The amount of money needed for retirement in India depends on various factors such as your lifestyle, expenses, medical needs, and inflation. Assuming that you have no other sources of income during retirement and assuming an average inflation rate of 6%, a retirement corpus of 5 crores may provide you with a comfortable retirement if you can manage your expenses well. For example, if you were to withdraw 4% of your retirement corpus annually, which is considered a safe withdrawal rate, you would be able to withdraw around 20 lakh per year, which translates to around 1.6 lahks per month. This amount may be sufficient for a comfortable retirement, depending on your lifestyle and expenses. However, it is always advisable to consult with a financial advisor who can take into account your specific financial situation and help you determine the amount of retirement corpus that you would need.
Retiring with 5 crores in India can provide several benefits.
- Financial Independence: With a retirement corpus of 5 crores, you can enjoy financial independence and have the freedom to pursue your interests and passions without worrying about financial obligations.
- Comfortable Lifestyle: You can maintain a comfortable lifestyle during your retirement years, including expenses related to healthcare, travel, leisure, and hobbies.
- Tax Benefits: You can enjoy several tax benefits by investing in instruments such as fixed deposits, equity funds, and national pension schemes. These investments can provide tax-free income and capital gains, which can help you optimize your retirement income.
- Legacy Planning: You can plan to leave a legacy for your family and loved ones by making estate plans and creating a will.
- Peace of Mind: Having a substantial retirement corpus can provide peace of mind and financial security during your retirement years. You can live your life stress-free and focus on your well-being and happiness.
Is Rs. 5 Crore Enough For Your Retirement?
The percentage of the senior citizens is growing at a rapid rate, and the trend is likely to shift upwards in India. Ageing is irreversible. You need to equip yourself at an early age so that you remain in a decent financial position and good health when you reach the retirement age. At a young age, we fail to understand the real essence of retirement planning. Although retirement is the phase of life when responsibilities generally take a backseat, the expenses cannot be ignored. As a retiree, you may face medical emergencies that would arise anytime, and this could take a toll on your savings. Apart from that, you have to take into consideration the common household costs. You don’t want to fall short of money. In such a situation, you need to build a considerable corpus that would last for 30 years post-retirement. If your target is accumulating Rs.5 crores, you need to know when to start saving and would this be sufficient for retirement? To have a financial back-up of Rs. 5 crores, factors such as age, lifestyle, expenses and your monthly contribution is taken into consideration. Accumulating this amount can seem to be an easy thought, but it can be difficult when you start saving. One should ideally begin saving from an early age.
Let’s take an example to understand the investment we would require at every age to reach the 5 crore figure. Consider your retirement age to be 60 years, and you are investing in avenues that could give you 12% return per annum.
The table illustrates how much you will have to invest yearly to achieve the 5 crore corpus at 60.
| Age | Investment Horizon in Years | Monthly Investment at 12% return p.a |
| 20 | 40 | Rs.4,208 |
| 25 | 35 | Rs.7,698 |
| 30 | 30 | Rs.14,165 |
| 35 | 25 | Rs.26,349 |
| 40 | 20 | Rs.50,043 |
| 45 | 15 | Rs.99,093 |
| 50 | 10 | Rs.215,203 |
| 55 | 5 | Rs.606,161 |
The above example shows that to achieve the Rs.5 crores mark, you would have to start saving at the age of 20 and will have to shell out Rs.4,208 per month. The investment keeps growing as your age increases and investment term shrinks. Moreover, generating returns at 12% rate to reach the retirement corpus goal can be unrealistic. Still, financial experts say it could be possible if you choose equity mutual funds through SIP (Systematic Investment Plan) mode.
IDENTIFY YOUR EXPENSES
To ensure that your golden years are just like you have imagined it to be, you will have a look at your expenses. At the time of retirement, you have to incur money for the following things:
- Healthcare: This can be considered as the primary and the most crucial cost you will often incur when in old age. Health ailments tend to crop up as you grow older. You may have to spend money on regular health check-ups, buying medicines for a pre-existing illness, undergo medical tests, hospitalization, etc.
- Vacation: Most retirees prefer exploring new places or travelling during retirement. When accumulating wealth, you will have to consider expenses related to hometown visits, travelling to new cities, visiting relatives and so on.
- Monthly Rent: You may not consider living in a rented house when you’re retired. However, if you’re unable to afford your own home, then rental expense should be on your list when calculating retirement expenses
- Household Expenses: Although a few responsibilities will take a backseat, household requirements is the thing from which you cannot wash your hands off. You will have to spend on daily groceries, water, electricity, household help, personal care, etc.
- Shopping and Dining: During old age, you may try to reduce your expenditure on unnecessary things, yet you will have to set aside an estimated amount for shopping and dining.
Above are some of the typical expenses you need to look into, but there could be other atypical costs relating to marriage, dependents, smoking habits, and the place you reside. It matters that you give a thought to other factors while building a portfolio.
How much to save for retirement?
This is a prudent question that every common man faces. Savings for retirement should focus on living a comfortable life and ensuring that you don’t outlive the saved funds. If you’re trying to find an answer for how much to save for retirement, it will depend on your lifestyle, your current income earning, how long you will live post-retirement, how long will you need your retirement account to last.
Let’s take an example to understand better on how much one has to save for retirement.
- Suresh Malhotra is a 30-year old married man, who wants to retire at the age of 60
- He expects 85 years as his maximum life expectancy
- Assuming the rate of return as 12% and inflation rate at 6% (rate of return and inflation rate vary according to market conditions)
- His monthly expense is Rs.50,000
- His annual expenditure on vacation and health is approx. Rs. 1 lakh
- Assuming that expenses post retirement will reduce 75% of his current expenses
- He currently has no investments
| Current age | 30 |
| Retirement Age | 60 |
| Life expectancy | 85 |
| No.of years of retirement (T) | 30 |
| No.of years after retirement (N) | 25 |
| Rate of return (R) | 12% |
| Inflation rate (I) | 6% |
| Rate after inflation adjustment (r) | 5.66% |
| Current Monthly Expenses | Rs.50,000 |
| Health & Vacation Expenses | Rs.1,00,000 |
| Current Expense per annum | Rs.7,00,000 |
| Inflation adjusted expense p.a at retirement | Rs.4020443.82 |
| 75% reduction in expenses post retirement | Rs.30,15,332.87 |
| Corpus needed for retirement | Rs. 4,54,07,579.33 |
| Yearly investment | Rs. 1,67,994.16 |
| Monthly investment | Rs. 14,738.06 |
Suresh would need Rs.4.54 crores during his retirement considering his expenditure, inflation rate, adjusted inflation rate, rate of return, retirement age and his life expectancy. To achieve this saving amount, he will have to make a yearly investment of Rs.1.67 lakhs for the next 29 years or can invest a monthly amount of Rs. 14,738 to build the estimated retirement corpus, which is close to Rs.5 crores.
Be sure that you can afford retirement
Affording retirement can be easy when you can identify what would be your income and expenses during retirement. You also need to evaluate your current investments and how much would be sufficient to cover those expenses as you retire. If you think that your current expenses would suffice post retirement stage, then you need to reconsider the investment option. Planning for retirement doesn’t have to be a tough task. There are tools such as an online retirement calculator that will help you to know how much you need to save for your retirement years.
