Retirement need estimation
Category : Retirement Planning
How much money do you need when you retire after certain times and want to maintain the same standard of living.In my earlier topic I discussed about how much important is to save for post retirement to sustain for at least 15 to 20 years after retirement.Here, I will discuss regarding the annual expenditure that you will require when you retire.
Now, let’s take a very simple example.
Mr. Adityanath is 32 years old.His current annual expenditure is ₹.4,80,000/-.He will retire at the age of 60. His annual expenses is expected to rise by 7% every year.Also, he wishes to maintain the same standard of living post retirement.Now, what will be his annual expenses after retirement i.e. after 28 years from now.
Let’s summarize all the information provided above. | |
Particulars |
Figures |
Present expenses per year | ₹.4,80,000. |
Current age(Years) | 32 |
Retirement age(Years) | 60 |
Years to retire from now | 28 |
Annual Inflation rate(%) | 7% |
Therefore, we need to calculate the annual family expenses after 28 years when Mr. Adityanath retires at the age of 60.
A |
B |
Rate | 7% |
Nper | 28 |
pmt | 0 |
PV | ₹-4,80,000. |
FV | ₹3,191,442.41 |
Therefore, we can see that the current annual expenses of ₹4,80,000/- will turn into ₹31,91,442/- in just 28 years with inflation rate of 7%.And if the actual inflation rate jumps to 8% then the annual expenses will also jump to ₹41,41,011/-.This is quite unbelievable that for just for 1% increase in the inflation rate the future annual expenses is going up by ₹9,00,000/-.
Are we really prepare for this?This is not a mere calculation rather it is a fact.One very important thing also I would like to add here is that no one really wants to maintain the same standards of living rather everyone wants to upgrade it with the passing times.Living standards tend to increase along with the increase of earnings and also along with times.
So, you need to save for your future in such a way that it may fetch you an annual income of at least ₹41 Lakh. Generally speaking it might look very difficult when you look at it. But it is actually easy if one starts early and make smart decisions.Contribute as much as you can from the very beginning to your retirement portfolio.Most, importantly you have shift your fascinations from fixed income instruments to equity related products.This smart choice can reach you to that hefty corpus that you may need after retirement.
2 Comments
Debasish
May 31, 2017 at 11:15 pmSuppose a person of 30 yrs presently, will retire exactly after 30 yrs from now. PV of 4,80,000 will become FV of 36,53,882 after 30 yrs will avg inflation of 7%. Now people tend to invest in secured instruments at old age i.e. FD. So in order to earn 36,53,882 per year with 8% p.a. ROI (since deposit rate must beat 7% inflation), a retirement corpus of 5,21,98,320 is needed, right?
FinanceGyan
June 2, 2017 at 12:03 amYes!You are right partially.But the fact is that to make a corpus of 5,21,98,320 with 8% ROI in Fixed instruments you have to invest a mammoth amount per month.Which won’t be possible for many general investors.Also your corpus amount may vary depending on your lifestyle.Wait for my another new updates on this retirement issue.
Thanks & Regards.
Finance-Gyan.