How Much Money Do You Need to Retire? - Jupiter Money (2024)

What do you plan to do after retirement? Spend time with family, travel, or move far away from the city and live a peaceful life. Whatever you wish to do, you will need to plan for it from now itself.

Once you retire, you won’t have a source of income to rely on. Moreover, savings in your bank will hardly cover your expenses as inflation will eat into them and reduce your purchasing power. Since you will need money to cover your expenses during your retirement age, it is important to plan your finances for retirement from now itself.

But the question is will Rs 5 crore be enough to retire peacefully? Whether it will be sufficient or not will totally depend on your expenses and lifestyle. Let’s look at how much you will need to retire and live your golden years peacefully.

The amount you need during retirement will depend on multiple factors, such as your present age, expenses, and inflation. The following factors will help you determine how much you will need during retirement.

1. Current age: Determining your current age will help you calculate how many years you will retire. It will also estimate how much you need to save every month or year until you reach retirement age.
2. Retirement age: By determining your retirement age, you will know exactly when you will stop getting income. This way, you will know when you will require money. Moreover, your retirement age will also help you in estimating how long you will need finances. For example, if you plan to retire at 60, you must plan for at least 30 years. However, if you plan to retire early (before 60), you will have to plan for longer.
3. Expenses: Your current expenses will help you in estimating your future expenses. You must identify your current expenses and divide them into different categories. Following are some of the most common expenses you will have.
   • Monthly rent: If you are staying in a rented house, this is your most important expense.
   • Household expenses: Groceries, salaries to housing help, water, electricity, etc all fall under household expenses.
   • Health care: The money you spend on medicines, health check-ups, hospital visits, and gym all fall under healthcare expenses.
   • Shopping, dining, & entertainment: All the money you spend on dining out, movies, shopping for clothes, jewellery, electronic appliances, etc, fall under this category.
   • Vacation: Expenses on travel through flight, train, bus, car, hotels, and other recreations during a holiday fall under vacation expenses.
4. Inflation: Another factor that helps in determining your retirement corpus is inflation. The higher the inflation rate, the higher the retirement fund will be.
5. Current investments: If you have already invested in some securities for your retirement, you can consider them while estimating your total retirement corpus. So this means you have to invest less as you have already invested in a few securities. If you don’t have any investments, you will have to start your investing journey from scratch.

How Much Money Do You Need to Retire?

As mentioned earlier, the retirement corpus will depend on your expenses, retirement age, inflation, and current investments.

To estimate the funds you need for retirement, let’s consider an example. If your anticipated annual expenses during retirement amount to INR 12,00,000 and you plan to retire in 25 years, accounting for an inflation rate of 7%, it is advisable to have a retirement corpus of approximately INR 3.6 crore.

Let’s take another example to understand how to factor in all these to estimate the amount you need for retirement.

Ms Kirti Singh is 30 years old and plans to retire at 65. She is married and has one kid. Her monthly expenses include household expenses of Rs 70,000 per month. She also spends Rs 50,000 per annum on the gym, medicines, and health check-ups. Ms Singh also loves to travel and spends Rs 1,50,000 per annum for travel and entertainment.

After her retirement, she plans to live peacefully, far away from the hustle and bustle of the city. Her expenses are expected to reduce to 60% post-retirement. She currently has Rs 10 lakhs in investment at a rate of 10% per annum.

Let’s see how much she would need to invest at present if the inflation is 7% per annum and the expected rate of return on her investments is 12% per annum.

To retire peacefully, Ms Singh would need Rs 11.30 crores by the time she turns 65.

From the above table, we can see that Ms Singh’s expenses per annum would be Rs 66.62 lakhs at the time of retirement. Her total expenses for the duration of her retirement would be Rs 11.30 crores. This is calculated after taking inflation and the expected rate of return on the investments she will make.

Since she already invested Rs 10 lakhs at the age of 30 at 10%. The value of these investments at age 65 would be Rs 2.81 crores. Hence, she would need to plan to invest only Rs 8.49 crores (Rs 11.30 crores – Rs 2.81 crores). To have a retirement corpus of Rs 8.49 crores, Kirti would need to invest Rs 16.08 lakhs as a one-time investment.

If she plans to invest yearly once, she will need to invest Rs 1.75 lakhs per annum for 35 years. Alternatively, she can invest Rs 15,404 per month for the next 35 years (420 months) to get a corpus of Rs 11.30 crores.

If Kirti started planning for retirement earlier (in her 20s), she would be investing less than Rs 15,404 a month as she would have a longer duration until retirement. If she started her retirement planning at the age of 40, she would have less time until retirement and would have to invest more. This means that the earlier you start your retirement planning, the better it is.

Where to invest for retirement?

Retirement is a long-term goal. If you start planning for it right from the time you start earning, you will have 30-odd years to save for retirement. The market has multiple securities that qualify for long-term investments. Some of them are listed below.

Mutual funds

Mutual funds are securities that pool money from multiple investors and invest in equity, debt, and government securities. There are different types of mutual funds, such as equity, debt, and hybrid funds. For the long term, equity mutual funds are the best. This is because they have the potential to give high returns in the long term.

If you have more than five years of tenure, equity mutual funds should be your go-to investment. As you approach your retirement age, you can redeem your funds from equity and invest in debt mutual funds to protect your principal.

Although mutual funds have no lock-in period, you must keep in mind that they are marketable securities, and the returns depend on the market. Moreover, the profits are taxable at the time of redemption.

Public provident fund (PPF)

A public provident fund (PPF) is a government scheme that pays a fixed return of 7.1%. It was introduced in 1968 to encourage savings.

Since it pays a fixed return and is backed by the government, it is a risk-free investment. Moreover, the investment, interest and maturity corpus are exempt from tax. Hence you need not pay any tax on the gains you make.

The minimum investment is Rs 500, and the maximum is Rs 1,50,000 per annum. You will have to make the deposits at least once a year for a period of fifteen years to keep your account active. PPF has a lock-in period of fifteen years. So this means that once you invest in this scheme, you won’t be able to withdraw it for fifteen years. However, you can avail of a loan on the PPF amount or withdraw the amount partially after five years. All major banks and post office offer PPF. You can directly invest in it online or by visiting the branch physically.

National pension scheme (NPS)

A national pension scheme is a government-sponsored pension scheme that was launched in 2004. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and the central government.

The scheme encourages subscribers to invest regularly during their employment tenure to get retirement benefits when they turn 60. Out of the total corpus accumulated, 60% is paid in lumpsum during retirement. The rest 40% is paid as a monthly pension for the rest of your life.

NPS invests a portion of the investment in equities. Hence the scheme doesn’t guarantee any returns. Historically, the scheme gave around 8-11% return per annum. The asset allocation is decided based on your age and the fund manager you choose. The government has authorized a few fund managers to manage NPS investments, and you can choose your manager at the time of investment.

The scheme qualifies for tax benefits under Section 80C and Section 80CCD of the Income TAX Act, 1961. You will also get a tax exemption of the 60% of the lump sum amount you withdraw. The rest 40% will be taxed as and when you receive the pension.

All three are good investment alternatives for long-term investments. You can invest in all three to diversify your investment portfolio.

Why should you plan your retirement?

Once you retire, you will not have any source of income. Without an income, you will not be able to cover your expenses. Hence you will have to look out for your future self from now itself. Following are some of the reasons why you should plan for your retirement now itself.

• For covering your expenses: The primary reason you should invest for your retirement is to cover your expenses. Daily household expenses, medical bills, entertainment and travel, will be your major expenses. Without a source of income, covering these would be difficult.
• To fight inflation: Every year, your expenses increase due to the rise in prices of goods and services. Hence your hard-earned money goes into paying for the rising prices of goods and services. Having just savings in a bank account will not be sufficient. Without a sound retirement plan, your savings will erode faster than you can imagine. Hence you must invest for retirement taking inflation into consideration to cover your expenses during retirement.
• To meet your retirement goals: Everyone has a different plan on how they want to spend their retirement. While some want to travel the world, others prefer a quiet retirement in their hometown. The former is going to cost you a lot more than the latter. Whatever is your retirement goal, you must have proper savings to fulfil it.
• For uncertainties: You never know when the uncertainty will knock on your door. Hence it is better to prepare for all kinds of emergencies in life. A retirement fund will help in handling these uncertainties smoothly.

Things to keep in mind while planning your retirement

Before planning your retirement, there are certain things you must keep in mind.

1. Know what you will do after retirement: Although it’s difficult to decide what you will do after retirement right now, at least have a plan and start saving towards it. You can change your plan later, but at least you will have some savings done until then. It is important to know what you’ll do after retirement as it will help in estimating your retirement corpus.
2. Make sure you can afford retirement: Know what your income and expenses are post-retirement. If your current investment is able to cover your expenses post-retirement, you can afford retirement. If not, start investing more immediately. It’s your expenses and investments that decide your retirement age. So, start investing more if you want to retire early.
3. Have a retirement budget: Retirement will both reduce and increase your current expenses. You might be spending less on food or dining out but more on your medical bills or travel. Hence it is best to adjust your expenses from now itself and have a retirement budget in place so you won’t live beyond your means. Having a budget will help you spend your money wisely post-retirement.
4. Settle your liabilities: Retirement is meant to be spent peacefully. Hence pay off all your liabilities before retirement. This includes credit card bills, home loans and car loan instalments. Living debt free will help you live stress-free.
5. Factor in taxes: Your investments will give you capital gains. These capital gains are taxed as per the income tax rules. When estimating your expenses from your retirement corpus, make sure you factor in taxes, as taxes reduce the money in hand.
6. Don’t ignore your health: Working tirelessly for thirty long years can impact your health. Sometimes, your ill health can make you retire early. Even if you work beyond 60 years, very few companies offer health insurance benefits for employees aged 60 and above. So, it’s better to factor in your health to decide when to retire.
7. Reach out to a financial advisor: If you can’t plan your retirement, reach out to a financial advisor. They will help you chalk out a plan and invest based on your income, expenses, and goals. It is not wrong to seek help from experts as they have expertise in their field.
8. Start early: You should start thinking about retirement right from the time you start earning. The earlier you start, the longer you will have to plan and save for retirement. Also, if you start early, you can invest in small and affordable instalments./li>

Conclusion

Retirement years are the golden years of your life. You should plan on living them peacefully without any stress. To make your retirement stress free, start investing from now itself. The earlier you start, the more the corpus you can accumulate. If you haven’t started retirement planning already, now is the right time to do it. Better late than never, right?

Happy retirement planning!

Frequently Asked Questions

1. Is 5 Crores Enough to Retire in India?
   You can retire with Rs 5 crores, provided your expenses during your post-retirement years are covered within this limit. Always plan your retirement corpus based on your current expenses and inflation.
2. How many crores do you need to retire?
   You can retire peacefully even with Rs 1 crore. However, it totally depends on your expenses. It’s not wrong to spend a lot of money. However, you should be able to afford it. To afford your retirement, you must make sure you plan your investments accordingly. If you want to retire with a huge corpus, make sure to start investing early and regularly.
3. Which is the biggest expense for most retirees?
   The biggest expense for retirees is household expenses, followed by medical expenses. For people who wish to travel, travelling would be a major expense. So your expenses will depend on what you plan to do after retirement.