This is indeed the easiest way to calculate your retirement corpus (without using an excel sheet or a financial calculator). You just need to open the calculator application on your Mobile to give this a try. But before we start, please make a note of 4 important things that are needed to calculate retirement corpus in India –
- Your monthly expenses (e.g. Rs. 50,000)
- Your current age (e.g. 36 years)
- Your retirement age (e.g. 60 years)
- Your life expectancy (e.g. 85 years) (approximate age at which you believe you’d die – consider 85 as the minimum age for calculations).
How to Calculate Retirement Corpus
Let’s get started with some simple math now –
Difference between your retirement age and current age – 24 Years (60-36)
Please note that your expenses will get doubled every 12 years if the inflation rate remains at 6%.
Your current monthly expenses of Rs. 50,000 will get quadrupled (4 times) after 24 years. Hence, it would amount to Rs. 2 lakhs per month (aggregate monthly expenses required at the time of retirement).
The next step is to calculate the difference between your life expectancy and retirement age – 85-60 = 25 years
Now, multiply these monthly expenses of 2 lakhs for the next 25 years.
2 lakhs per month *12 = 24 lakhs per year
24 lakhs per year for 25 years – 600 lakhs or 6 crores
(assuming 6% inflation and 6% returns – 0% returns over inflation after retirement)
This would be your retirement corpus and it is as easy as you consider it to be.
(If your spouse is younger than you, multiply the annual expenses with age difference between the two of you. Then, add it to the corpus given above).
Suppose your wife is 3 years younger than you. Assuming a life expectancy of 85 years, additional expenses for up to 3 years would be required. Moreover, an additional corpus of 72 Lakhs would be required. The total corpus required in the above-mentioned case would be 6.72 Crores.
However, what if your assumed returns are more than inflation after retirement?
You will need to multiply the corpus given above (6 crores) by:
- 0.9 if your returns are 1% more than inflation i.e. the inflation is at 6%, but the returns are at 7% (6 crores *0.9 = 5.40 crores)
- 0.8 if the returns are 2% more than inflation i.e. inflation is at 6%, but the returns are at 8% (6 crores *0.8 = 4.80 crores)
- 0.7 if the returns are 3% more than inflation i.e. inflation is at 6% and returns are at 9% (6 crores *0.7 = 4.20 crores)
My suggestion – Make sure that you don’t take more than 1% return above inflation (to be on the safer side of calculation).
Also Read: FIRE Retirement in India
Difference Not Divisible By 12
What would happen in case the difference between your retirement age and current age is not divisible by 12?
The simple solution to this problem would be to use fractions. For example – If my current age is 38 years and my monthly expenses are 50,000 – my expenses will get doubled by the age of 50 i.e. it will stand at 1 lakh per month. Now multiply this 1 lakh by 10 (difference between the age 60 – 50) and divide it by 12. ((100000*10)/12 = 1,83,333). As such, your average monthly expenses at the time of retirement would be 1.83 lakhs.
What If I Want To Consider A Different Rate Of Inflation?
If you want to consider a different inflation rate, utilize the formula of 72. Divide 72 with your proposed inflation rate. This will help you determine the total number of years after which your monthly expenses will get doubled.
When we considered the inflation rate at 6%, our monthly expenses were getting doubled in a time period of 12 years (72/6).
Similarly, if we take the inflation rate at 4%, the monthly expenses will get doubled in a time period of 18 years (72/4).
Also Read : Inflation and Returns Impact on your finances
This formula of 72 can be used to calculate the number of years after which your investment will get doubled.
If you want to validate whether the amount is right or wrong, try this method with a calculator you trust.
I have not taken any taxes into consideration to keep the calculations as simple as possible. But if I had considered taxes, it would have only made this calculation far more complicated and lengthier.
If you want to take taxes into consideration, multiply the above-mentioned corpus with the tax bracket you fall in. Let’s say if your tax bracket is 10%, you must multiply the corpus given above by 10.
Also, various insurance premiums such as health insurance and car insurance have been not taken into account. Because, it is something that you can easily calculate without coming across any hardships.
Having skimmed through the article, see to it that you share your valuable thoughts in the comment section and let us know in case you still face any issues to calculate retirement corpus.