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Many individuals face difficulty in assessing the right retirement corpus that they will need in their sunset years. Here are the three simple steps to figure out your nest egg.
Retirement planning has become an important part of our financial goals like any other goal. However, many individuals face difficulty in assessing the right retirement corpus that they will need in their sunset years. There are lot many factors to consider like debts will be paid off, some routine expenses would end but medical, healthcare costs would increase. Also, the life span of an individual also affects retirement planning. Hence, here are the three simple steps to figure out your nest egg.
1) Current Expenditure -
First and foremost step is to calculate an individual’s current expenses per month or per annum. For example, after adding up all costs, an individual’s monthly expenditure is Rs. 50,000, which means an annual expense amount of Rs. 6,00,000.
2) Inflation Adjusted Corpus -
Once the current expenditure is derived, it is important to adjust the amount for inflation for the number of years till retirement. For instance, a person aged 30 years has current annual expenditure of Rs. 6,00,000 and plans to retire at the age of 60. This means current expenses have to be ascertained for the period after 30 years. Thus, a person will need approximately Rs. 60,00,000 per annum at his retirement age based on 8% inflation per annum.
3) Adjusting For Life Expectancy -
In the above calculation, per annum amount has been calculated. But, one would need a corpus that should take care of the entire life term, which is why life expectancy comes into play. In the above example, if an individual’s life expectancy is 80 Years then it means he will need Rs. 60,00,000 per annum for 20 years post retirement. Thus, a calculation shows a corpus requirement of Rs. 12 crores to take care of post retirement expenses.
The above retirement corpus can then be discounted back at the current interest rate in equity funds, so as to calculate the SIP amount required towards this goal.
SEBI registration no. : ARN-113510
Expiry : 3rd AUG 2025
IRDA license no. : IMF186644360120180192
Expiry : 24th JAN 2024
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