Retirement Planning: Everyone dreams of living a relaxed life after retirement. When we say relaxed, we mean a life where you don’t need to worry about money. You should have enough savings to pay for your daily needs, buy the things that make life easy, and not depend on anyone financially.
But even if you’re sure about saving for retirement, the big question is how much money is enough?
The first step is understanding how much you spend now and how much you might spend later. Let’s say you’re 30 years old and you spend Rs 40,000 every month. Now you must ask yourself will you live the same lifestyle when you retire, or will you want to enjoy a better one? Depending on your answer, your future yearly expenses will be calculated accordingly.
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Age and your Retirement plan
Next, you need to think about your age and your retirement plan. Suppose you are 30 now and you want to retire at 60. If you plan to live till 85, you will need your savings to last 25 years. But if you want to retire at 55 and live till 80, your money must last the same number of years but with fewer working years to save it. That changes everything, especially the amount you need to invest.
Inflation
Inflation also plays a big role in this plan. As time passes, things become more expensive. So, the Rs 40,000 you spend today will not be enough when you retire. Your expenses will keep going up every year because of inflation. That’s why it is important to include inflation in your retirement plan. Otherwise, you might fall short later even if you think you’ve saved enough.
Yearly Expenditure
You also need to think about how much money you plan to take out from your retirement fund every year. If you want to live the same way as you do now, then your expenses will need to match your current lifestyle but adjusted for inflation. One helpful rule is to only withdraw 4 per cent of your total retirement fund every year. That way, your money keeps growing even after retirement, and you don’t run out of savings while you are still alive.
How Much Money Do You Really Need?
Let’s look at an example. Imagine a person who is 30 years old now and spends Rs 50,000 per month. They want to retire at 60 and expect to live another 25 years after that. For this case, we’ll assume some important details: the person earns a 12 per cent return on their investments before retirement and a 6 per cent return after retirement. We will also assume inflation stays around 5 per cent.
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Using these numbers, we can calculate how much they will need every month when they turn 60. That amount will be their monthly expense adjusted for inflation. Once we know that, we can figure out the total retirement amount they will need saved by the time they retire. After that, we can calculate how much they need to invest every month or as a one-time investment to reach that target.
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
