Retirement is one of the most important stages of your life for which you work and should save for. With the break-up of the joint family system in India, increase in longevity (life expectancy) due to advanced medical innovations, shorter work-span and lower job security; ‘Retirement Planning’ assumes greater importance.
If you are creating an Investment Plan, your top most priority should be to save and invest for your retirement. Do not think that it’s too early to start planning for retirement. It is very important that you start early for your retirement.
In this post, let us understand – How to calculate the retirement corpus? How to do Retirement Planning? How much do you need to save for your retirement goal? How to calculate the required retirement fund in 3 simple steps using MS Excel?
First, let’s understand the stages of Retirement planning.
Let’s now calculate the retirement corpus and the required amount of savings to achieve your retirement goal. You can do this in 3 simple steps as below. I have also provided a “Basic Retirement Planning Calculator.” Do try that.
Example : Mr Rahul G (35 years) wants to plan for his retirement. His current annual living expenses are around Rs 3.6 Lakh. He wants to retire at 60 years and expects his life expectancy to be 80 years. He would like to know the projected / required retirement corpus and what is the required savings to meet his retirement goal amount??
So, Rahul has 25 working years (65-35 years) and would like to enjoy 20 years (80-60 years) of retirement life.
Step 1 – Project your Expenses
We are all aware that the living expenses may not remain the same. They keep increasing. So, we need to first project the expenses by assuming a certain rate of Inflation (let’s assume it as 7%).
The current expenses of Rs 3.6 Lakh p.a. will be projected to be at Rs 19.53 Lakhs, in the first year of Rahul’s retirement (at 60 years of age). He needs Rs 19.63 Lakh to continue with the same spending pattern in the first year of his retirement.
However, he assumes that some of the current expenses may not be relevant when he retires. So, he assumes the projected expenses to be Rs 14.65 Lakh only (75% of 19.63 Lakh).
Rahul expects to earn 8% from his investments after the retirement. So, we now need to calculate the required retirement corpus. At 8% ROI and 7% inflation rate, the real rate of return (inflation adjusted) is 0.9346% (Real rate of return is generally used in ‘withdrawal phase’ of the investments).
To withdraw inflation adjusted expenses of Rs 14.65 Lakh for 20 years (retirement life) at 0.9346% real rate of return, the required Retirement Fund is Rs 2.66 crore.
In this step, let us calculate the required savings amount to achieve the retirement goal amount (Rs 2.66 cr).
Rahul wants to invest in safe fixed income securities only, and expects 9% rate of interest from his investments. To accumulate Rs 2.66 cr in 25 years (work-span), at 9% ROI, Rahul has to save and invest Rs 3.14 Lakh per year (or) Rs 23,743 per month.
You may try these calculations using the below Retirement corpus calculator.
Download Simple & Basic Retirement Goal Planning Calculator.
We often hear about the celebrities and famous personalities struggling to make ends meet during their retirement. Kindly go through the below links to understand the importance of having a realistic and good Retirement Plan;
So, to become wealthy and to stay wealthy, it is very important to MANAGE your money properly.
You can get a HOME LOAN to buy a property. You can get a PERSONAL LOAN to meet your short-term financial goals. You can get an EDUCATION LOAN to fund your higher education (or) to fund your Kid’s higher Education. But, you don’t get a loan to fund your RETIREMENT (hmmm..by any chance, are you now thinking about Reverse Mortgage?).
Make your retirement years more comfortable and secure. Plan your retirement now! Remember, retirement planning is not a one-time event, but a continuous process of making sure you are staying in line with the goal you set for yourself. Do share your views and comments. Cheers!
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(Image courtesy of mapichai at FreeDigitalPhotos.net)
This post was last modified on July 10, 2023 6:33 pm
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View Comments
Hi Sreekanth,
I am 33 years old and planning for retirement.
For retirement i am looking into sbi smart elite, ICICI elite, sbi smart wealth builder.
or any other with better returns. This also has the insurance benefit.
My idea of this type of investment is to pay for 5 years and leave it for 15 years.
Is it good to go or any hidden risk, please Let me know your comments.
Thanks,
Srikanth.
Dear Srikanth,
May I know if you have dependents and/or financial obligations?
If yes, do you have adequate life insurance cover?
Dear Sreekanth,
I have no financial obligations. i have a kid age 1.10 years and 1.5 Lacs per year into SSY, also planning for adequate life cover for family.
Dear Srikanth,
To get life cover - Term insurance plan is a better option.
Read: Best Term insurance plans.
For wealth accumulation purposes - You may ignore life insurance plans and consider other investment options.
Dear Sreekanth,
I will definitly look into your suggestion. Thanks for the replay.
Still i have this question in my mind.
As per my financial adviser he said that i get an average of 15 % returns if i invest in this so called elite or smart wealth builder. they also say that you get better returns than MF.
Is it true? does it has any drawbacks which they hide to revel to me?
Thanks,
Srikanth.
Dear Srikanth,
It is based on assumptions & illustrations.
If possible, kindly ask your advisor or agent to give you in written about the above statement.
Both MFs & ULIPs are subject to market risks.
However, cost-wise, transparency, liquidity, choice wise etc MFs can outscore ULIPs or insurance based products (if your objective is to accumulate wealth over longer period).
Great post on retirement planning Shreekanth.
I am 36 years old working professional. And as my retirement planning I want to choose a small/mid cap mutual fund. I am planning to put about 1 lakh as lumpsum in the fund and do not want to touch it for another 25 years. I think with the 15% per annum return this can build a good money for me and my wife for our retirement.
I have also invested about 3 lakhs in ppf and want to accumulate hat amount for retirement.
Please let me know if this will be a good strategy for me or not.
Dear Sachin,
Investing in a small cap fund for a 25 year horizon, makes sense. But kindly do track the fund's performance once in a year and take corrective steps, if required.
Kindly use the calculator available in the above article for the calculation of your projected retirement corpus.
Read:
Best Equity funds.
How to select the best mutual fund scheme?
Dear shreekanth,
I am 48 now and accumulated an overall corpus ( MF , ppf, EPF) of Rs. 75 lacs. I am planning to retire early in next 6 months.Is this fund adequate to meet my current monthly expenses of Rs. 30000/-. I have term cover of Rs 75 lacs and Family health insurance of Rs. 5 lacs. Total value of my MF exposure is Rs. 50 lacs ( large cap ,multicap and blanced funds and liquid funds). Kindly suggest if i need to rebalance the porfolio towards conservative one.Also should i discontinue term insuarnce policy.
Regards
Dear dushyant,
If you do not have any financial obligations / liabilities you may discontinue the life insurance policy.
In case if you believe that health cover can be enhanced, you may consider a Super Top up plan.
Read: Best Super top up health insurance plans.
Assuming life expectancy of 80 years, expected returns for the next 32 years as 9% and inflation rate @ 8%, you can get around Rs 2.7 Lakh per annum by investing Rs 75 Lakh.
If you have to receive more than Rs 2.7 Lakh then either returns should be more or corpus.
If you are totally dependent on this income, suggest you to switch major portion of your corpus to safe & highly liquid avenues Ex- Debt Funds, FDs, Post office Sr.C.S.S or PO MIS etc.,
Kindly read:
List of best investment options!
Best Debt funds.
Best MF MIP Funds.
Thanks shreekanth. Here my debt fund investment is already around 40 % of total corpus of 75 lacs.Is it practically safe to continue with balanced funds for remaining 60% of total amount.
Regards
Dear dushyant,
Mutual funds are subject to risks. The returns are not guaranteed. So, if you are dependent on this income and would like to receive fixed/regular income then you may have to invest a major portion of your corpus in debt products.
Thanks Dear Sreekanth,
I loved your blog. Great effort to make people financially smart. All the best......
Thank you dear Dushyant..Keep visiting and kindly share the articles with your friends :)
Great article! I agree that your top most priority should be to save and invest for your retirement. Do not think that it’s too early to start planning for retirement. It is very important that you start early for your retirement.
Hello Shreekanth,
I went through your blog and it well written, appreciate for that. I understood lot of things out of it. Also I went through your "Child Education" and "Retirement" calculator related blogs.
My age is 33
Let me tell you my investment and goals -
Investment-
1) PPF (Retirement) - 12500 per month from last 3 years (Maturity in 2029)
2) Sukannya Samruddhi Yojana (Girl Education) - 12500 per month from last 1.5 year (Maturity in 2037)
3) LICs - 65000 per annum from last 6 years (Maturity in 2031)
4) Below Mutual Funds (I am looking for atleast 5 years investment) -
a) HDFC Short Term Opportunities Fund(G) - 6000 per month from 1 year
b) Birla SL Dynamic Bond Fund-Ret(G) - 6000 per month from 1 year
c) Tata Balanced Fund(G) - 8000 per month from last 1 year
Goals-
1) Retirement at the age of 45/50, currently I am working in private IT sector and I may need atleast 75 lakh
2) I have doughter and she is 1 year old, for girl child education I may need 75 lakh
3) Also I may need 50 lakh for her marriage at her 21th age
Currently I don't have any term plan or for my family member nor they have any LICs.
So it will be good if you can suggest your opinion, what you feel looking at my investment/goals and considering all retirement/child's education and marriage and health related expenses. Also correct me if I am lacking doing wrong investment in any entity. Please let me know which are good fund from Sep 2016 onwards.
Waiting for your response.
Regards,
Pravin
Dear Pravin,
1 - You may kindly provide details of LIC policies (Plan name , commencement date & tenure).
2 - MFs : Do you need this money within 5 years?
Goals:
3 - Suggest you to kindly buy a Term insurance plan if you are under-insured. Also, a Personal Accident insurance cover.
4 - Do you/family have health insurance cover?
Kindly go through this article : List of articles on key aspects of Personal Financial Planning!
Hi Sreekanth,
Can you please advise on good options to make lump sum investments (a few lakhs) currently so as to plan for retirement in about 10 to 15 years?
I've started with PPF recently upon reading your blog and wanted to catch up with some lump sum investments (move from FD) in order to create a good retirement corpus for future (about 5 crore, from the calculator).
Looking forward to your guidance on the best possible options, Thanks
Dear RB,
Kindly go through this article, you may revert to me if you need more info :
List of best investment options.
Thanks Sreekanth, I went through this article and looking for your guidance in making lump sum investments in mutual funds - any particular scheme that you would recommend and timeline to invest in them?
Dear RB,
As you have a long investment horizon, you may consider investing in Balanced fund + Large Cap equity fund + Diversified equity fund.
You can also consider setting up STP (Systematic Transfer plan) from a Liquid fund to Equity fund for say next 12 months, in-case if you are not comfortable making lump sum investments in Equity funds.
Kindly note that STPs can not be set up across AMCs. Also, when Units are redeemed from debt fund, these are considered as normal redemptions hence subject to taxes.
Read:
Best Balanced funds.
Best Equity funds.
MF Taxation rules.
Hi Sreekanth,
Thanks for the nice article on retirement investment for people like me (46 yrs. planning to retire)
In one of your column you had suggested to invest in MIP & Balanced fund. Need your expert advice on following two options of investment for a horizon of 10 years or more, to park PF/Gratuity corpus:
Option 1:
HDFC Balanced Fund- DP Growth- 25%
Birla SL MIP II savings 5- DP- Growth-50%
Reliance MIP- DP-Growth-25%
Option 2:
Tata Balanced Fund-DP-Growth-25%
Birla SL MIP II wealth 25-DP- Growth 50%
ICICI Pru MIP Regular -DP-Growth 25% or Birla MIP II saving 5
I have taken care other aspects (insurance/medical cover) and do not want to take too much risk due to frequent volatility. But I understood that 10 years horizon is perfect and equity investment return of around 12-13% can be expected.
Regards
Dear mandar Ji,
If one is expecting returns of around 12% then we have to factor in the RISKS as well, to achieve that kind of returns.
Kindly note that MIPs' returns are primarily dependent on 'interest rate cycle'.
You may consider to increase the allocation to Balanced fund a bit more, atleast for next 3 to 5 years (if possible), if you are not dependent on this investment (source of income).
Kindly read:
Best MF MIPs
Best Balanced funds.
List of best investment options.
Hi Sreekanth,
Thanks for prompt advice. Based on your suggestion, I am now planning to allocate my portfolio as follows:
HDFC Balanced Fund or Tata Balanced fund- 40% ( Kindly choose one according to you)
Birla SL MIP II savings 5- DP- Growth-30%
Reliance MIP or Birla SL MIP II wealth 25-DP- Growth 30%(Kindly choose one according to you)
All 10 years horizon. your advice to achieve above 10% return is requested.
Dear mandar,
Both are good funds (balanced).
Read: How to select the right mutual fund scheme based on risk ratios?
Birla SL MIP II wealth 25- can be considered.
Dear Sreekanth,
I have a lump sum investment in UTI equity DP Growth for last 3 years. After going through your columns, it seems that UTI mid cap- Growth is better option for longer term ( 10 years). Need your advice whether I should switch to this or remain in my existing fund.
Dear Sreekanth,
I am looking for a corpus of 10 Cr for my retirement. I am 32 year old and can invest monthly 7000 - 8000. Can you suggest some good portfolio of equity/mutual funds through which I can achieve my targets.
Dear Vivek ..Kindly go through below articles;
Best Mutual fund schemes.
How to select right mutual fund scheme?
List of best investment options!
Dear mandar,
UTI equity is a multi-cap oriented fund. So ideally we should not compare the two funds.
Kindly note that the fund manager who manages both these funds have been changed.
So, if you would like to make fresh investments in a mid-cap fund you may consider HDFC Mid-cap fund.
Read: Best Equity funds 2016.
No Sreekanth, I have no plan for fresh investment.
Need your advice whether I should remain invested in UTI equity? or switch out to a better performing fund?
Dear mandar ..As of now, you can stay invested in uti equity fund.
Hi Sreekanth,
My father is going to retire this October 2016, and he is in central govt. and willbe getting around 3o lakhs of retirement money in pension and all. Can you please help in letting me know what will be the best way to invest this money.
And other health/money back plans post suited post retirement ?
Thanks
Dear Prashant,
He may kindly ignore buying any life insurance plans, especially traditional plans like Endowment or moneyback.
Read: Are traditional life insurance plans a terrible investment option?
Is he going to depend only on this corpus to lead his retirement life? Can he afford to take risk? Whether he has adequate health insurance cover? May I know what about your mother? Is she dependent on the income generated by this corpus? Are there any other sources of income (pension, rental income, FD interest etc.,)? Any financial liabilities/commitments?
Hi,
I am only the starting stage of financial planning. Firstly i fixed term policy for Insurance. Next I am planning for Retirement. I am thinking to plan for retirement along with tax savings. So i am planning for 2 options combined. ELSS and PPF.
But I am confused with NPS. I read and got the restrictions and tax but the discipline and extra tax saving amount. PPF is some less income but more flexible. So can you please suggest the best one for me along with ELSS and the best proportionate for each one
Dear Akhil,
My vote would be for PPF + ELSS combination.
NPS (with current rules) is not a great product as such.
MFs can be a better choice.
Read: List of best investment options.
yes. thanks. little confused when read npf
Hi,
My age is 35, and we are family of 4 persons.i am working in private sector and earning 30000/- p.m after deduction ,
My goals
House purchase: in next 10 years Rs 50 Lac
My child aged 2 years needs 50 lac in next 18 years
My retirement Rs 1 crore in next 25 yaers
Kindly guide where to invest , i can invest rs 10000 p.m
regards
nitin
Dear nitin,
Do you have sufficient life insurance cover? What about health cover for self & family?
Kindly read this article : List of articles on the Key aspects of Personal Financial Planning?
Your high priority goals are retirement and kid's education. In case if you are unable to save sufficient money for these goals, you may kindly post pone buying a home.
Read:
The six most common personal finance mistakes..
List of best investment options.
Thanks for your quick response.
Yes i do have Life insurance cover of rs 40,00,000/- from SBI insurance and rs 200000/- from SBI health insurance cover.
Yes i can set aside my house priority but for kids education 2 kids -one of 2 years and second of 1 month both boys i have to decide which fund to invest
secondly i want for retirement which i will need after 25 years .but i want a little secured plan that would not only save my money but also save tax also
regards
Dear nitin,
1- Suggest you to buy a stand-alone Personal Accident cover.
Read: Why one should have a PA cover?
2- You can start investing in a Diversified equity fund + Balanced fund for Kid's education goals.
Read:
Best Equity funds.
Best balanced funds.3 - You may consider investing in Equity diversified fund + Mid-cap fund.
In case if you would like to save taxes also, then you may consider ELSS fund for your retirement goal instead of Diversified equity fund.
Read: Best ELSS funds.