Retirement is one of the biggest financial milestones in life. While many people dream of a stress-free retired life, few know exactly how much money they need to achieve it. The key is to plan ahead and calculate your retirement corpus based on your expected expenses, inflation, and investment returns.
In this post, I break down the steps to estimate your retirement corpus, using two real-world examples.
The amount you need for retirement depends largely on how much you will spend every month. A common mistake is assuming that expenses will decrease after retirement. While some expenses like commuting and work-related costs might reduce, medical and lifestyle expenses often increase.
Here’s what you should consider:
Basic Living Expenses – Food, rent (if applicable), utilities, and daily necessities.
Healthcare Costs – Medical bills tend to rise as we age.
Lifestyle Expenses – Travel, hobbies, and entertainment.
Inflation Impact – The cost of living increases every year, so today’s expenses won’t be the same in the future.
Inflation reduces the purchasing power of money over time. If your monthly expenses today are ₹75,000, they will be much higher 20 years from now.
We can use the formula:
Future Expenses = Current Expenses × (1 + Inflation Rate)^(Years Until Retirement)
Assuming an inflation rate of 6% per year:
Example 1: Retirement at 60, Current Age 40
Current Monthly Expenses: ₹75,000
Future Monthly Expenses at 60 = ₹75,000 × (1.06)^20 = ₹2,41,000 (approx)
Example 2: Retirement at 60, Current Age 30
Current Monthly Expenses: ₹50,000
Future Monthly Expenses at 60 = ₹50,000 × (1.06)^30 = ₹2,87,000 (approx)
Once we know the monthly expenses at retirement, we calculate the total corpus required. A common rule of thumb is the 25x Rule—you should save at least 25 times your annual expenses.
Retirement Corpus = Future Annual Expenses × 25
For Example 1 (Age 40, ₹75,000 expenses today):
Future Annual Expenses = ₹2,41,000 × 12 = ₹28.92 lakh per year
Corpus Needed = ₹28.92 lakh × 25 = ₹7.23 crore
For Example 2 (Age 30, ₹50,000 expenses today):
Future Annual Expenses = ₹2,87,000 × 12 = ₹34.44 lakh per year
Corpus Needed = ₹34.44 lakh × 25 = ₹8.61 crore
This is the amount required at the time of retirement to sustain expenses without working.
Now that we know the target amount, the next step is to start saving and investing smartly.
1. Start Early and Invest Regularly
The earlier you start, the more you benefit from compounding. Investing small amounts consistently will help you reach your retirement goal easily.
2. Diversify Your Investments
Equity Mutual Funds – Good for long-term growth (10-12% returns).
Index Funds – Low-cost and effective for retirement investing.
PPF/EPF/NPS – Stable and tax-efficient options.
Real Estate – Passive income from rentals can supplement retirement.
3. Increase SIP Contributions Every Year
If you increase your monthly SIP amount by 10% every year, you’ll reach your goal faster with less burden.
Retirement planning is not just about saving money—it’s about ensuring financial security for the future. By understanding your future expenses, accounting for inflation, and investing wisely, you can retire comfortably without financial stress.