Do you know how much money you need to retire?
Last Updated : Nov. 30, 2018, 5 p.m.
How would it feel to live without a salary for 20-30 years? To be precise, that’s what retirement is all about! Financial concerns are the biggest roadblocks on the path of retirement for many Indians. A clear reason for this is that one may have planned for almost all goals in life except the last and most crucial one, i.e., retirement.
It is generally observed that Indians compulsorily save for a house, their children’s education as well as their marriage. However, when you ask them about their retirement goal, a typical answer is ‘Dekha Jayega’ which sounds like there is no urgency. Maybe, they expect their kids to look after them or they presume that their EPF corpus would suffice. But if one calculates the approximate money needed to lead a stress free retired life, one would realise why planning for retirement is as important as that for other goals.
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Let us take a simple example. If one’s average monthly expenditure at the age of 40 is Rs.50,000 (Rs.6 lakhs per annum), the same after 20 years or at 60 years of age is likely to touch Rs.1.33 lakhs ( Rs.15.92 lakhs per annum) assuming a 5% inflation rate. This expense at the age of 70 and 80 years would be Rs.2.16 lakhs and Rs.3.52 lakhs per month. While these numbers may look astronomical today, they would look normal 30-40 years later as inflation would catch up. As per basic retirement calculations, one would need a corpus of approximately Rs.2.5 crore at the age of 60 years to survive the next 30 years (life span of 90 years) assuming a 10% rate of return on the corpus and a 5% inflation rate for expenses. One may dispute the life span of 90 years but looking at the advancement in medical technology, it looks realistic.
The table below illustrates how a retirement corpus of Rs.2.5 crore could be built with small monthly SIPs (Systematic Investment Plans) in mutual funds provided one starts early.
| SIP Starting Age | SIP Amount per month | Return on Investment * (Assumption) | SIP Period (Till Age = 60 years) | Corpus needed on Retirement |
|---|---|---|---|---|
| 25 years | Rs.3849 | 12% p.a. | 35 years | Rs.2.5 crore |
| 30 years | Rs.7082 | 12% p.a. | 30 years | Rs.2.5 crore |
| 35 years | Rs.13,174 | 12% p.a. | 25 years | Rs.2.5 crore |
| 40 years | Rs.25,021 | 12% p.a. | 20 years | Rs.2.5 crore |
| 45 years | Rs. 49,547 | 12% p.a. | 15 years | Rs.2.5 crore |
For illustration purposes only. * The assumption is for an equity mutual fund
The table indicates that the later you start the bigger the SIP amount required. In fact, the required SIP amount almost doubles with every 5 years of delay to start your investment. It is therefore imperative for investors not to miss out on retirement planning and start saving through SIPs at the earliest. When it comes to retirement, remember this proverb, ‘You can be young without money but you can’t be old without it.’
An investor education and awareness initiative by Franklin Templeton Mutual Fund.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Information contained in this article is not a complete representation of every material fact and is for informational purposes only. The recipient is advised to consult its advisor/ tax consultant prior to arriving at any investment decision.