How would it feel to live without a salary for 20-30 years? To be precise, that’s what retirement is all about!
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 realize why planning for retirement is as important as that for other goals.
How much do you need to save for retirement? It’s one of the most common questions people have. And no wonder. There are so many imponderables: When will you retire? How much will you spend in retirement? And for how long?
That’s why we did an extensive analysis to come up with age-based retirement savings factors that can help you plan—in spite of those uncertainties. These milestones are aspirational. You likely won’t meet all of them. But they can serve as goalposts to help you make a plan to save enough to maintain your lifestyle in retirement.
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.
The table indicates that the later you start the bigger the SIP amount required. In fact, the 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.’