Retirement Calculations: We all want to have a comfortable retirement life. When we say comfortable, we mean a financially free retirement life where we have financial resources to sponsor our retirement journey; when we don’t have to depend on others for our daily expenses; when we can purchase things that make our life smooth. But even if your intention of having a retirement corpus is clear, how will you know the required corpus size? How much do you need to make yourself fully financially free? Rs 3 crore, Rs 5 crore, Rs 10 crore? See how you may know –
Your current and future expenses
This is the most basic question you need to ask yourself. If you are 30 and your monthly expenses are Rs 40,000/month.
Do you expect to maintain the same lifestyle at your retirement, or do you want to upgrade it?
Based on that corpus, the yearly future expenses will be calculated.
Your age, retirement age, life expectancy
The second thing is what your current age is, when you want to retire, and how long you need an amount.
If you are 30, want to retire at 60 and want the amount for 20 years, the one-time, periodic investment amount will be different than when you are 30, want to retire at 55 and need the retirement corpus for 25 years.
Inflation factor
Inflation is an important factor for retirement planning.
Things become expensive because of inflation.
So your monthly expenditure will increase by the rate of inflation.
The retirement corpus calculation, thus, will have inflation as a key component.
Withdrawal amount
Now the thing is that if you want to maintain the same lifestyle as you have now, you need the same inflation-adjusted amount at your retirement.
However, if you want to have a capping, the amount can be different.
Like, you may ask yourself to withdraw just 4 per cent of your retirement corpus every year.
So, even if you withdraw, the growth rate will keep increasing the overall amount, and the corpus will not run short for your life.
How much amount you need for retirement
Here, we are creating a scenario for a 30-year-old person whose monthly expenses are Rs 50,000, who wants to retire at 60 years of age who needs the retirement corpus for the next 25 years.
Here are other things that we will consider for our calculation.
Rate of investment return (pre-retirement)- 12 per cent
Rate of investment return (post-retirement)- 6 per cent
Inflation- 5 per cent
Based on these statistics, we will calculate the monthly amount required at 60, the total retirement corpus, and the one-time and monthly SIP investment amounts required to achieve the retirement corpus goal.
Estimated monthly expenses at 60 years of age
Rs 2,16,097
Estimated corpus required
Rs 5,76,68,841
Lump sum amount you need to invest
Rs 19,24,867
SIP amount you need to invest
Rs 16,337
Disadvantage of starting investment late
Now let’s see what would have happened had one started their investment journey at 35 years instead of 30 years. We are not changing the monthly expenses and other calculation figures. In that case
Estimated monthly expenses at 60 years of age
Rs 1,69,318
Estimated corpus required
Rs 4,51,85,138
Lump sum amount you need to invest
Rs 26,57,940
SIP amount you need to invest
Rs 23,811
Conclusion
Having an early start can help you generate the same corpus with a smaller one-time or monthly investment.
(Disclaimer: This is not investment advice. Do your own due diligence or consul an expert for financial planning.)
