Retirement Planning's 3 Main Challenges and How to Overcome Them?

A long-term goal, retirement planning should ideally start from the day you start earning. With the days of fixed pension all but over, it’s important to build a sizeable retirement corpus to take care of post-retirement needs.

The first significant challenge in retirement planning is to figure out the corpus needed. In other words, gauging the exact size of the corpus is a tall order. Most people often take an absolute figure, and plan accordingly. Note that as needs vary along with cash flow, the size of the corpus is different for each one of us.While calculating the retirement corpus, take into account your post-retirement needs, particularly health, as it forms a chunk of expenses for retirees. Note that by the time you hang up your boots, you would have taken care of essential goals like children’s education, their marriage, etc.Also, in all probability you would have settled loans taken (if any) by the time you retire. Today, there are many online calculators available that can help you figure out your retirement nest egg.

The incessant march of inflation means an erosion in the value of money with time. Your corpus needs to outlive you, and, hence, you must factor in inflation during retirement planning. To overcome the decompounding effect of inflation, it’s essential to invest in inflation-beating instruments.To put it otherwise, you should invest in financial instruments and asset classes that can help you generate inflation-beating returns. Disciplined investment in equities can help you overcome the effects of inflation. As an asset class, equities have the potential to offer inflation-indexed returns in the long run.

Another crucial challenge in retirement planning is the draw down amount. It refers to the amount you end up spending in retirement. With active income drying up, you must not end up drawing too much from your corpus.To overcome this challenge, it’s essential to keep the draw amount to a small single-digit percentage at 3-4%. Equally crucial is to ensure that the corpus earns income as in its absence, the principal amount would erode thick and fast.

The mantra for successful retirement planning is to start early, as it gives more time to your money to compound and grow. With disciplined investments across asset classes, you can secure your retirement with ease.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.