Retirement planning is a crucial aspect of your life. While planning for retirement, many people like to follow the age-old thumb rules. These rules were spending less than you can earn, don’t borrow more than you can repay, and so forth. Previously, you would have stuck to these simple rules to stay safe. While these thumb rules of retirement planning are beneficial, you should upgrade it from time to time to align with your new goals.

Given below are the old retirement planning rules that you should discard to make way for a new financial landscape. Let’s begin by understanding these rules one by and one and find ways to tweak them:

1. Keep aside 10% of your salary for retirement

Gone are the days when only 10% of your monthly income was enough to build a corpus for a comfortable retirement. If you abide by the 10% salary rule, your retirement corpus will not be able to cover the rising lifestyle and medical inflation. Therefore, you should start by saving 20% of your salary to live a stress-free life after retirement. For instance, if your annual salary is Rs. 12 lakhs, you can accumulate a substantial corpus by keeping aside 20% by the time you hit your 30s.

2. Follow the 100 minus age formula for equities

The 100 minus rule no longer holds true due to the increasing rate of life expectancy. Instead of 15-20 years in retirement, you could save to sustain at least 20-25 years of your retirement. This eventually indicates that equity allocation will be higher across ages, especially for the younger bunch of people only if they have a high-risk appetite. A high equity allocation will allow you to expand your investment horizon and achieve your long-term goals with ease. Therefore, you should follow the 110-120 minus age rule when it comes to investing in pension plans.

3. Stick to the 50-20-30 budgeting rule

The 50-20-30 rule is an allocation of 50% of your post-tax monthly income towards your basic needs. While 20% works towards your goal-oriented investments, the remaining 30% works towards your discretionary expenses. However, you should increase your income to approximately 30% every month, if you aren’t servicing EMI loans. It has become imperative to save for your future goals considering the impact of inflation on our changing lifestyles.

4. Build an emergency fund equal to 3-4 month’s expense

An emergency fund acts as the financial cushion during a contingency. Many people usually keep aside funds, which can easily cover household expenses for over 3-4 months. However, this quantum needs to be relooked for keeping the impacts of inflation and life expectancy rate in mind. You should build an emergency fund, which takes care of your household expenses for over 9 months. Apart from your medical or financial crisis, a larger corpus will allow you to meet your short-term goals and unforeseen emergency. Moreover, it will offer you with peace of mind and the financial strength to recover from any setback.

5. Purchase a life insurance coverage at least 10 times of your annual income

A life insurance coverage that is 10 times of your annual income might be sufficient for an average person. However, this coverage might not be adequate for a person who has just begun their career since the income might be low. During such a stage, you will require a higher cover. Therefore, you should select an insurance coverage, which is 20 times the annual income if you’re buying it at a younger age.

6. Buy a health coverage of Rs. 3-5 lakhs for the urban population.

Today, it has become easy to cure life-threatening diseases due to the advancements in the medical field. However, it has significantly increased medical expenses and hospital bills. Moreover, as you grow older, the chances of falling sick are high. Hence, you could require a health insurance coverage of at least Rs. 10 lakhs. In addition to this, look for critical illness covers that can easily fortify your medical emergency preparedness. When health insurance coverage falls short, a critical illness cover will enable you to meet your long-term recovery and rehabilitation expenses.

Conclusion:

Many people might have several queries on how to retire early. The easiest way to do so is by starting retirement planning at an early age. You should not only consider these thumb rules listed above but also look for retirement plans, which offer a host of retirement benefits. You should select a plan based on your personal requirements and financial situation so that you can achieve your life goals.