from tax deductions under Section 80C and exemptions under Section 10 (10D) on the maturity amount. At the same time, life insurance coverage is also a part of these plans, ensuring full financial security for your family in case something happens to you during the policy term. You’ll get your payouts as soon as the premium payments are done, and this will help you maintain your standard of living comfortably after retirement.

Conclusion

Planning for retirement is a lengthy process and you need to carefully consider various factors before settling on a final amount. The cost of living greatly depends on the location in which you live. By considering the impact of inflation rates on your retirement savings, you can better

prepare for the future. Start early, invest wisely, and keep adjusting your financial strategies to ensure a comfortable and stress-free retirement.

FAQs

1. How does the cost of living in different locations impact the ideal retirement corpus?
   
   The cost of living varies across different states due to factors like inflation, housing costs, and availability of services. Higher costs of living and inflation rates mean you will need a larger retirement account to maintain your standard of living. However, states with lower costs of living might only demand a smaller account.
    
2. What are the best ways to build a retirement corpus?
   
   Building a retirement corpus requires a combination of disciplined saving and strategic investing. Start early to take advantage of compound interest, diversify your investments to manage risk, make regular contributions to your retirement fund, utilize tax-efficient investment options, review and adjust your strategy periodically, and seek professional advice to ensure your retirement plan aligns with your goals and circumstances.

 

Aastha Mestry - Portfolio Manager 
An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.