Calculating your retirement wealth gap?

While everyone in the job market aims for the same, i.e., acquiring wealth in the future, not all of them know how to achieve the said goal. One of the ways it is possible to do so is through financial planning. Financial planning can be defined as a procedure in which you plan out your future expenses. By sticking to the plan, you might end up achieving your financial goals. One of the reasons it is imperative for you to stick to the plan is to accumulate long-term wealth, that could help you with taking care of your day-to-day expenses.

Planning for retirement is something that you need to start planning as early as possible. Some of the common mistakes that people commit are not having a financial plan in place and not investing in an investment scheme. As soon as they realise it, people panic and start investing blindly. Ideally, it is important for an investor to start investing early on. Also, carry out a gap analysis at every juncture. In the earlier years, you can analyse the wealth gap every 5-8 years. However, when you approach retirement, it is imperative for you to do it more frequently, say, 2 to 4 years. When you are just a few years away from retirement, you need to remember to monitor your savings and wealth gap more closely. In case you don’t know how to calculate your retirement wealth gap, here is a guide on how to assess it:

  • Evaluate your current financial situation:

The first step in assessing your retirement wealth gap is this. It is important for you to understand where you stand financially. It means that you will need to take a look at all your investments and determine the ones that can be aligned with your retirement goal. Sometimes, you may have made some investments either mandated or unknowingly that may perfectly align with your retirement goal. For example, the provident fund schemes that are a mandatory requirement, are known for being one of the avenues which can be aligned to suit your retirement goal. You could stop fund allocation to any other long-term investment scheme that does not align with any financial goal of yours.

  • Determine a realistic monthly required investment so that you could sustain a comfortable retirement:

After ascertaining your financial situation, it is imperative for you to determine a realistic monthly investment amount. Investing the said sum with the help of a systematic investment plan will help you sustain a reasonably comfortable lifestyle after retirement. However, it is also important to make sure that the amount doesn’t remain the same. Make sure to change them depending on the financial situation.

  • Determine the corpus requirement after taking inflation into account:

This is different from having an ultimate financial goal. In this step, after determining the required investment amount, you need to project the corpus required that could also stand up to the rate of inflation at the time of retirement. Also, it is important to plan for the scenario where your loved one may continue to live long after you. Therefore, it is wiser to create a corpus that can help you sustain your post-retirement life merely based on its post-tax returns. Such a corpus might continue to serve your spouse after you.

Once you have calculated the wealth gap for your retirement goal, it will be important for you to ascertain the amount of investment that’s required for you to effortlessly bridge the gap. After that, you need to sign up for an investment plan that can effectively build the required corpus. It is also possible for you to use the retirement planning calculator on your own to determine the retirement wealth gap.