Retirement is inevitable for all working people at a later stage. The going is good while people are working and there is a fixed income. However, it is necessary for working people to make a retirement investment plan to be able to have a steady monthly income after retirement.

Working Indians have traditionally invested in PF (Provident fund), (NPS) National pension scheme), EPF (Employee pension scheme) and the sturdy life insurance policy to receive a lump the cumulative amount invested to generate a monthly income. But this traditional planning is being found to be not enough, and a more comprehensive retirement investment plan is required so that a family can receive at least 60 to 70% of the last drawn salary. Today, special retirement plans, mutual funds, and even life insurance policies give out the maturity amount in the form of a monthly income with the additional benefit of an annual increase of 10% in the monthly payment.

A best investment plan in India requires the following estimations to be made before the planning process

• The first of these is the target to be set for the monthly income that is required for a family to live comfortably. This estimation must be made accurately, keeping in mind the cost of living during the time and year when an individual retires. Several factors, such as inflation, must also be considered.
• The second step is to evaluate the total retirement fund known as the TRF. The individual will need to calculate the maturity value of the mandatory deduction from investment. These include the maturity values of the Provident fund, employee provident fund and the survival maturity amount of the life insurance policies. The working period in a person’s life is when the fund for the retirement corpus begins to accumulate.
• There are several investment sites that provide an online retirement calculator. Interested persons will be required to enter their age, present income, present expenditure and other details, and the calculator will provide the total retirement fund required and the additional retirement fund required.
• Once an estimated aggregate of these accumulated savings and their maturity values have been calculated, the individual will know if this is enough or more funds are required. This shortfall is known as the additional retirement fund to be built. This is a very important stage, and a big achievement is reaching this stage and realizing that there are additional funds to be generated. This basically boils down to the realization that not only must all manner of debts and EMI's be cleared before retirement, but an additional investment must also be made from a very early age to be able to help generate the estimated retirement fund that has been targeted.
• The next step is finding out which investments to make and how to make them in order to achieve the goal of the targeted retirement fund.

How to Invest: beginning early

People normally think it is necessary to have to invest huge sums of money to earn enough interest to help build up this additional retirement fund. At this stage, it is necessary to understand that a systematic investment plan (SIP) of Rs 5000 per month at a nominal investment rate begins to show high returns due to the compounding effect of the interest. Thus, a person A who has invested Rs 5000 a month from his or her 25th year can get a compounded total of more than Rs 3 crores by turning sixty years of age. On the other hand, A person B begins investing in the same SIP from the age of 30 and gets a compounded total of Rs 1.7 crores approximately. Thus, person B has lost half of the opportunity by starting 5 years late.

The lesson learnt from this example is to start early and make long term investments in 25 years in order to generate that needed additional retirement fund.

This investment is difficult in the early years due to other priorities such as building a home, educating children and taking care of parents. But the saving habit requires to be inculcated with initially small monthly savings and then increasing gradually with bigger monthly investments in a SIP mutual fund.

The lessons learnt

The necessity of sufficient retirement funds is not to be ignored. But this target can easily be fulfilled by beginning with small savings from an early age and continuing to save a little every month.