Retirement is a reality for everyone. Most millennials tend to think that retirement is a long way off, and they do not need to plan for it. Putting off retirement planning, thus, sets an individual up for financial stress in the later years of life. If you want to be financially independent when you stop earning and have enough resources to lead a comfortable life, then you must start planning for your retirement at the earliest.

Depending on pension or funds accumulated in provident funds might not be enough for your financial independence. You should look at ways to build a corpus for retirement via regular investments.

There are various ways for an individual to invest in order to plan for his/her retirement. Public provident funds (PPF), National Pension Scheme (NPS), investing in direct equity and mutual funds are some of the important investment avenues that can be looked to create a retirement corpus. The decision of where to invest should be guided by your age, return expectations and risk appetite.

So, how should you plan for retirement? Below are a few simple steps:

Start Early: The first and most important step is to start early. Let’s say you start earning at 25 and retire at 65. A simple investment of Rs 5,000 per month for 40 years at 12 per cent expected return can build you a corpus of almost Rs 6 crore. However, with a delay of 5 years, the final corpus would be around Rs 3.25 crore (almost half). It is, therefore, important to start investing at an early stage, even if a small amount, and to invest regularly. You can keep increasing the amount of investment and then see the power of compounding do its magic.

Decide the quantum of funds needed: While planning for retirement, investors often ask, how do we arrive at a retirement corpus? Based on your lifestyle, you can decide how much money you would need to meet expenses annually post retirement. Multiply this figure by 20, taking the life expectancy to be 85 years and retirement age be 65. This is the amount you would need at the time of retirement.

You can use various online tools available which would also take into consideration several other factors like inflation, risk appetite, by what percentage you would like to appreciate your lifestyle post retirement etc.

Select the right investment option: PF has emerged as a popular investment option to accumulate funds for retirement. Most investors either invest in PF independently or through their employers. If you have a PF or PPF account, project the savings you would accumulate at the time of retirement. Deduct this amount from the figure you arrived at above. To accumulate the remaining amount, you need to plan your investments. You can keep a diversified portfolio of investments based on your return expectations and risk appetite.

Let’s take an example of Mr X, who is currently 30 years old and is planning for his retirement (at the age of 60 years). His fund requirement at the time of retirement is Rs 5 crore. Mr X has a monthly salary of Rs 85,000.

Now let’s assume a couple of options available with him:-

Option 1 : The safest way to plan for retirement is to invest in PPF. In order to create a portfolio of Rs 5 crore by the age of 60, he needs to invest Rs 29,000 per month (total investment of Rs 1 crore in 30 years) in PPF, which is too high considering his salary and his daily expenditure.

Option 2: To reach his target with lower investments, it becomes important for him to diversify among low and moderate risk instruments.


Below is the comparison of investment among various investment options for creating a corpus for retirement with a monthly investment of Rs 5,000.

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Apart from retirement planning, investment in PFs, NPS and mutual funds can help an individual save income-tax as well. An amount of Rs 1.5 lakh per annum is exempted under Section 80C, which can be invested in PFs and equity-linked savings scheme (ELSS, these are certain income tax-free mutual funds) and an investment of Rs 50,000 in NPS is exempted for income tax.

There comes a time in our life when we cannot pursue gainful employment due to age factor. Retirement, thus, becomes an inevitable life event. Best we can do is to plan our finances well enough to enjoy this stage as well.

To succeed in this endeavour, keep in mind that retirement planning is a long-term process. There is no need to get bothered by the short-term deflections. Be patient and stay true to your retirement plan to reap its benefits in golden years of life.