5 Financial Strategies for your Retirement Planning

The 80% rule

You'll no doubt agree that a big part of retirement planning involves deciding how much income you will need to survive after the age of 60 (or whenever you choose to retire). The 80% rule can help you set a benchmark for this.

According to this retirement strategy, you will need 80% of your pre-retirement income after you have retired. This rule operates on the assumption that after you have stopped working, many of your work-related expenses, such as fuel costs, transit charges and other such outlays will no longer be a part of your budget.

This rule assumes that these expenses will make up about 20% of your earnings. So, only the remaining 80% will be carried over after retirement. Essentially, if you earn around Rs. 1 lakh each month before you retire, you should be able to sustain yourself on Rs. 80,000 each month after you retire.

This benchmark can give you a fair idea of how much you need to save up to make your life's retirement phase comfortable.

The 30:30:30:10 rule

This is a basic budgeting rule that can help you start saving up for your retirement early in life. It is ideal for people who are not yet sure about exactly how much they may need for their golden years, but want to get a headstart nevertheless. If that sounds like you, here is how you can get started with your retirement investments even without buying a pension plan or any other retirement product.

Here is how you need to distribute your monthly income as per this strategy.

• 30% for your housing needs (rent, home loan EMI etc.)
• 30% for your essential needs like groceries, utilities, fuel and more
• 30% for your savings and investments
• 10% for your wants or discretionary expenses

The third point, which pertains to your savings and investments, is what you will have to focus on if you want to save up for your future. This rule does not specifically state that you have to invest for your 'retirement,' per se.

You can use 30% of your monthly income for other life goals too. But it is always a good idea to direct a portion of this 30% to your retirement fund.

The 10/30/60 rule

If you want a more concrete retirement planning strategy, the 10/30/60 rule can help you out. This rule gives more clarity on the sources of your retirement income. According to this rule –

• 10% of your retirement income is from the money you saved during your working years
• 30% of your retirement income is from the investment returns you earn before you retire
• 60% of your retirement income is from the investment returns you earn during your retirement itself

The '100 minus age' rule

Not sure how much of your portfolio should be allocated to risky investments? Fortunately, there are many retirement planning strategies that can help you decide how to go about making the optimal asset allocation as you approach the retirement age.

As per this rule, the percentage of equity assets in your portfolio must be equal to the difference between 100 and your age. So, for instance, if you are 30 years old, the equity asset allocation in your portfolio must be 70% as per this rule. And if you are 60 years of age, the equity asset allocation in your portfolio must be only 40% as per this rule. So, as you grow older and approach retirement, the proportion of equity correspondingly reduces.

The 4% rule

While it is certainly important to invest for your post-retirement life, it is also vital that your financial safety net remains intact over the long term. And the 4% rule is a retirement strategy that ensures you don't run out of your savings after you have retired. It helps you spend your retirement investment corpus in a disciplined manner, so you don't end up spending a huge chunk of it in the initial years after you've retired.

As per this rule, if you withdraw 4% of your corpus each year, your retirement fund can last you for 30 years easily. Clearly, this is a conservative approach that is ideal for your golden years. It specifies a strategy for disciplined withdrawal from your corpus, so your money does not run out.

For instance, say you retire at the age of 60. And say you have Rs. 5 crore saved up as your retirement fund. According to the 4% rule, you should not withdraw more than Rs. 20 lakhs each year, since that is 4% of your corpus.