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Retirement is a critical stage in one’s life. Saving for post-retirement life is thus an essential goal for each and every person, be it a salaried individual or a business owner. Retirement planning is thus a crucial aspect of one’s personal finance management. That being said, most people feel confused about how to plan their finances for life after retirement.Typically, the retirement age in India is usually between 60 to 65 years. Given the average life expectancy, the retirement stage normally stretches for 20-25 years. So how much money do you need to comfortably retire, keeping in mind that you need to live off that money for the next 25 years?
Factors influencing your retirement corpus
Your required retirement fund depends on two major factors:
- Your lifestyle -takes into account your sources of income, expense pattern, consumption levels, the city you choose to retire in, etc.
- Your age - takes into account the time left for your retirement and inflation rate
Therefore, your desired retirement corpus could be different from another individual’s desired corpus.
How much do you need for 25 years of retirement life?
The following table gives you a clear picture of the retirement corpus needed. (assuming your expenses grow annually at a 5% inflation rate and the post-tax return of your retirement investments is 7% per annum)
| Years to Retire | Current Monthly Expense (Rs.) | Monthly Expense At The Time of Retirement (Rs.) | Required Retirement Corpus (Rs.) |
| 5 | 1,00,000 | 1,21,600 | 2.65 crore |
| 10 | 75,000 | 1,22,100 | 2.95 crore |
| 15 | 50,000 | 1,03,900 | 2.51 crore |
| 20 | 40,000 | 1,06,100 | 2.56 crore |
| 25 | 30,000 | 1,01,600 | 2.45 crore |
Points to be considered
- As one comes closer to retirement age, it is ideal not to have the burden of EMIs. Debt repayments and high-interest loans eat into a person’s disposable income, which would’ve otherwise been used to make investments and turbocharge one’s retirement corpus. Even in the case of high-salaried employees having the safety net of stable income, taking on debt close to retirement isn’t advisable.
- Your risk appetite usually reduces as you age. It is advisable to reduce the equity component in your portfolio as you near retirement age and focus on safer asset classes. That being said, an aggressive investor may be willing to take a higher risk to achieve the retirement goals, while a moderately risky investor will have a moderate risk appetite and a conservative investor will have a low appetite for risk.An investor with a high, stable income, saving for the retirement goal has a high capacity for risk. On the other hand, a person in a single income family with multiple dependents with not a very high income has a low risk-capacity.
- Lastly, people must consider spending less today and allocating more funds towards investments redeemable after retirement. Remember, a penny saved is a penny earned.
In Conclusion Thus, by the time one reaches retirement age, the aim is to have substantial financial resources. The income generated by the retirement corpus must ideally be used to meet regular expenses, while the need to dip into the capital must only arise in case of emergencies.
DISCLAIMER
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
