Imagine your life without the stress of financial worries. Picture yourself years into retirement, having saved enough to live the rest of your days in comfort and engage in every hobby you ever dreamed of. However far away it might seem, this goal does not have to stay a dream – you can turn it into reality with a retirement planning calculator and plan your financial future.
A retirement calculator is an online tool that helps you figure out the projected size of your retirement fund, based on your current income and expenditure, to ensure financial security in your post-retirement years. With its detailed analysis and predictions, you can develop a proper savings strategy, set realistic goals, and estimate how much income or investments you need to make for a comfortable retirement.
Given its importance for your future, here is a detailed look at how a retirement calculator works and helps you examine your savings rate, plan your goals, and achieve your retirement objectives.
How does a retirement planning calculator work?
To use a retirement calculator, simply enter some basic information about you and your finances into the calculator. This includes:
- Your current age
- Your expected retirement age
- Current income and monthly expenses
- Your investments, such as mutual funds investment or Unit-Linked Insurance Plan (ULIP), and the amount that you want to invest
- Expected return rate (in percentage)
- Factors that could affect your financial situation in the future, such as – provision for travel, annual healthcare expenditure, and expected inflation per year
The results displayed by the calculator will be as follows:
- Total invested amount
- Assumed growth
- Total value of your investment
- The total amount you need to invest for retirement to achieve the desired corpus
For example, say you are 25 years old with an income of Rs 50,000 and plan to retire at 60. If you save Rs 10,000 per month and invest an additional Rs 10,000 of your annual income towards a mutual fund retirement plan, the calculator, by assuming your investing period of 35 years, will display the corpus you will have by retirement.
Why use a retirement calculator?
Here are the four key benefits of using a retirement calculator:
1. You will get an accurate picture of the corpus you will have after retiring. This will help you determine if there are any gaps in your retirement plan and give you time to make any necessary adjustments before it is too late.
2. Most retirement calculators also take into account the effects of inflation on your savings rate to estimate your retirement needs. Moreover, you can enter multiple investments to compare different yields earned through varying interest rates. This can give you an idea of which investment options may be more beneficial for your situation.
3. Most retirement calculators are free and easy to use, even if you lack technical knowledge or experience in investing. Once you input some basic details, most calculators provide results within seconds.
4. To ensure you have enough funds to secure your retirement, you can also use a retirement calculator to estimate the amount you should be regularly investing. This allows you to plan how much you need to invest in mutual funds or other investments to create a sizable retirement corpus before your desired retirement date.
Closing thoughts
Retiring comfortably is what most people strive for and that takes planning and dedication – two things that are often easier said than done! A retirement calculator can make the process easier, but it is important to understand that retirement planning is a continuous journey. You will need to review and update your plans regularly to ensure you are still on track to reach your goals. Working with a financial advisor can also be helpful – they can offer guidance on the best retirement plans and strategies based on your current financial status.
