How to Figure out a Future Rate of Return on Your Retirement Savings


A retirement savings plan is the best way to ensure peace and prosperity even in your retirement days. It is also necessary as you won’t have enough opportunities or health to earn income through employment during this stage of life. Even if you have a business or some other passive income sources, you should not leave it to the fate that they will run fine for all the time to come. So, it is important to have a retirement plan with a good rate of returns. Here you will find the best method to determine the future rate of returns of your retirement savings plan to help you understand its benefits in the long run.

Choosing a Retirement Savings Plan

Before jumping in to calculate the future rate of returns, the initial step is to verify if the plan is good enough or choose a good retirement plan. As several plans provide great returns for competitive investments, pinpointing one is not easy. Given below are some great retirement plans:

  • Life Insurance
  • Fixed Deposits
  • Public Provident Funds
  • National Pension Schemes
  • Post Office Savings Schemes
  • Government Savings Schemes

You might see a pattern in all these plans. They all have a guaranteed return on invested capital and government-mandated high return rate, especially for senior citizens. Choosing a plan from any of these plans will yield the expected returns.

You can even invest in multiple plans to widen your retirement investment portfolio, based on the availability of funds, to decrease any risks involved. To finalize a particular plan within a category of retirement plans, you could always use plan comparison on various common factors. This will give you a rough idea of the best savings plan.

Knowing its Required Investment and Return Potential

The next step in finding out the rate of returns of a retirement plan. These data will help in the calculations of future returns. You can easily know the investment and returns details from the plan brochure or an authorized agent of the plan provider.

Calculating the Future Rate of Returns

Now, after acquiring all the details of your retirement plan along with its expenses and yields, you can move ahead with the calculation.

Step 1: Find out the total investment amount

The total investment will include all the required investments in your retirement plan. Some people don’t consider the extra charges of their plans which is a huge mistake. Because sometimes, these extra charges can also become a burden on the finances. For example, some fixed deposits require the customer to have an active account with a minimum balance of so-and-so amount to be eligible to open an account. Or in the case of equities, the investor must have a brokerage account that has its own costs for annual maintenance and individual transactions.

Step 2: Calculate the interest gained of the savings plan

The next step will be to calculate the return amount based only on the investment and not the extra charges. This will be the extra amount you will receive at the term-end. In the case of life insurance, you must also have a separate calculation for the total mortality benefits that the nominee will get.

Step 3: Calculate the extra returns

Extra returns include discounts, offers, quarterly interest credits, recurrent pay-outs, and all the benefits you get with your retirement plan. These extra returns also include the tax savings you obtain for investing in some plans.

Step 4: Find out the total of returns minus investments

The total rate of returns will be the resultant of the total returns minus the total investment. The total returns will be all the returns from the plans, including the interests gained, extra returns, and the tax savings you can claim. At the same time, the total investment is the sum of the invested capital and all the extra charges. The final amount after the subtraction is the future returns of your plan. And the future rate of return is equal to:

[(Future Returns * 100) / (Total Investment)]

Step 5: Find out if the future rate of return of your savings plan is adequate

After you get the final rate of return of your investment, you must verify if it will be adequate to ensure that you have enough funds to last through your retirement life. The best method is to consider the projected inflation rate. Currently, in India, the inflation rates might rise by around 2.27% each year, so you can take a 3% hike each year to be on the safe side. And based on the duration of your investment, calculate this inflation rate each year to get a rough inflation rate after the said duration.

Now calculate the decrease in the value of the return amount based on the returns and the calculated inflation rate. If the final value is enough based on your day-to-day life requirements, you should go with the selected retirement savings plan. Otherwise, choose another plan.

Through this method of calculation for finding out the future rate of returns of a retirement savings plan, you can know if investing in a plan is profitable or not. But, if you are focusing on specific retirement plans, you must consider life insurance plans. These plans offer great returns, especially for senior citizens.

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