In every financial planning class I need to do a post lunch session. To keep them awake I ask them to do a simple exercise – calculating how much money they require for retirement.

Unless they are at least 37-38 years of age, they have no clue as to how much they need for retirement. Once they see the figure (let us say Rs. 4 crores) they get into a DENIAL mode. Immediate reaction is to say “my father did not need this much amount” or “my expenses will reduce after retirement” or “my children will take care of me”.

Once they cool down, they sit and work out how it can be put together.

What most people do not realise is that the figure looks very big because we are seeing it from a very long tunnel. If I were to tell you that YES you do require Rs. 4 crores to retire, 30 years from now. HOWEVER if you were to invest just Rs. 100 a day for 30 years in a SIP which gave a SENSEX rate of return, you will have Rs. 4 crores in your retirement kitty.

So the important lessons in retirement planning are simple – make an estimate of your needs, adjust them for time value, compute the amount that you need to invest on a monthly basis, THEN START TODAY. Do not let the power of compounding go away – harness it when you can. Simple

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  1. Retirement planning is not complex but it is not that simple. Imagine you are to retire in Feb 2009, and your money is in equity (SIP in Index). Asset allocation, rebalancing at least once a year, changing your asset allocation as you near your goal, etc. are very important if you want your money to help you when you need it.

  2. Retirement is not a specific point of time. It is a long (have to assume that way) time frame and equity investment (or an equivalent above-inflation return asset) is a must. So, the point of a time like 2008 or 2009 is not a very practical way of planning for retirement. The average annual expenses is a very important factor in assessing the adequacy of the retirement corpus. A 25-30x annual expenses is more than enough, and equity investment is an important part and parcel of the post-retirement kitty.

  3. Subra,

    Every now and then you mention these “Financial Planning Classes” in your blogs.

    Is there any way for the readers of your blog to register and attend these? I understand these aren’t free.


  4. My apologies Subra ji

    but 100 Rs a day @ 30 days = 3000
    and for a year = 36000

    Even if invested @ 15% for 30 years – compounded yearly will come to 1.3cr.
    Just wanted to confirm if I am wrong in some calculation.


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