5-Point Guide To Build A Retirement Corpus

Capitalstars Investment Advisor

Calculate what retirement is: It is a must to know your “retirement phase” or the number of years to be spent in retirement for you to understand when to start planning, how many years to build your wealth for, and the corpus needed. If you want to retire early, the corpus needed will be significantly larger than if you plan to retire at the conventional age of 60 to 65. Miscalculating the retirement phase creates the risk of running out of corpus, which interestingly, as a study in the U.S. showed, is one of the biggest worries retirees face.

Remember the cost of delay: The best time to start saving for retirement is not when you are about to retire, but when you receive your first paycheck. The biggest free lunch in finance is the power of compounding, and any delay in starting just means you have to save harder to accumulate the same amount.

Make the nest egg comfortable: Retirement years are not the right time to be stressed; life before would have given you enough of that! It is important to accumulate enough to comfortably go through this phase, and it is always better to accumulate a tad more than less. How do you calculate what is an ideal retirement corpus? Think about what the right rate of inflation is, what your expected monthly expense is, and critically, what the right rate of return on your investments is. The calculators are many, but the inputs have to be right.

Remember expenses rise: The impact of inflation is hard to sink in. It adds to the cost of living each year, and by the time we hit retirement, we have to spend much, much more than we do today to maintain the current lifestyle. Additional costs also creep in with age, including health-related costs.

Don’t forget asset allocation: Asset allocation is often missed out while planning for retirement. What is the right mix for your portfolio? It depends on when you start. For those who have 20 years to retire, the equity should be a large part of your portfolio. The power of compounding will help you in wealth creation. For those in their 50s and approaching retirement, debt should be a bulk of the portfolio. At this age, risk-taking abilities are much lower. Asset allocation has to shift gradually from equity to debt, with increasing age and retirement proximity.

Don’t forget asset allocation: Asset allocation is often missed out while planning for retirement. What is the right mix for your portfolio? It depends on when you start. For those who have 20 years to retire, the equity should be a large part of your portfolio. The power of compounding will help you in wealth creation. For those in their 50s and approaching retirement, debt should be a bulk of the portfolio. At this age, risk-taking abilities are much lower. Asset allocation has to shift gradually from equity to debt, with increasing age and retirement proximity.

Your exposure to portfolio risk needs to reduce with age and hence you can use age-based asset allocation. For this, you can use the thumb rule i.e. your allocation to debt funds must be equal to your age.

Finally, don’t forget that retirement is a journey and this journey is incomplete without the support of a financial adviser. While retirement planning is not complex, it is nuanced, and involves a lot of variables. It requires constant monitoring, which a professional can handle well. Our survey showed that unfortunately, 77 percent of participants had not spoken to a financial adviser about retirement, and this is one thing that must change, and quickly.

When avoided, downsized or postponed, retirement creates stress, but when planned well, retirement truly fits the adage of “sunset years”. Board this train early, keep track of the stations passing by to ensure you are on the right track and enjoy the journey!