Retirement Planning

Know More About the 30:30:30:10 Rule in Retirement Planning


Retirement years are called the golden years of an individual’s life for a reason. After all, it is during these years that one finally gets to enjoy a peaceful life free of all professional commitments. One can travel at their convenience, pursue hobbies and interests, spend meaningful moments with their loved ones, and so much more.

To live a life of leisure in your retirement years, it is vital to have an effective retirement plan. After one retires, they no longer receive a monthly income that can help them deal with the daily expenses and other financial requirements. Therefore, one must generate a sufficient retirement corpus to compensate for this lack of income and live a life free of financial worries. Even after the corpus has been created by the time you retire, you must be careful with how you spend it. If you are receiving the money in a lump-sum manner, you may be tempted to expend it all. However, if planning and discipline are not exercised, then this corpus may be exhausted, leading to serious consequences for the rest of your retirement years.

To avoid this, you can take the help of the 30:30:30:10 rule of utilising one’s retirement funds.

Understanding the 30:30:30:10 rule in retirement planning 

The 30:30:30:10 is a way of effectively distributing your funds in the given percentages across different segments, such that each aspect of your retirement life is taken care of without overshooting your budget. Here is how it goes:

Use 30% of your retirement corpus for leaving a legacy 

As a retiree, you may be concerned about leaving a legacy for your children, whether it is in the form of real estate, stocks or funds, gold, etc. To ensure you leave a considerable inheritance, you can allocate 30% of your funds to this segment. Since you have a long time frame to build this legacy, you can invest the money in equities. The extended tenure will help your funds get stabilised over short-term market volatility.

Direct 30% of the retirement fund for your present expenses 

If you worked hard for your retirement plan, you would have done so to ensure a comfortable life in your golden years. And this life you shall have, by using 30% of your funds for your present expenses. This may include your day-to-day and monthly expenses, such as groceries, bills and payments, house repairs, taxes, and so on. You can also use this portion of the money for travelling, dining out, and other entertainment avenues.

Use 30% of your funds for future expenses

Just because you have retired now does not mean that wealth creation for the future should come to a halt. Inflation is always on the rise, and one should keep that in mind when allocating their retirement fund for future uses. 30% of your funds can be used in that direction. This is especially more important for those who have taken early retirement since they have a longer time period where they will not be receiving a monthly salary. You can use a retirement calculator to understand how much you will ideally require in the near future, as per your life expectancy.

Use 10% of the funds for emergencies

As health issues are common during senior age, one should set aside an emergency fund to deal with such situations. You can invest this portion in liquid funds, short-term duration funds, and so on. You can also use this money to pay premiums for your health insurance plans.

What to keep in mind when implementing the 30:30:30:10 rule 

Remember that this is simply a suggested method to utilise your funds; it is not the only way or the sole correct way. There are many other retirement planning strategies you can consider that suit your lifestyle and your needs in a better manner. You can also tweak these distribution percentages as per your needs. For instance, if you already have a legacy plan in place for your children, then you can allocate that portion of your funds to the other three segments accordingly.

For further guidance, reach out to a financial advisor. Also, take the help of a tax expert to see how you can prevent your funds from washing away in taxes. Using tools such as the retirement calculator and human life value calculator can also help greatly.

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