Rs 21,000/month of investment can help you retire with Rs 4 crore – Here is how

Sunil Dhawan
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Saving for retirement is considered to be the most ignored financial goal by most of us. While some may have realized the importance to save towards retirement, the procrastination is a worrying factor. But, if you are seriously thinking of how much retirement money do you need, here is a simple road map to retire rich. There could be different methods of saving, but what you need to do is to start saving systemically and have a monthly saving plan.

The process to save on a regular basis is what systematic investment plan (SIP) is all about. A retirement SIP calculator can help you do this, else there are SIP calculators to help you calculate how much you need to save. You can start saving on an ad-hoc basis and keep saving some arbitrary amount each month. The end result-you could be saving much lesser than required or could be saving more! Instead, make an informed calculation and use SIP calculators to find how much you need to save.

You can start saving on an ad-hoc basis and keep saving some arbitrary amount each month. The end result-you could be saving much lesser than required or could be saving more! Instead, make an informed calculation and use SIP calculators to find how much you need to save. One of the important investment tips is to start saving after calculating the inflation-adjusted amount of the goal rather than saving for the goal’s current cost.

Here is a 5-steps process to find out how much you need to save for your retirement after adjusting your current household expenses for inflation.

Step 1: In the first step, based on your current age, see how many years are left for you to retire.

Let us say, you are 35 and there are another 25 years for you to hang up your boots.

Step 2: In the second step, arrive at a rough estimate of the monthly expenses you will have from age 60 till you depart to the unknown destination. Now, this could be tricky as predicting post-retirement needs could be difficult. Your medical, travel expenses may go up, while some will vanish or come down. And, then there is inflation during the retired years. With life expectancy going up, thanks to medical advancements, you don't want to underestimate your requirements.

Here’s help. Take 80 per cent of today’s household expenses as your post-retirement expenses. So, if your current monthly need ( 80 per cent of today’s cost) is Rs 50,000, you need to find out how much will it be worth after 25 years.

Step 3: In the third step, you need to inflate the monthly expenses. The monthly household expenses, assuming an inflation of 6 per cent per annum, will amount to nearly Rs 2 lakh per month once you reach age 60.

In simple terms, today when you are of 35 years with a monthly expense of Rs 50,000, after 25 years at age 60, you will need Rs 2 lakh per month to meet the same level of household expense!

Step 4: In the fourth step, you will need to find how much you need to save in order to meet the post-retirement expense.

Assuming a return of 6 per cent on the post-retirement corpus, you will need about Rs 4 crore of corpus to get Rs 2 lakh per month from age 60. Here, post-retirement inflation and reinvestment risk is not considered.

Step 5: In the fifth step, you need to see how much you need to save for accumulating Rs 4 core in 25 years.

Here, comes the role of a SIP calculator. Using the SIP calculator, a 35-year-old will need to save Rs 21000 each month for 25 years at an assumed growth rate of 12 per cent to create a corpus of Rs 4 crore.

To meet the monthly inflation-adjusted need of Rs 2 lakh per month, Rs 4 crore at 6 per cent will yield the required amount.

For 30 year old

For someone who is 30 needs to invest Rs 17000 every month to create an approximate corpus of Rs 6 crore at age 60, assuming an annualised growth rate of 12 per cent. The corpus of Rs 6 crore will be enough to meet the post-retirement inflation-adjusted monthly need of Rs 50000 ( at today’s cost).

For 40 year old

For someone who is 40 needs to invest Rs 38000 every month to create an approximate corpus of Rs 3.8 crore at age 60, assuming an annualised growth rate of 12 per cent. The corpus of Rs 3.8 crore will be enough to meet the post-retirement inflation-adjusted monthly need of Rs 50000 ( at today’s cost).

Above is a simplified version of the steps required to determine the amount of monthly savings. One should sit with his or her financial advisor to calculate using a more evolved version taking other things into the aspect.

The actual amount of monthly savings will depend on the number of years left for retirement. If you are young and have more years to retire, there’s good news for you. With more time in hand, you will require to save less than someone who is about to end his or her working life. This is a very big advantage with youngsters and sooner one realizes the better it is for them.