Defusing the Retirement Bomb: Part III

The previous articles in this series discussed how you can reduce the required retirement corpus. The last questions to solve the retirement puzzle are-

  1. How much money do you need to retire 10/15 years from now? Is 1 crore enough to retire in India?
  2. How to reach your retirement goal? How much savings and annual returns do you need?

How much money do you need?

The following table answers this-

The later your retirement is, the more money you will need due to inflation.

I have taken 30x multiple of annual expense here. If you want to be more conservative, and would like to take a 50x multiple, you can increase the required corpus by 67% or simple multiply annual expense at the time of retirement by 50.
Please note that this is for people with no pension.

How to reach your retirement goal?

Let us take scenarios from previous table to see sample results-

This table is an excellent proof of importance of starting investing at a young age.

Please note that the monthly SIP amount is increasing @10% every year. Thus, 1 lakh monthly SIP will double to 2 lakh SIP in approximately 7 years.

Also, current savings column is assumed savings as of today, and is invested in an instrument giving you 18% annual return. The monthly SIP instrument also gives you an average annual return of 18%.

Now, you will be able to understand the value of an indexed pension of a government servant with medical cover till the end of life.

Hope this series addresses all your queries on retirement corpus required, how you can reduce the required corpus and what you need to do to achieve the same.

If you still have any queries, you can either post a comment here or connect with me on linkedin (see about section)

Happy investing!


10 Responses to Defusing the Retirement Bomb: Part III

  1. Thanks for the next article in series Vijay! Few thoughts/suggestions:
    1. As your last articles speak about 50x annual expense at time of retirement, it would be good to see those figures rather than 30x assumed here.
    2. In your second table, “Current Savings” is the “target savings to be invested @ 18% yoy” I guess. This is what you recommend to save to reach the corpus, provided the savings are giving 18% return every year. If yes, then the title is not clear. This is the main column for target setting by an individual so do elaborate this
    3. Lastly, a lot of your readers would have expenses in excess of 20 lacs. You might want to put one more figure (a very high one e.g., 50/60 lacs) to give an idea. Folks in between can get a sense for themselves

    • Vijay Pahwa says:

      Thanks Rahul for your feedback
      1. The last article discusses how one can reduce the multiple required from 50x to 25-30x, and therefore, I have taken 30x. If you or someone else wants to take 50x, you can simply increase the corpus required and monthly investment by 60%
      2.Will do so
      3. For 60 lakh expense, one can triple the corpus required, and monthly savings of the 20 lakh row
      Hope this helps!

      • Let me break down the problem into 2 different categories:
        1. “How much” should I save now?’
        2. What should be my retirement corpus?
        The second question was addressed in the last article and 25x is needed if one can find an instrument that gives 11% nominal returns at 2% withdrawl rate. The need for such a case is to find an instrument (or an advisor) that gives this kind of return.
        The first one should be looked at in a similar manner. You need a certain corpus if you are putting your savings in 11% nominal return, while a different corpus if you get 18% nominal returns from your investments.
        What typically happens in most economies is that returns from asset classes go down in long run. Compare US equities vs. Indian equities. Hence, a person retiring 25-30 years from now will find it tough to get 11% returns if he is getting 18% now (unless that is an assumption).

  2. Vijay Pahwa says:

    Hi Rahul,

    The article gives just a few scenarios.

    In real life, one can not predict future returns! 18% is an assumption with 8-9% inflation. In long run, if returns go down, so does inflation! It is possible that we have only 5% inflation from 2020-2030. In that case, the nominal returns (real returns +inflation) will also come down.

    Also, returns pre-retirement (18%) are higher than post-retirement (11%) because risk taking capability is higher pre-retirement. Post retirement most of the funds would be in fixed income instrument giving near inflation returns.


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  5. Ramakrushna Dash says:

    If someone invest within 40K-to-50 K as SIP and retirement year is 2025,, what will be the Retiremnt Corpus he/she will have

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