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How much do I need to Retire?

Understand how to plan a secure retirement by calculating your needs, and factoring in inflation. Start early, hit savings milestones by key ages, and diversify your portfolio for long-term growth.

  • 2,825 Views | Updated on: Jul 03, 2024

One of the most important financial goals that you can set is to start retirement planning early. Understanding “how much money do I need to retire” by the time you reach 60 is crucial for securing a comfortable and stable future. This involves careful consideration of various factors that will affect your post-retirement life.

This blog will explain the importance of retirement planning, outline the amount needed to retire, discuss what you should have saved by different ages, and detail the steps to calculate your retirement corpus.

Importance of Post-retirement Plans

Post-retirement plans are important for ensuring financial stability, understanding the amount needed to retire, and maintaining the quality of life after leaving the workforce.

Financial Security

One primary reason for having a solid post-retirement plan is financial security. After retirement, you will no longer have a steady income from employment, so having a sufficient amount saved will ensure you can cover your living expenses and maintain your standard of living.

Healthcare Needs

As you age, healthcare needs typically increase. Medical expenses can be significant, especially with the rising costs of healthcare. A robust retirement fund will help you manage these expenses without compromising your financial stability.

Lifestyle Choices

Your retirement should be a time to enjoy life and pursue hobbies and interests you may not have had time for during your working years. Whether you want to travel, take up new hobbies, or simply relax, having enough savings will give you the freedom to make those lifestyle choices.

Legacy Planning

For many, leaving a financial legacy for loved ones is important. Whether you want to provide for your children’s education, help with their home purchases, or donate to charitable causes, a well-planned retirement fund can help you achieve these goals.

Inflation and Market Volatility

Inflation can erode the value of your savings over time, and market volatility can affect your investments. A comprehensive retirement plan will account for these factors, helping to protect your purchasing power and ensure that your money lasts throughout your retirement.

Peace of Mind

Knowing that you have a well-thought-out retirement plan provides peace of mind. You can enjoy your retirement years without the stress of financial uncertainty, knowing that you have prepared for the future.

What Should I Have Saved by Age 35, 50, and 60?

It is helpful to consider benchmarks at different ages to determine how much to save for retirement. Here’s a general guideline:

  • By Age 35: Aim to save at least one to two times your annual salary. This sets a solid foundation for your retirement savings.
  • By Age 50: You should have approximately four to six times your annual salary saved. As you get closer to retirement, this stage is crucial, and you must ramp up your savings.
  • By Age 60: Ideally, you should have eight to ten times your annual salary saved. This will provide a significant nest egg to support you through retirement.

Steps to Calculate Post-Retirement Corpus

Creating a detailed plan for your retirement savings involves several steps. Here is how to calculate the corpus you will need:

Decide Retirement Age

Although the most prevalent retirement age in India is 60, many people want to retire early so they may pursue a hobby, travel the globe, or do volunteer work. Determining the retirement age will help determine how much money will be needed to retire comfortably.

Pro Tip: It is advisable to consider life expectancy while deciding the retirement age and money needed at the time of retirement.

Calculate Monthly Expenses After Retirement

Making a list of monthly expenses after retirement is the first step. The most usual expenses are

  • Grocery bills
  • Utility bills
  • House maintenance
  • Traveling

Pro Tip: Don’t forget to factor in inflation while calculating expenses post-retirement.

Calculate Monthly Income After Retirement

The second step is to calculate monthly income after retirement. It could be:

  • Pension from company
  • Pension from EPF
  • Income from a pension policy

Pro Tip: Any rental income must be calculated according to the estimated value post-retirement.

Calculate Net Income Required

The net income required is calculated by deducting monthly expenditure from monthly income.

Pro Tip: If monthly expenditure is ₹50,000 and monthly income is ₹30,000, then net income required is ₹20,000.

Calculate the Future Value of Required Income

Everyone has the option of retiring at a different age- the additional income required must be calculated according to inflation at that time.

Pro Tip: Experts advise using 6% inflation, the average of the past 10 years, in calculations.

Calculate Retirement Corpus

The total amount of money accessible at retirement is referred to as the retirement corpus. Since life expectancy is constantly increasing, it might be a bit tricky to calculate the retirement corpus. Retirement planning, according to experts, should be done until the age of 90.

Pro Tip: Since the retirement corpus must last 25-30 years after retirement, it is best to allocate a portion of the assets toward equity growth.

Track and Review the Plan

Once the retirement plan is put into action, it is important to review it periodically. If there are any sudden changes in the financial situation, they must be factored into the plan and adjusted accordingly.

Pro Tip: At least once a year, the retirement plan should be examined to see if it is on track to fulfil the goal.

Calculate Current Corpus

The majority of people would have also built up a retirement fund through various financial instruments. Add them all together to find out how much money you have set up for retirement. The different instruments are:

  • PDF
  • PDF
  • NPS
  • Pension plans
  • Insurance policies

Pro Tip: Begin investing as soon as possible. Compounding is a powerful tool that should not be overlooked.

Calculate Additional Monthly Savings to Meet Additional Corpus

Don’t be alarmed if the computations yield a large figure. People who begin investing at an early age will have a long time to accumulate the required retirement funds.

Pro Tip: Keep your financial knowledge up to date. It will go a long way towards establishing the necessary retirement corpus.

Key Takeaways

  • Save early & consistently to reach savings milestones by key ages.
  • Factor in inflation to ensure your savings last.
  • Regularly review and adapt your retirement plan.
  • Consider a financial advisor for personalized guidance.
  • Spread investments for better returns.

Final Thoughts

Striking a balance between reasonable return expectations and a desired level of living is one of the most difficult components of building a thorough retirement plan. Focus on building a flexible portfolio that you can modify frequently to reflect changing market circumstances and retirement goals.

FAQs on How Much to Save for Retirement


1

How do different types of retirement accounts affect my savings?

Different retirement accounts in India offer various tax advantages and investment options. Public Provident Fund (PPF) and Employee Provident Fund (EPF) allow tax-deductible contributions, reducing your taxable income now and offering tax-free withdrawals at maturity. Diversifying your savings across different account types, like PPF, EPF, and National Pension System (NPS), can provide flexibility and tax benefits in retirement.



2

What impact does debt have on my retirement savings plan?

Carrying debt into retirement can significantly impact your savings plan. High-interest debt can erode your savings and reduce the income available for living expenses. It’s essential to prioritize paying off high-interest debts before retirement to ensure your savings can be used effectively.



3

How can I ensure my retirement savings last throughout my retirement?

To make your savings last, create a withdrawal strategy that balances your income needs with preserving your principal. Consider the 4% rule, which suggests withdrawing 4% of your retirement savings annually. Adjust this rate based on your specific circumstances, market conditions, and life expectancy. Diversifying your investments and maintaining a conservative spending approach can also help.


4

What role does inflation play in retirement planning?

Inflation reduces the purchasing power of your money over time, making it essential to account for retirement planning. Use an estimated inflation rate to project future expenses and adjust your savings goals accordingly. Investing in assets that historically outpace inflation, such as stocks, can help protect your retirement corpus.


5

Is it beneficial to work with a financial advisor for retirement planning?

Yes, working with a financial advisor can be highly beneficial. Advisors can provide personalized advice, help optimize your investment strategy, and ensure you stay on track with your retirement goals. They can also assist in navigating complex financial decisions and adjusting your plan as needed.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

Plan Your Retirement Income