How Much Do You Need to Retire?

In today's increasingly consumerist society, the moment that much-awaited monthly salary alert pops up on our mobile screens, our first instinct is often to spend. Fancy SUVs, European vacations, weekend spas, exotic brunches, designer clothes, and gadgets-demanding children quickly drain our bank accounts. However, these salary alerts won't last forever. With the retirement age shrinking and pensionable jobs becoming a distant memory, it's time to prepare for the day when that monthly alert will no longer arrive.
 

Estimate Your Current Monthly Costs

To begin planning for a retirement corpus, start by calculating your total monthly expenses. Assume you are 40 years old, plan to retire at 60, and live up to 85 years of age. Include costs such as groceries, commuting, school fees, college fees, children's marriages, utilities, clothing, gifts, home maintenance, a new car, and house help. Some of these costs will continue after retirement, while others will not. For example, by the time you are 60, your children will likely be independent, eliminating those costs, as well as commuting and work clothing expenses. Additionally, any home loans you have would probably be paid off, given that most are for around 20 years.
 

Calculate Your Retirement Needs

While many costs will disappear, some will become more significant. Healthcare expenses, for instance, will increase as medical insurance premiums rise. If your previous employer provides insurance coverage after retirement or if you are a beneficiary of the government's CGHS scheme, you are fortunate. Otherwise, consider seeking help from your children who may have corporate insurance plans that you can join, as these are often cost-effective. Also, account for geriatric care in case your children or relatives live far away. Moving to a smaller town can reduce these costs by as much as 30%.
 

Extrapolate Your Expenses

Assuming you are 40 years old with current monthly expenses of around Rs 1 lakh and plan to retire at 60, how much should you have saved by then? Inflation will erode the purchasing power of your money over time. Assuming an inflation rate of 6%, a pre-retirement return rate of 10% per annum, and a post-retirement return rate of 8% on your investments, you will need a corpus of around Rs 4.5 crore. Your monthly expenses at that time would be around Rs 3 lakh.
 

Additional Tips

A figure like Rs 4.5 crore may seem daunting, but it is achievable if you start early. Aim to set aside around Rs 55,000 per month towards your future investments. If that amount is challenging at first, start smaller and increase it over time, including any bonuses you receive. Investing early allows compounding to work in your favor. Consider equities, gold bonds, tax-saving instruments like PPF, and adjust according to your risk tolerance. Regularly review your portfolio and seek guidance from SEBI-registered fee-only advisors if needed.
 

Early Retirement

Remember, the retirement age is shrinking, and many organizations prefer to hire younger employees. This trend means senior executives might face early retirement unless they hold significant roles overseeing large teams. Plan for the possibility of retiring at 50, even if it seems unlikely. Additionally, people are living longer, which raises the concern of outliving your retirement corpus. Keep a buffer for unexpected needs and maintain a contingency fund to ease your mind. Finally, don't forget to enjoy your hard-earned money and create lasting memories, as these will be cherished more than the money in your bank account when you retire.
 

By estimating your costs, calculating your needs, planning for inflation, and saving consistently, you can ensure a comfortable and worry-free retirement.