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
Wonderful Sree..!
following below are few inputs
1) Pls add tax components also on your calculator ? to know take home returns.
2)I need NON-Taxable returns from the retirement corpus. (My theory is -> once retired there will be no income from Job or any business. would have paid lot income tax by that time through job. Enough paying tax :))! )
Please recommend BEST investment options which will give NON-taxable returns.
Imp note: suggestion to your blog website
If someone respond to this blog, i should get email triggered to my personal email id (which you have collected here). its difficult to check your each blogs where i left comments . Last time i left few comments on your blog website on different blogs, but now i forgot. I need to search for the topics.
Thanks for your efforts.
With regards
Muthu
Dear Muthu,
I remember that you had suggested me to write an article on "Retirement Planning calculations" :)
Thank you again for sharing your views.
I wanted to keep this post as simple as possible. The challenge with taxes is, they change every year. Also, the applicable taxes on various investment products keep changing.
So, the best thing is to keep working on your retirement plan every year.
Suggest you to invest in Equity related products, they give you Tax free income, considering today's tax laws :)
Regarding your suggestion on Blog Comments;
Initially I had kept the option to follow the blog comments and also an email alert facility as soon as a reply (from my side) is posted. But these features were utilizing lot of database resources and there were some loading issues (technical challenges), so had to remove these options.
I may go for server upgrade in future, I will surely try to implement your suggestions then. Thank you!
Hi I am Rajesh from Bengaluru, I like your articles very much as they are simple to follow for people who have non-finance/commerce background. I have a question:
I would like to get a monthly income of 50,000 per month after retirement (55 years). Therefore, which options I may choose to invest on monthly basis to ensure the above monthly income after my retirement?
My current age: 29
Annual income: 4,80,000 INR
Approx. Annual expenses: 3,00,000 INR
Investment in PPF (Annual): 60,000INR (starting from August 2012. until August 2027- 15yrs)
Total LIC Premium payment (Annual): 12,000 INR (2 policies, terms 15 years each started from 2009 and 2014 respectively; sum assured 3,00,000 each)
Please suggest what are the best investment options I could go for with the surplus amount after all expenses and existing investments to achieve my above goal of earning 50,000 INR per month after retirement.
Thanks and Regards,
Rajesh
Dear Rajesh,
Thank you for your appreciation.
Kindly let me know on what basis have you arrived at Rs 50k? Are you sure it is a reasonable figure after 26 years?
Kindly use the calculator that is available in the article. Let me know the projected value as per the calculation. Kindly try it out. (I will definitely guide you, trying to make you understand the concept).
Kindly let me know the LIC Plan names..
Dear Sreekanth,
Thanks for the response. I have calculated the following as suggested:
Required Retirement Fund: INR 2,21,52,990
Future value of current investments at retirement : INR 676,739 (need a little clarification here in the formula. Subtracting this amount from the retirement fund I get a value greater than the 'required retirement fund)
LIC Policy details
1.Jeevan Jyoti (4400 HLY premium for 25 years; enrolled in 2014; sum assured - 2,00,000INR)
2. Don't know the name (1766 HLy premium for 20 years; enrolled in 2006; sum assured:1,00,000INR)
Hope the above details would help you to guide me on the best investment options I could go for starting now with the surplus amount after all expenses and existing investments to achieve my above goal.
Regards,
Rajesh
Dear Rajesh,
Kindly subtract Rs 6.76 Lakh from Rs 2.21 crore. Enter the balance amount Rs 2.147 cr in cell B20, and you will get the required amount of savings per month/per year.
Revert to me if you still need any assistance.
LIC polices:
1 - are you sure it is Jeevan Jyoti?
2 - Suggest you to know and understand the policy features that you have invested in.
Kindly read my articles : "Top 7 best online term insurance plans" & "How to get rid off bad insurance plans?"
sir,
i want 15000/- rs per month as pension after 60 years kindly tell me how much i have to invest till 60 years
Hi Rajesh, What is your current age? and What is your currently monthly expense?