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<item> <title>How beginners can plan for retirement in nine easy steps</title> <link>https://freefincal.com/how-beginners-can-plan-for-retirement-in-nine-easy-steps/</link> <pubDate>Tue, 28 Apr 2026 00:30:57 +0000</pubDate> <dc:creator><![CDATA[M. Pattabiraman]]></dc:creator> <guid isPermaLink="false">https://freefincal.com/?p=249176</guid> <description><![CDATA[Here are nine steps beginners can follow to start planning for retirement. We will assume that...]]></description> <content:encoded><![CDATA[<figure><img src="https://freefincal.com/wp-content/uploads/2025/02/How-beginners-can-plan-for-retirement-in-nine-easy-steps.jpg" class="type:primaryImage" /></figure><p>Here are nine steps beginners can follow to start planning for retirement. We will assume that retirement is 25 years away.</p> <p><strong>The first step involves defining your target</strong>. The purpose for the funds and the timeline for when they are needed are already established, accounting for 25% of the planning. Investors often ask, “What return can I expect from equity over three years?”.</p> <p>If we respond that three years is too risky, they might extend it to five years, perhaps ten. However, effective planning is impossible without understanding the purpose and timeline for the investment.</p> <p>Although retirement planning might seem straightforward, our goals and desires evolve over time. Therefore, retirement planning is not a one-time event but a yearly task. Once the necessary groundwork is established, it can take just 15 minutes to complete each year.</p> <p><strong>The second step is to acknowledge inflation</strong>. India’s long-term inflation rate is roughly 6% without factoring in extra expenses. Assuming an inflation rate of 7-8% is a safe bet if we account for lifestyle changes, whether positive or negative. While it’s plausible that it could decrease in the future, considering our dependency on imported fuel—a major contributor to overall inflation—it’s best to remain cautious and assume at least 7% inflation before retirement and 6% after.</p> <p><strong>The third step is determining our desired post-tax return on our investment portfolio</strong>. While it could be 5%, 7%, or 9%, it’s clear that the lower the expected return, the more we will need to invest to reach our desired retirement fund.</p> <p>Inflation is our performance yardstick. Our portfolio’s after-tax return for the next quarter century should at least be equivalent to inflation. To begin with, we’ll predict a 7% inflation rate and an overall portfolio return of 8%. However, these estimates will be adjusted over time.</p> <p><strong>The fourth step involves devising an asset allocation strategy based on these returns</strong>. We need to have return expectations from various asset classes to do this. It’s unrealistic to anticipate an 8% post-tax return from fixed-income assets. Over the next 25 years, we can foresee the Public Provident Fund (PPF) rate barely falling below 7%. The Employee Provident Fund (EPF) might still theoretically yield 8%. Still, if the current trend continues, subscribers might only receive “annual” interest roughly every five years due to the delay in EPF interest payment.</p> <p>Relying solely on fixed income is not sufficient. The return from fixed income should be expected to be significantly lower; a reasonable assumption for now would be a 6% post-tax return. However, these estimates should be revisited and adjusted annually.</p> <p>A safe assumption for long-term return from equity would be 9% after tax. Why? See:</p> <ul> <li><a href="https://freefincal.com/what-return-can-i-expect-from-a-nifty-50-sip-over-the-next-10-years/">What return can I expect from a Nifty 50 SIP over the next ten years?</a></li> <li><a href="https://freefincal.com/do-not-expect-double-digit-returns-from-nifty-next-50-index-funds/">Do not expect double-digit returns from Nifty Next 50 index funds!</a></li> <li><a href="https://freefincal.com/nifty-50-sip-returns-jump-up-by-7-but-returns-trend-is-opposite-to-price/">Nifty 50 SIP Returns Jump up by 7%, but the returns trend is opposite to price!</a></li> </ul> <p>Some people react, “If I am going to have to expect only 9% over equity over the long term, I might as well invest in high-return bonds or FDs”. The risk, particularly hidden risk, is incredibly high here. If the stock market crashes, there is an excellent chance it will eventually recover. If a corporate FD or bond defaults, you might kiss your money goodbye (unless it is EPF, which defaults on its debt yearly like clockwork).</p> <p>The <strong>fifth step</strong> is to decide the <span ><strong>initial*</strong></span> asset allocation mix.</p> <p><strong>* </strong>The word “initial” is in bold red because we must plan an equity de-risking strategy – this can be <a href="https://freefincal.com/robo-advisory-software/">automated with the robo advisory tool</a>.</p> <p>Suppose we decide on a 50% equity and 50% fixed income portfolio – this works quite well: see: <a href="https://freefincal.com/benjamin-grahams-50-stocks-50-bonds-strategy-india/">Will Benjamin Graham’s 50% Stocks and 50% Bonds strategy work for India?</a> – then, the overall portfolio return (our aim) is:</p> <blockquote><p>[50% x 9%] + [50% x 6%] = 7.5%</p></blockquote> <p>This may disappoint many, but please recognise that this is not your portfolio’s annual return. This is the <strong>expected</strong> overall portfolio return after 25 years (in this case), which is not bad.</p> <p>Of course, when we project it on a spreadsheet, the 7.5% will be an annual return, but annual equity returns easily fluctuate from -50% to 150%, so it is important not to take that projection too seriously. See: <a href="https://freefincal.com/my-retirement-equity-mf-portfolio-return/">My retirement equity MF portfolio return is 2.75% after 12 years!</a></p> <p>A few good years for equity, regular rebalancing and a systematic investment increase will reduce our dependence on X% or Y% returns. It will take a few years. Got to hang in there. See <a href="https://freefincal.com/2016-personal-finance-audit-returns-not-matter/">The 2016 Personal Finance Audit: Returns do not matter!</a></p> <p><a href="https://freefincal.com/expect-less-wont-disappointed/">Avoiding disappointment with simple annual reviews and rebalancing is easier if we expect less.</a></p> <p>The <strong>sixth step</strong> is to find out the retirement corpus required. That is, we need to either use a retirement calculator or build one ourselves. This is a guide for building a basic calculator: <a href="https://freefincal.com/find-how-much-needed-retire-build-own-calculator/">Find out how much you need to retire!</a></p> <p>You can also use the <a href="https://freefincal.com/robo-advisory-software/">robo-advisory tool</a> to include your existing investments, pension or income sources, an asset allocation schedule, and a post-retirement bucket strategy with income flooring or annuity laddering features.</p> <p>Before we do this, it is essential to understand that the investment required <strong>will be higher than we can afford</strong>. This is a law of nature. There is no need to worry. We need to put our heads down and increase our investments as much as possible, at least increase at the rate of inflation, but a bit higher, say 10%, would be near-ideal: <a href="https://freefincal.com/why-increasing-investments-each-year-is-crucial-for-financial-freedom/">Why increasing investments each year is crucial for financial freedom</a>.</p> <p><strong>Note to the newbie</strong>: We are six steps in and have not discussed any products. If we plan first, the product categories can be derived. If we look for products first, either we change the plan to fit the product or spend years undoing past mistakes.</p> <blockquote><p>“How to run a marathon?” asked the newbie to the Guru.<br /> The guru said: “you need to train for many months. Starting with short distances and then gradually increasing the distance.”<br /> The newbie said angrily, “that is fine. Just tell me how to run a marathon?”</p></blockquote> <p><strong>The seventh step is investing</strong>. Where should I invest that 50% equity? There are many choices, but the simplest would be a Nifty 50 index fund. The 50% fixed income for the salaried can be EPF, PPF, VPF, and NPS (with little or no equity).</p> <p><strong>The eighth step is the annual portfolio review</strong>. Initially, a simple asset allocation check and rebalancing are enough. I do this each December: <a href="https://freefincal.com/portfolio-audit-2021-how-my-goal-based-investments-fared-this-year/">Portfolio Audit 2021: How my goal-based investments fared this year</a>.</p> <p>If you want some inspiration, check out reader reviews:</p> <ul> <li><a href="https://freefincal.com/how-suhas-tracks-his-mf-investments-and-reviews-financial-goals/">How Suhas tracks his MF investments and reviews financial goals</a>.</li> <li><a href="https://freefincal.com/how-avadhoot-joshi-evaluates-his-investment-portfolio/">How Avadhoot Joshi evaluates his investment portfolio</a>.</li> <li><a href="https://freefincal.com/how-a-single-mom-is-on-track-to-financial-freedom/">How a single mom is on track to financial freedom</a></li> <li><a href="https://freefincal.com/how-gowtham-started-goal-based-investing-took-control-of-his-money/">How Gowtham started goal-based investing & took control of his money</a></li> <li><a href="https://freefincal.com/why-my-financial-independence-early-retirement-plans-were-postponed-by-4-years/">Why my financial independence & early retirement plans were postponed by four years</a>?</li> </ul> <p><strong>The ninth step is to stay the course</strong>. Have the conviction to stick to the plan and stay disciplined. Not much has happened for many years, but hang in there. Equity returns are not uniform. Sometimes it will pour, and sometimes it will be dry. We must keep investing during the dry periods to change our lives when it pours.</p> <p>The post <a href="https://freefincal.com/how-beginners-can-plan-for-retirement-in-nine-easy-steps/">How beginners can plan for retirement in nine easy steps</a> appeared first on <a href="https://freefincal.com">freefincal</a>.</p> ]]></content:encoded> <post-id xmlns="com-wordpress:feed-additions:1">249176</post-id> </item>
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