Calculating Your Retirement Corpus




We are glad to have you with us for our 1st session of the Retirement Planning Series - Calculating Your Retirement Corpus

Alright so let’s get started...

Many people often underestimate the amount of money that they need for a hassle free retirement. In just few years of their retirement, they realise that they will be running out of money. And the thought of the number of years that they may have to survive without any income is rather horrifying.

So, in order that you do not land up in such a situation, it is necessary to calculate your retirement corpus carefully.

Therefore, in this session of money simplified we’ll tell you how to go about calculating your retirement corpus.

But before you start calculating your retirement corpus, you should be clear about where you stand today and where you wish to be tomorrow realistically. So here are...

8 Things You Should Consider
While Calculating Your Retirement Corpus

  1. Years left to your retirement:
    You should consider the number of years left for your retirement. This is the only time that you have in your hand to earn and see cash flowing in... that can help build your retirement corpus. Moreover the power of compounding works out to be a boon for those who start early. But for those who have started late or have few years to go, need to plan cautiously.

  2. Your Life Expectancy:
    You need to consider and provide for the number of years you expect to live post retirement. The average life expectancy in India has grown steadily over the years because of advancement in medical science. To be on the safer side one must plan for 20-30 years post retirement.

  3. Your monthly basic expenditure:
    Apart from your current monthly basic house hold expenditure, you should also consider other additional expenses that you incur every month towards your life style like your phone bills, fuel expenses, shopping, entertainment, medical expenses etc., which you would continue to incur even during your retirement.

  4. Inflation growth rate:
    Do not forget to arrive at inflation adjusted expenses. As you know, Inflation decreases the purchasing power of your money. And to maintain your current life style and secure the purchasing power of your money, you need to compete with this monster called inflation. While your basic household expenses can be assumed to grow @ 7% to 8%, the cost of your other expenses such as medical bills, children education, etc. may grow at a comparatively higher pace.

  5. Your contingency needs:
    An uncertainty may knock your door without informing you. So you need to pro-actively provide for contingencies like medical, hospitalisation, loss of job etc., which may derail your finances. Setting aside money for such contingencies may help you handle your finances for few months, and give you some time to settle.

  6. Estimate the value of your assets:
    Assets are something that can grow in value and which you can liquidate in case of emergencies or during your retirement. You might have already built some assets for your security and if you are young, you might be planning to build more in future, before you retire. All your investment in shares, mutual funds, bonds, fixed deposits, gold, ornaments, ancestral properties, land etc. are your assets. You should estimate the future value of your assets and how you would like to use them during your retirement.

  7. Recognise your liabilities:
    Some of you might be having liabilities, which you should repay before your retirement. You should not get into a situation where you need to keep on paying your liabilities even during your retirement. The housing loan that you took to buy your house is a liability or any credit card dues and personal loans are your liabilities that you need to repay well before your retirement.

  8. Provide for your key life goals:
    You should provide for all your financial goals like buying your dream home, your children’s higher education, their wedding etc. You can keep aside a portion of your investments you own at present to achieve these goals. This will help you recognise the gap between your dreams and reality.

Here are the...

Steps to Calculating Your Retirement Corpus

  • Estimate your basic household expenditure:
    Once you have planned the year in which you wish to retire and know the number of years left to your retirement; you can estimate your total expenditure towards basic household needs during your golden years. While calculating your household expenditure, do not forget to account for inflation which may grow at a decent pace and have an effect of reducing the purchasing power of your money.

    Your Current Age 45 Years
    Retirement Age 60 Years
    Life Expectancy 80 Years
    Current Monthly basic household expenditure Rs 50,000/-
    Inflation (pre and post retirement) assumed to be @ 8% p.a.
    Monthly basic expenditure @ age 60 years would cost Rs 1,58,608/-
    (The above table is for illustration purpose only and all annual growth rate mentioned above is on assumption basis)

    So if your current age is say 45 years and you plan to retire at the age of 60, and assuming your life expectancy is 80 years; you need to provide for 20 years post retirement. If your monthly basic household expenditure is around Rs 50,000/- then assuming pre and post retirement inflation @ 8%, your monthly basic expenditure would cost you around Rs 1.59 lacs when you retire at the age of 60. Do not forget while this expenditure would increase @ 8% every year, you need to provide for this expenditure for a period of full 20 years.

  • Estimate your Medical expenses:
    With growing age your medical needs might increase, so you need to account this well while calculating the corpus needed for your retirement.

    Current Medical expenses - Annual Rs 60,000/-
    Inflation on medical expenses assumed to be @ 8% p.a.
    Annual medical expenses @ age 60 years would cost Rs 1,90,330/-
    (The above table is for illustration purpose only and all annual growth rate mentioned above is on assumption basis)


    If you consider your annual medical expenditure to be around Rs 60,000/- at present, and say the average rise in inflation on medical is 8% p.a., then after 15 years (@age 60 years), you may need to spend around Rs 1.90 lacs on your annual medical cost... and it might keep on rising as your age progresses.

  • Estimate the value of your current investments:
    Being in your earning years, some of you might have been regular investors and have already created some assets in the form of property, stocks, bonds etc. The future valuation and cash inflows that you can generate from such assets should be well considered while calculating your retirement corpus.

    Current Value of your investments Rs 50,00,000/-
    Expected returns on investment, until retirement age @ 12% p.a.
    Expected returns on your investments post retirement @ 10% p.a.
    Value of your investments on your retirement Rs 2.74 Crore
    (The above table is for illustration purpose only and all annual growth rate mentioned above is on assumption basis)

    Being an earning individual, you might have taken some risk and invested in high yielding assets which have the ability to grow at the pace of 10% to 12% p.a. on average. Say if the current value of your investment portfolio is Rs 50 Lacs, considering a growth of 12% p.a. during your pre-retirement years, it can be expected to be around Rs 2.74 crore at the age of 60.

    Now once you retire, you may no longer have that earning which will allow you to take high risk. So you may need to shift your investment to relatively low risk instruments, which may instead offer you lower growth but high safety. In such scenario, the expected returns on your investments post retirement can be assumed to be lower at say 10% p.a.

  • Calculate the deficit:
    It might happen that your investments might be insufficient to service your post retirement expenses.

    Corpus needed to maintain your current life style for 20 years (post retirement) (A) Rs 3.45 Crore
    Value of your investments on your retirement (B) Rs 2.74 Crore
    Deficit (A-B) Rs 0.71 Crore
    (The above table is for illustration purpose only and all annual growth rate mentioned above is on assumption basis)


    * Assuming a monthly expenditure of Rs 158,608/- and annual medical expenses of Rs 190,330/- for 20 years post retirement (subject to inflation @8% p.a.). Also considering that your balance retirement corpus post expenses is assumed to grow by 10% p.a. With these levels of expenses post retirement you need a corpus of around Rs 3.45 crore to maintain your current life style for 20 years post retirement.

    Once you have calculated your total annual expenditure and the money or corpus you need to maintain your current life style for 20 years (post retirement), you can arrive at the short fall. So say if you need a corpus of around Rs 3.45 Crore to maintain your current life style post retirement for 20 years, and considering the expected value of your current investments to be around Rs 2.74 crore at the age of 60; you would need an additional Rs 71 Lacs to maintain your current life style during your retirement.


  • How much you need to invest:
    Your retirement might not be easy if you fail to build your retirement corpus which is required to maintain your life style post retirement. Your retirement plan should not be in deficit. To make up for the deficit, you need to commit more money during your earning years. So you need to calculate how much do you need to invest (possibly in high yielding asset) each month or each year, during your earning years, to make up for the deficit.

    Corpus needed to maintain your current life style for 20 years (post retirement) (A) Rs 3.45 Crore
    Value of your investments on your retirement (B) Rs 2.74 Crore
    Deficit (A-B) Rs 0.71 Crore
    Expected returns on investment, until retirement age @ 12% p.a.
    Fresh Annual Investment required per annum Rs 1.70 Lacs
    (The above table is for illustration purpose only and all annual growth rate mentioned above is on assumption basis)

    Considering that you are 45, you have just 15 years left for your retirement. While you are still earning, over the next 15 years, you need to invest around Rs 1.70 Lacs each year in a portfolio of asset classes which is assumed to grow @12% p.a. to make up for your deficit of Rs 71 Lacs.

Calculating Your Retirement Corpus

Your Current Age 45 Years
Retirement Age 60 Years
Life Expectancy 80 Years
Current Monthly basic household expenditure Rs 50,000/-
Inflation (pre and post retirement) assumed to be @ 8% p.a.
Monthly basic expenditure @ age 60 years would cost Rs 1,58,608/-
Medical expenses - Annual Rs 60,000/-
Inflation on medical expenses assumed to be @ 8% p.a.
Annual medical expenses @ age 60 years would cost Rs 1,90,330/-
Value of your current investments Rs 50,00,000/-
Expected returns on investment, until retirement age @ 12% p.a.
Expected returns on your investments post retirement @ 10% p.a.
Corpus needed to maintain your current life style for 20 years (post retirement) (A) Rs 3.45 Crore
Value of your investments on your retirement @ age 60 years (B) Rs 2.74 Crore
Deficit (A-B) Rs 0.71 Crore
Fresh Annual Investment required per annum @ 12% returns to meet deficit Rs 1.70 Lacs
(The above table is for illustration purpose only and all annual growth rate mentioned above is on assumption basis)

So you see, timely calculating your retirement corpus and estimating the future value of your current investments as well as any deficit may help you prepare a roadmap for building your retirement corpus.

As we see in this example, to maintain your current life style where your monthly basic household expenditure is Rs 50,000/- and expecting inflation @8%, your monthly basic expenditure would cost around Rs 1.59 Lacs @ age 60 years, while your annual medical expenses post retirement may be around Rs 1.90 Lacs (which would further grow @ 8% p.a.).

Thus to cover your expenditure and to maintain your lifestyle for entire 20 years of your retirement life, you would need around Rs 3.45 Crore. Considering that your current investments have the potential to grow @ 12% p.a. it would be valued at around Rs 2.74 Crore when you are 60. But to cover your deficit of Rs 71 Lacs, you need to invest around Rs 1.7 Lacs each year in a portfolio of asset classes which could be expected to grow @ 12% p.a. in future. So be prudent while calculating your retirement corpus. As it is the primary step to build a proper road map for your key life goal i.e. your Retirement.

So to end our learning exercise today, we now invite you to test your learning by taking up this simple quiz (and win exciting prizes!)

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