In everybody’s life retirement is an important phase. By the age of 60 years, most working people retire. This can be termed as a stage that leads an individual from an “active earning” stage to a ” passive income” stage. The problem is about the fact that how much funds are sufficient in order to lead a comfortable life. Someone might just say Rs 5 crore, another says Rs 15 crore and you think Rs 1 crore is enough. Nationlearns, First Free Online Financial Advisors simplify this topic making you more clear about the retirement corpus.
What do you mean by retirement? It is a stage when we stop working and earning but still have a long bill to pay like groceries, fruits, milk, fuel expenses, cable TV, internet/phone/broadband, electricity/water bills, newspaper, etc.
These expenses remain the same regardless our working or getting retired. Some expenses that might stop at the time of retirement are expenses towards children(assuming that they are educated, earning, married and financially not dependent on you) no commitment of paying house rent or paying any EMIs.
Let us say, if your present mandatory monthly living expenses (assuming that you are in your 30s) are Rs 25,000 that compromises you, spouse, kids only excluding school fees and the related then when you reach your retirement age, you would be spending for the same items. We can cut your children expenses for the future as they would be financially settled by then, the only expenses remain after you retire will be for you and your spouse. We can consider about Rs 20,000 per month as your today’s living expenses and annual inflation of 6 percent to be arrived at your future expenses.
If we assume your age to be 35 now and you retire at 60, then 25 years from today you will need about Rs 85, 000 per month in order to live a normal life.
Next comes the critical aspect — future bank interest rates. Over the next two decades due to various economy-related factors the interest rates are set to go down to as low as 3 percent to 4 percent p.a. . Therefore, your building of retirement corpus is not only dependent on inflation based calculations alone but also needs to be calculated on the future interest rates as well because the retirement corpus would be deposited in a bank to earn regular interest.
In order to achieve Rs 85,000 per month of withdrawal to meet mandatory living expenses, you shall need to create a corpus of approx. Rs 3.5 crore; Rs 3.5 crore x 3 per cent rate of interest / 12 months = Rs 85,000. This as a result means that you may need Rs 3.5 crore or a maximum of Rs 4 crore as your retirement corpus.
With this method of calculation, you should start building your retirement corpus when you are in your 30s. You don’t need to save more and create bigger corpus which you may not need. You might end up wasting your today’s earning. It is better to take assistance of a good financial advisor which can be actively found in Nationlearns, best Retirement Planning financial advisory portal and plan your retirement before it’s too late.
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