How to Use Retirement Planning Calculators

How to Use Retirement Planning Calculators


Planning for your retirement is something that you should not neglect. Unfortunately, most professionals only start thinking about retirement planning in their forties or fifties or when they have fulfilled all other obligations. Nothing could be worse than having an insufficient corpus after retirement, especially with soaring inflation rates denting holes in household budgets every year. Some people also think their families and children will support them after retirement, but it is not a logical approach. After all, one should be financially free and self-sufficient without any expectations. 

If you think along similar lines, you would have already started planning to save money for your retirement. However, before going ahead and investing in a pension plan or any other retirement scheme, you should make sure that you are making the right decision. So how do you do that? 

With the help of a retirement calculator, of course! This calculator will help you determine the expected amount you will receive after investing money in a particular plan for a specific duration. At the same time, you can also get help calculating the retirement fund required after a specific period. 

Retirement Planning Calculators – How can you use them?

The essential points you should remember about retirement calculators are that they require well-thought-out and researched inputs from your end. For example, these are some of the inputs that you will need: 

  • How much is your monthly spending? 
  • How many years do you wish to work in the future? 
  • How many years will you require the funds to take care of monthly costs after retirement? 
  • What is the anticipated rate of inflation that you foresee? 
  • What is the expected rate of annual returns? 

Once you enter all these details, you will find the suitable amount you should aim to accumulate by retirement. This will naturally be influenced by what you input into the calculator, so you should take your time and do your research accordingly. 

For example, Sandesh has decided to start his retirement planning and wants to figure out how much money he needs to accumulate for around 20 years of retirement. He is current 33 years old, has a monthly expense of Rs. 50,000, and plans to work for 27 more years till he turns 60. With the help of a retirement calculator, he estimates that he will need to save around Rs. 2.96 crores for a comfortable retirement. This number also takes a 6% rate of inflation and an 8% rate of returns of his investments into account. 

These final two parameters, i.e., the rate of inflation and the expected rate of returns, are not always fixed and require you to do proper research every time you use a retirement calculator. 

Inflation is the general increase in the price of goods over a period of time, accompanied by a fall in the purchasing power of your money. The current rates of inflation can be found online, and you should look at past trends to take an average rate of inflation. Next, to figure out the expected return rate, you will again have to look at the past performance of your asset (or assets), and then take a slightly lower rate as your benchmark. If this goes higher, then it is a bonus, but you should not over-expect from any investment. Calculating the expected return rate of investment is more of a guess due to the market’s unpredictability and volatility. You can always take the help of a financial advisor to get the most accurate numbers possible. 

Afterward, when you have the targeted retirement amount that you need to accumulate over a specific period. You can use it and the tenure to determine the premium you have to pay. It is as simple as that. 

When Should You Start Planning For Retirement?

Many people are unaware of how crucial it is to invest and save money while they are working. After their prime earning years, they realize how vital a sizeable retirement fund is. Therefore you must build a sufficient retirement fund over a long period through investing and saving. Retirement planning shouldn’t be left until later in life. The sooner they begin, the better. Here are a few reasons for starting your retirement planning early.

  • Larger Corpus – After retirement, a person’s retirement fund should be sufficient to cover their everyday expenses and medical needs. A greater number of years are available for saving and financial progress when you start early. One can accumulate a larger corpus even with a comparatively lower return on investment if they begin saving for retirement in their 20s.
  • Higher Risk-Taking Ability – When you are young, there are fewer responsibilities and greater risk tolerance. Because of this, if you start planning for retirement early, you can choose to invest in financial products with higher risk exposure and stand a chance to earn healthy returns.
  • Power Of Compounding – When you keep your money invested for a long time, compounding benefits the investment. When the initial interest on investment becomes a portion of the capital and begins to produce interest, the power of compounding comes into play. The principle of compounding allows for exponential growth if you get started early.
  • Rupee Cost Averaging – The value of your investment may be impacted by regular swings if you have invested in a market-linked product. Long-term investing, however, results in rupee cost averaging and negates the effect of daily volatility.
  • Financial Discipline – Investment discipline and budgetary restraint are necessary components of retirement preparation. Beginning early fosters discipline regarding saving and investing from a young age.
  • Tax Benefits – Under Section 80C of the Income Tax Act of 1961, the premium paid for a pension plan, ULIP, or endowment plan is eligible for a tax deduction of up to Rs 1.5 lakh per year, subject to the rules outlined therein. Depending on the kind of plan, the maturity benefits are also entirely or partially tax-free under Section 10D.

Pension Plans and How They Can Prove Useful 

Now that you know what you need for retirement, it is time to check out suitable investment options for retirement. Pension plans, also called annuity plans, are good choices for those looking to accumulate sizable wealth over a long period. These plans require you to pay monthly, quarterly, semi-annual or annual premiums, which generate returns over a fixed number of years. You will get this amount at the time of maturity. You can choose to get it as a lump sum payout or get it as a monthly pension or annuity. Some plans offer you the flexibility of getting a portion of the amount in a lump sum, and the remainder in the form of periodic payments to create a stream of steady monthly income. 

You should choose a plan as per your requirements. These plans may also come with life insurance coverage at times, ensuring that your family’s future remains secure throughout the investment’s tenure. In case of your unfortunate demise within the policy tenure, the sum assured is paid out to the nominees of the policyholder. This gives you mental peace as well. You should check the premium payable at your desired frequency and determine whether it fits your budget for a targeted figure at the time of retirement. 

Smart retirement planning is the need of the hour to enjoy a comfortable life in your twilight years. So prioritize the same without any more delays.