Retirement Planning: How Much Money Would You Require to Retire in India?

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Planning for your retirement is a necessity which should not be put off for the last minute. You may have a pension to depend on but it won’t cover all of the expenses until you know the amount you need to retire. Thus, calculating the corpus you would need to be self-sufficient will aid you in saving up accordingly. So, let’s understand the amount of money you would need to retire without worry and also how to retire early

Retirement planning: 4 mistakes that can hurt your retirement planning

Sort Your Monthly Expenses

Your current monthly expense must consist of things like groceries, medicines, loans, travel expense, bills, fuel expense, and vacations amongst others. But many of these will not exist after your retirement. Thus, you need to sort your monthly expenses into two, the ones which will continue during retirement and others which won’t. Expenses like home loans, travel expense, work-related costs, education loan, etc. will not continue. So, you can remove them from the monthly expenditure and calculate a sum which you will require.

Calculate Expected Income

Now, you need to calculate the expected income you will be getting after retirement. This includes pension from National Pension System, a pension from your job, corpus from insurance plans, income from other investment tools, etc. You can also include any income that you will receive from a property. The total from this will be your expected income after retirement.

Determine Required Income

From step 1 and 2, you know the various expenses of yours and the expected income. Now, you can calculate the income required to suffice you. If your monthly expense is INR 40,000 and your expected income per month is INR 30,000, you need INR 10,000 more for all your expenditure.

Work Out the Future Value of Income

Inflation plays a vital role in our lives making our current savings seem little for the future. Now that you have the required income for your retirement, you have to include the rate of inflation to it. From this, you will be able to work out the future value of your income. The inflation rate can be calculated by taking an average of the long-term inflation rate as the current rate will mislead your estimations.

Consider the Income Accumulated

You have now calculated the amount required after retirement with the above steps but you need to see how much you should save for your retirement. There are various financial instruments that enable you to save for your retirement. If you have already invested in such tools, you have to calculate the current corpus you possess. But if you haven’t started investing, you can begin now. Below given are some instruments that you can consider:

  1. Life Insurance policies
  2. Employees Provident Fund
  3. Public Provident Fund
  4. National Pension System
  5. Pension plans
  6. Mutual funds
  7. Bank deposits

Calculate the Growth of Corpus

From the above options, if you have chosen any tools, you can calculate how much that amount will grow to with a rough estimate. The growth will also depend on what kind of tools you opt for, if they are market-linked and if they are equity orientated. Investing in equity funds will give you higher returns than most financial instruments.

Determine Required Sum

With figures like the amount you will require at 60 and how much your existing capital will grow by 60, you can estimate the sum you need at retirement.

Estimate the Amount You Need to Save Up

With all the above steps, you are aware of the money you require, so it is time to determine the amount you need to start saving up. Though you may have ended up with a huge number, there is no need to worry. If you begin saving up at a younger age, you can accumulate the said amount by the time you reach the retirement age. This is due to the power of compounding that you can gain good returns in the future.

Add Up Current Investments

By adding your current investments, you will be able to calculate how much more you need to invest to get the required sum in the future.

With this, you can now begin your retirement planning and start saving up. You will also find a retirement planning calculator online to help you with the estimations.