What is Retirement Planning?
Retirement Planning is the process of estimating your future income needs and setting aside enough capital today to meet those needs when you stop working.
It is not just about saving; it's about investing wisely to beat Inflation so that your corpus lasts as long as you do. Modern planning also includes concepts like FIRE (Financial Independence, Retire Early).
Retirement planning typically follows a 3-phase journey: accumulation → consolidation → withdrawal.
EPF vs NPS vs Mutual Funds: Where to Save?
| Feature | EPF | NPS | Equity Mutual Funds |
|---|---|---|---|
| Returns | ~8.15% (Fixed) | 9% – 11% | 12% – 15% |
| Tax Benefit | 80C (EEE) | 80CCD (+₹50k) | ELSS (80C) |
| Liquidity | Low | Very Low | High |
The Two Biggest Risks in Retirement
- Inflation Risk: The "Silent Killer". ₹1 Lakh today will buy much less 20 years from now. Your corpus must grow faster than inflation (typically 6% in India).
- Longevity Risk: Living longer than expected means you might outlive your savings. You need a buffer for medical costs and an extended lifespan.
Recommended Asset Allocation by Age
- Young (20s-30s): High Equity (70-80%). Focus on aggressive growth via Mutual Funds.
- Mid-Career (40s): Balanced (50-60% Equity). Start securing gains into Debt/NPS.
- Near Retirement (50s): Conservative (30-40% Equity). Focus on capital preservation and regular income (SWP).
The 4% Withdrawal Rule
A widely used guideline stating that you can withdraw 4% of your retirement corpus in the first year and increase withdrawals with inflation, with a high probability of your money lasting 30+ years.
Retirement Calculation Formula
Retirement planning involves estimating future expenses and calculating the corpus required to sustain them.
- Exp: Monthly Expenses
- r_inf: Inflation Rate
- n: Years until Retirement