A job is so critical to one’s life that many important decisions revolve around it. You do not get a good marriage proposal if you are jobless. You cannot apply for any of the financial services, such as insurance, credit cards, or loans, if you do not have a source of income. The stigma that comes with unemployment is real.
So, when someone gets the job, the first thing they think about is to complete the bucket list the privilege of the job offers, things like getting married, buying a car and house using EMIs, taking vacations, etc. They spend on things to prove to society that they have lived up to others' expectations.
Your parents did the same thing, and so did you, but now you have the choice to educate your kids to choose the alternative: focus on who they are and their passions, instead of spending on stuff to impress. When you get a job, the first thing you need to plan is your retirement, not buying a car or a house, or getting married. Let me explain that in detail today.
A job is a platform where you exchange your time and efforts for money. If this money doesn't buy you time and freedom in the future, it's not a good deal. And if your current job is not able to offer the money to fund your retirement, then you are enslaving your future for nothing in exchange.
As soon as you get the job, the first thing you need to do is plan your retirement. Other milestones, like getting married, buying cars and houses, getting kids to school/college, and getting them married, should be just part of your retirement plan.
Retirement is not a state in which you do nothing and sit idle all day. It is a phase of life that helps you decide what to do and what not to do. The ability to walk out of situations that you do not like, or to spend your efforts on a social cause, expecting nothing in return.
Retirement age need not be 65. It could be 40, 45, or 50, as you see fit, so you can live your life to the fullest.
If you have just started your job, then it might be quite impractical to think about a retirement corpus. Let me help by introducing the magic multiple — 16x here.
Yes, you need to raise a corpus of 16 times your annual income for retirement. If your current annual income is 10 lakhs, then you need 16 x 10 L = 1.6 crores as your corpus. The sooner you can raise this, the faster you can leave your job and work on something that you are really passionate about.
Just like your salary increments every year, so does your retirement corpus, but thanks to modern-day calculators, it is very easy to predict & model these numbers mathematically.
For example, if you are 25 years old and wish to retire in 20 years and if you are earning 10 lakhs per year, with a 5% salary increment each year, then last drawn salary, i.e., in your 45th year, can be calculated by S = 1000000(1.05)²⁰ = 10L X 2.653 = 26.53 lakhs per year ~ 2.21 L/month. The retirement corpus would be 16x your annual salary, i.e. 26.53 L X 16 = 4,24,48,000 ~ 4.24 crores.
Now, 4.24 crores is the number we need to work with. As an investor, this person has 20 years to raise this capital, and once they do, they are free. Let us try to find a solution to this as well.
If this person invests 30000 per month via Step up SIPs with a 5% increment per year, for a 20-year tenure with a 13% ROI assumption, they will be able to raise 4.66 crores. Just so you know, our annual SIP increase is in pace with the salary rise, i.e., at 5%. And someone who has a net income of 10 lakhs per year can afford to invest 3.6 lakhs in the first year and 36% proportionately every year.
When other milestones, such as buying a car, a house, or pursuing higher education, arise, the investor can handle them in any of the three ways.
1. Find fresh money from 10L — 3.6L = 6.4L or from 64% of the gross income.
2. Start a savings/investing plan separately for that.
3. Use it from the retirement corpus but ensure to top it up in the following years to stay the course.
The magic of a fulfilled retirement corpus is that it liberates you. Even if you stop working at 45, you have nothing to fear, as your retirement corpus will keep growing (as long as your withdrawal rate is lower than the market return).
This also means you can spend additional time with your kids or with others from an NGO or community, and work on things that don't pay you anything. You have the freedom to walk away from situations you don't like, as you are not in a state of bonded slavery. All you have to do is stay out of debt, control your expenses, and take the help of health insurance to cover your medical needs.
{Disclaimer: This content is meant to share general information and does not constitute financial advice. Financial decisions should be made based on individual circumstances and, where necessary, with professional guidance.}
