Retirement essentially is a happy phase in life where you stop the clock-bound, mundane work life, and prepare to enjoy all your time with your loved ones. But with retirement comes old age and health issues. And this is the reason why you need to accumulate enough money to take care of the health of yourself and your loved ones after your retirement.
But accumulating wealth for your retirement during your employment years isn’t an easy task. It requires a lot of meticulous financial planning and smart investment to support your financial plan. And perhaps the basic step for a sound financial planning is to find out how much money is enough for a happy and healthy retirement in India.
This could be a really tricky question. Some people think that the amount they get after calculations using a pension calculator is enough to retire in India. If it only were so easy! You need to constantly ask yourself a lot of questions to actually derive the answer to this confusing conundrum – how much money is enough for retirement in India?
In this article, we will present to you some such questions that you must get answers to, in order to calculate the amount of money you will need to successfully retire in India.
Let’s delve a little deeper into the subject:
This is perhaps the first and foremost question you must find an answer to. Find out how much you spend each month on your utility bills, ration bills, home maintenance, and other bills. Let’s assume you spend a total of ₹25,000 per month on your household expenses. This means you are spending a total of around ₹3,00,000 per year.
Now, carefully take into account the amount of money that you have been spending on entertainment. Calculate how much you spend on dinners, movies, kid’s entertainment and other stuff. Also, it’s common to go out on a family vacation at least once a year. So take that expense into account as well. Let’s assume you spend ₹5000 per month for entertainment and at least ₹20,000 once a year for a family vacation. So your total yearly spending on travel and entertainment comes round to ₹80,000 per year.
If you are a regular office goer, then we are sure you spend a certain amount on transportation. When calculating your retirement corpus, don’t forget to take this spending into account. Let’s assume you spend ₹5000 per month on transportation or fuel expenses. So this expense comes round to about ₹60,000 per year.
How Much do You Spend on Health Care?
We are sure you do have a mediclaim policy for yourself and your family members. Do take into account the expense of that. Also, add the monthly medical expenses that are usually unplanned. Let’s assume you pay Rs. 25000 as the yearly premium of your mediclaim policy and Rs. 2500 comes to be the sudden medical expenses that you spend each month. So the total yearly health care expense for you comes to be around Rs. 55000.
How Much do You Pay in Taxes?
Factor in your total tax liability for a year. Let’s assume it is Rs. 100000 per year.
How Much Money Do You Save as Emergency Fund?
Ask any expert and they will suggest you to keep aside at least a small amount of money each month as emergency funds. This money could be used at the time of emergencies. Let’s assume it to be Rs. 5000 per month and Rs. 60000 per year.
What Is Going to Be Your Inflation Adjustment?
In simple terms, inflation means the decrease in the value of money in terms of purchasing power. Inflation increases the monitory value of goods. This means you will need to pay more for the same good that you are buying for less today. While calculating retirement corpus using pension calculator, it makes sense to carefully consider inflation adjustment. Let’s assume it as Rs. 100000 per year.
When Will You Retire and What is Your Life Expectancy?
The retirement age in India is 58 years. However, some people choose to retire early and some choose to work even after they turn 58. So when calculating your retirement corpus using pension calculator, you will need to think when you want to retire. And typically the life expectancy in India is 80 years. So let’s assume you wish to retire in 20 years and your life expectancy is 80 years.
Now let’s do the math.
|Household expense –||300000|
|Entertainment & Vacations –||80000|
|Transportation/Fuel Expenses –||60000|
|Health care –||55000|
|Tax liability –||100000|
|Emergency Fund –||60000|
So if were to retire today, you would need Rs.655000 per year to lead a comfortable post-retirement life. And in order to make yearly income of Rs.655000, you will need at least Rs. 1 Cr retirement fund. Here it is important to take the inflation rate into account too. So we will now need to figure out how much will be the value of Rs. 1Cr in 20 years down the line. Typically pension calculators take the inflation rate of 6%. So let’s take the same inflation rate and calculate your retirement value in 20 years. It comes to around Rs. 3 cr after 20 years.
If you are average office going middle class Indian with all these expenses mentioned above, Rs 3 Cr is the amount of money you need to retire.