Personal Finance Insight #28
Retirement Is Earned Over Years.
Planning your retirement starts with one big question : “How much money will I need when I stop working?”
The amount you need is called your retirement corpus. Calculating it is easier than it appears if you follow a step-by-step approach.
Step1. Estimate your current monthly expenses.
Start by identifying how much you spend per month. This should include food, travel, utilities etc.
Step 2: Adjust this expense for inflation.
Prices go up every year. So, your current ₹45,000 will not be the same 20 years later. Assume a reasonable inflation rate of 6% per year.
Use the future value formula:
Future Expense =
Present Expenses ×( 1+ inflation rate)^(yrs of retirement).
So, after 20 years :
Future monthly expense = 45,000×(1.06)^20
= ₹1,44,300 per month
This means, you will need ₹1.44 lakh per month in today’s terms when you retire.
Step 3: Estimate how long you need the money
This means estimating your life expectancy. Financial planners usually assume life expectancy up to 85-90 years.
If you retire at 60 and live till 85, you need money for 25 years.
Now, here, I’ve a very strong point to share. From the age of 60 till 85 or even more, your monthly expenses will keep growing. The ₹1.44 lakh p.m. will grow as inflation grows. To bridge this gap, you need to plan in advance right from your age of 40. Just increase your SIP amount by only 10% ,every 5 years. It means your ₹25,000 SIP at age 40 should increase to ₹27,500 after 5 years when you reach 45. This will create a huge difference and you will be able to beat the inflation and even create a stronger financial position.
Step 4: Assume the return on your investments after retirement.
Safe return = around 6-7% per year. We will assume 7% return.
Step 5: Calculate the retirement corpus.
To earn ₹7, you need to invest ₹100.
To earn ₹17.28 L, you need to invest 100/7×17,28,000 = ₹2,46,85,714 i.e. ₹2.47 crore.
Step 6: Now, calculate how much you must save monthly today.
You need ₹2.47 crore in 20 years. This is the bare minimum,without taking into account the inflation post retirement, as mentioned in Step 3.
I suggest you should try out different numbers on your SIP Calculator and find out for yourself the various options as per your target and assumptions.
Retirement planning has no designated starting age, it begins the moment you decide your future matters.
It’s a goal built slowly through consistency and smart planning. Start early. Stay Invested and retire powerful.
