Are you 35, or 40, or 45-year-old and want Rs 80,000 monthly income at retirement? Here's how much you need to invest monthly and lump sum
Retirement Planning: Do you spend Rs 30,000 a month, Rs 40,000, Rs 50,000, or Rs 80,000? Do you want to maintain the same lifestyle post-retirement or upgrade it? The planning to generate a retirement corpus will depend on this assessment. But can we make the right assessment for that? If yes, then how?
Monthly income for retirement, retirement corpus planning: Do you want to maintain the same lifestyle post retirement, want a modest one, or aim for a lavish lifestyle? It is certainly your call to decide, but what is important is to know your future expenses at retirement and how much you need to invest to achieve that goal. With inflation, expenses will rise, not just before retirement, but also after retirement. So, if you are 40 and expect to live till 80, you need to calculate the inflation-adjusted retirement corpus that can maintain your expenses for the next 40 years. Through projections, we will tell that if a person is expecting to have a monthly passive income of Rs 80,000, what can be their estimated corpus and estimated lump sum and monthly SIP investments to generate that fund?
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Why you need more money for future?
It's because of inflation. An average inflation of 6 per cent will make the same thing costlier a year after. Take the example of how it will impact your expenses.
Suppose you are 30, and your monthly expenses are Rs 30,000. If you want to maintain the same lifestyle post retirement, at a 6 per cent inflation rate, you need Rs 1.72 lakh a month 30 years later.
How it will impact your retirement planning
The shorter your investment period, the higher your investment will be to achieve the required retirement corpus goal. The reason is you have fewer years for compound growth of your investment compared to a person who starts early.
A and B want Rs 50,000 monthly income at retirement. A has 10 years and B has 20 years to achieve that goal. They want to create a corpus that can give a 6 per cent return post retirement to help them get Rs 50,000 monthly. In such a case, both are targeting a Rs 1 crore retirement corpus. Both are expecting an annualised return of 12 per cent.
A need to invest an estimated Rs 10,0100 monthly to achieve that target in 20 years.
But B's estimated monthly investment for a Rs 1 crore corpus will be Rs 43,0400.
A delay of 10 years increased B's investment amount by more than 4-fold.
Calculation for story
We will calculate inflation-adjusted income of Rs 80,000 a month for people aged 35, 40, and 45. We will show how much estimated corpus they require to achieve that target and what their monthly SIP and lump sum investments will be to achieve that goal. The retirement age in each case will be 60 years. The life expectancy will be 80 years.
Inflation rate
We will take 6 per cent as the inflation rate. It means even during a 20-year post retirement period, their annual expenses will grow by 6 per cent.
What will be investment returns?
We are assuming that pre retirement post-tax annualised return will be 12 per cent and post retirement post-tax annualised return will be 6 per cent.
Expenses for 35-year-old at retirement
If a 35-year-old person wants Rs 80,000 today, their monthly expenses at a 6 per cent inflation rate 25 years later will be Rs 3,43,350. Their estimated retirement target in such a case will be Rs 8,24,04,000.
What will be their monthly SIP investment to achieve that goal?
Their estimated SIP investment to get inflation-adjusted Rs 80,000 monthly will be Rs 43,425.
What will be their monthly lump sum investment to achieve that goal?
Their estimated lump sum investment to get that amount monthly will be Rs 48,47,276.
Expenses for 40-year-old at retirement
For a 40-year-old person whose expenses are Rs 80,000 today, they will be an estimated Rs 2,56,571 at retirement (20 years later). Their estimated retirement target in such a case will be Rs 6,15,77,040.
What will be their monthly SIP investment to achieve that goal?
Their estimated SIP investment to get that monthly amount will be Rs 61,630.
What will be their monthly lump sum investment to achieve that goal?
Their estimated SIP investment to get that amount monthly will be Rs 63,83,493.
Expenses for 45-year-old at retirement
For a 45-year-old person who spends Rs 80,000 a month now, they will spend an estimated Rs 1,91,725 15 years later. Their estimated retirement target in such a case will be Rs 4,60,14,000.
What will be their monthly SIP investment to achieve that goal?
Their estimated SIP investment to get that amount monthly will be Rs 91,193.
What will be their monthly lump sum investment to achieve that goal?
Their estimated SIP investment to get that amount monthly will be Rs 84,06,586.