Calculating a Retirement Corpus that can Support Your Lifestyle
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Calculating a Retirement Corpus that can Support Your Lifestyle

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  • 15th Dec 2021
  • 337

Calculating a Retirement Corpus that can Support Your Lifestyle

A retirement plan can prove fruitful for you only if it can accumulate a sufficient corpus that helps you maintain the desired lifestyle post-retirement. In this write-up, we discuss the various factors that can help you efficiently estimate the corpus amount you would need in the future.

Mr Srikant, who retired recently, bought a retirement plan suggested by a colleague while he was still employed. Now, after his retirement, the same plan is paying him a pension of Rs. 2000 a month, which is insufficient in supporting his post-retirement life. It happened because Mr Srikant was ignorant that calculating the future corpus requirement is crucial before buying a retirement or pension plan.

Various factors can help you in the corpus estimation, without which the retirement plan may fail to support you significantly. Once the corpus is estimated, it would give you an idea of how much you need to invest during the accumulation phase so that the desired amount is available by the time the vesting stage starts.

Factors Affecting the Retirement Corpus

  • Years Left for Retirement:

 It refers to the number of years from starting of the retirement plan to the year of retirement and can be calculated as a difference between your current age and age at the time of retirement. The higher the number of years left for retirement, the easier it is to build a large corpus.

  •  Life Expectancy:

It refers to the number of years a person is expected to survive. This factor is crucial because the corpus is expected to serve you till you are alive.

  • Current Monthly Expenditure:

It will help you estimate the desired amount for meeting your usual expenditure post-retirement after considering the expected inflation.

  •  Inflation Rate:

With inflation, everything will get costlier year by year, and hence your retirement corpus must align with expenses that would increase manifolds by the time you retire. Also, the inflation rate during your post-retirement years must be considered for better planning.

  • Expected Return on Investment:

It is the percentage of return you expect your investment to generate since you would have to fluctuate your premium amount for the selected term, as per the expected returns.

  • Calculation of the Retirement Corpus:

To calculate the corpus, it is better to use the online  retirement corpus calculator to generate accurate results. It takes as an input the above factors and generates the required corpus and the monthly investment. For understanding how the calculator works, you can refer to the following step-wise calculation:

Monthly expenditure at the time of retirement (ME)

ME = CME * (1+r)^n

Where CME = current monthly expenses

r = Annual inflation during the accumulation phase

n = years before retirement

Annual expenditure at the time of retirement (AE)

AE = ME * 12

Required Corpus (C)

>C = AE*((1-((1+G)/(1+R))^N)/(R-G))

Where G = Annual inflation expected post-retirement
R = rate of return post-retirement
N = Life expectancy post-retirement

The Final Word

Calculating the corpus, you would require after retirement is the first step towards truly securing your retirement years. Once you know your requirement, selecting a plan that can benefit you in your later years is easier.

- A Consumer Education Initiative series by Kotak Life

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