Category: Retirement Planning

How much corpus do I need to retire peacefully?

Retiring peacefully necessitates careful financial planning, as it involves various uncertainties like job security, economic growth, inflation, investment returns, and escalating medical expenses. The golden rule of retirement planning is that there's no such thing as "enough" because unforeseen expenses are inevitable. To determine the adequacy of retirement savings, we must make assumptions about factors such as inflation, income growth, savings, and work-life duration. Let's delve into an example to illustrate this concept:

Imagine Vishal Sharma, a 50-year-old businessperson earning Rs 1,50,000 per month with monthly expenses of Rs 40,000. He intends to retire at 55, giving him 5 years to accumulate enough funds to sustain himself until he's 85. This means his savings in the next 5 years should support him for 30 post-retirement years, factoring in inflation and investment returns.

Vishal wishes to maintain his current lifestyle post-retirement, requiring Rs 4,80,000 annually (in today's value). With an assumed 8% inflation rate and 9% post-retirement return on investments, the future value of his expenses becomes approximately Rs 7,05,278 per annum after 5 years. Vishal will need this amount for the next 5 years, considering an 85-year lifespan. Here's a step-by-step calculation:

  • Current age: 50
  • Monthly expenses: Rs 40,000
  • Retirement age: 55
  • Inflation rate: 8%
  • Post-retirement return rate: 7%
  • Inflated cost of Monthly Expenses at the start of retirement (55 years): Rs 58,773
  • Corpus needed at the start of retirement: Rs 2,11,58,324

To plan for retirement, you should:

Step 1: Determine your desired retirement age at least 10-12 years in advance to maximize wealth creation opportunities. Step 2: Project your post-retirement monthly expenses and calculate the required corpus for a potential 80-85 year lifespan. Step 3: Develop a savings plan that includes clearing any outstanding loans, pre and post-retirement investment strategies, and provisions for high-inflation expenses like medical costs and term-life insurance.

Saving 25-30% of your current income is essential to meet retirement expenses. Setting up a dedicated retirement savings account is a prudent choice.

The benefits of early investing and the power of compound interest are evident when it comes to retirement planning. Starting early allows your savings to grow significantly, making it easier to meet your retirement goals.

In summary, this example demonstrates that starting your retirement savings early leads to more manageable monthly contributions to maintain your desired standard of living. A delay of just 5 years results in substantially higher required savings. Early retirement planning is advantageous, and if you have any questions or need assistance, do not hesitate to contact us for help with your planning and investment decisions.

Debalina Roy Chowdhury Para Planner – Dilzer Consultants Sources: