Retirement Fund Calculator India: Estimate How Much You Need to Retire Comfortably | Spring Money

At some point, whether it's mandated by law or a decision made personally, your regular salary earned from the daily 9 to 5 job will come to a halt. At Spring Money, we encourage financial freedom for every individual and being financially free means not being dependent on anyone, not even on your children.

Retirement is a time when one stops working and starts enjoying the fruits of their labour. It's a time when people can finally relax, pursue their hobbies, travel, or spend time with their loved ones.

However, this period of life requires careful planning to ensure financial security. One of the most critical aspects of retirement planning is calculating the funds required for retirement. This is because over 80% of Indians are fearful of running out of money in their retirement. In this blog, we will discuss how to calculate retirement funds and its importance.

What is a Retirement Fund?

A retirement fund is a pool of money set aside to provide financial support for an individual during their retirement years. This amount could be your savings or other investments in any asset class, be it equities, gold, and real estate or provident funds(EPF, PPF & GPF).

Why Retirement Fund is Required?

The retirement fund is essential for the following reasons; First, it helps ensure a comfortable and stress-free retirement life. Second, it provides financial stability and security in old age when there is no regular source of income. Third, it helps to cover unexpected expenses such as medical bills, home repairs, higher education for children, or any other emergency. How to Calculate a Retirement Fund?

Calculating the funds that would be required at retirement could be a complex process. But, fear not, we here will simplify this by dividing the entire process into a few steps to follow:

Step 1: Determine Your Retirement age

The most basic thing is to take time and decide at what age you want to, or could practically take retirement from your work. Someone could take retirement at the age of 50 only while someone else could wish to work a bit longer or would have to do so till the age of 60 also, in order to accumulate enough retirement funds. Let’s understand this with a simple example; Two school friends, Saurabh and Nitin both are presently 45 years old. Saurabh in his late twenties decided to plan his retirement at 50. Considering that he took control of his finances by keeping track of his expenses and simultaneously, started investing his savings by seeking financial advice from a Registered investment advisor(RIA). When Saurabh turned 45 he knew that his goal of accumulating enough funds to retire at 50 is now easily achievable. Now it’s up to him if he wants to work for a few more years or to go the way he planned.

On the other end, Nitin’s thoughts were never similar to that of Saurabh. Nitin bought a posh sedan car in his early twenties and also never thought of controlling his overspending habits, or maybe due to some liabilities that Nitin has to take care of, he wasn't able to plan his finances the way Saurabh did. Ultimately, when Nitin turned 45 he knew that he can’t take retirement at 50, like Saurabh, and will have to work until 55, or even till 60, to have a reasonable retirement fund.

Hence, planning in advance will always give better results in the end, and even the journey could be easy, comparatively.

Step 2: Determine Your Post retirement lifestyle and responsibilities

When you are around your thirties most of you have certain expectations from life and now you know, in what way you can roughly plan your future life to be, specifically from a financial point of view. Similarly, you need to determine your requirements at retirement. This could be about your basic lifestyle, any specific thing that you planned to do after retirement like sponsoring a grand wedding of your child, or renovating your house.

Look, being into retirement is not just about three meals, a house, and enough funds for daily expenses. The retirement phase in any way doesn't mean that people should not have aspirations, it's just that you need to plan your funds accordingly.

I have literally seen one such example in my locality. The man survived on a small car for more than 15 years and bought an SUV worth ₹20 lakhs after his retirement. Now, most of you might think that his decision is wrong, what would he do with this car now when he has nowhere to go? But see according to him, having a small car for a family of 4 was okay for him, and now that he has 6 people in his family, including his daughter-in-law and granddaughter, having an SUV that could accommodate 7 people really makes sense.

Step 3: Determine your desired annual retirement income

The third step is to calculate the annual amount that you would require during retirement. It is essential to calculate this amount accurately to ensure that you have enough funds to support your lifestyle. This can be done by estimating your living expenses, including housing, food, transportation, healthcare, and other expenses.

Step 4: Determine the duration You will be in Retirement

The next step is to determine the number of years you will be in retirement. This will depend on several factors such as your age, expected lifespan, and retirement goals. For example, if you plan to retire at age 60 and expect to live until 80, you will need to plan for 20 years of retirement. Obviously, it’s not at all possible to anticipate the exact duration but this is a parameter that you require to calculate your retirement fund.

Step 5: Calculate your Retirement Corpus

Once you have determined your desired annual retirement income, and the number of years you will be in retirement, you can calculate your retirement corpus. This is the amount of money you will need to save to meet your retirement goals. The formula for calculating the retirement corpus is:

Retirement Corpus = Desired Annual Retirement Income x Number of Years in Retirement

For example, if your desire an annual retirement income of ₹5 lakhs, and you plan to retire for 20 years, your retirement corpus will be:

Retirement Corpus = ₹5 lakhs X 20 years = ₹1 crore

Step 6: Consider inflation

Inflation is the increase in the cost of living over time. It is essential to consider inflation while calculating your retirement corpus. Inflation can significantly reduce the value of your retirement savings over time.

For example, if your current electricity bill is ₹1000 for a month, after 20 years, with an average annual inflation rate of 6%, your electricity bill would be around ₹3200. Also, it’s not going to be the same throughout the 20 years of your retirement it will keep increasing, like 3200, 3400, 3600, and so on. To account for inflation, you can add an inflation rate to your retirement corpus.

So, by considering the inflation rate of 6%, if you have planned that from today you would require ₹1 crore for 20 years of retirement, after 20 years from now you would have to accumulate a retirement fund of around ₹3.2 crores to manage the same lifestyle.

Step 7: Determine any secondary Income post-retirement:

A lot of people have a side income option even after retirement. This side income could be rent from an extra residential property, agricultural land, or commercial property. Commonly some people easily earn between 40% to 50% of their annual retirement income from such options. However, life is extremely unpredictable and we would not suggest you take this side income into consideration unless you have planned it very well, and the amount is very much noticeable.

Step 8: Determine your current Retirement savings

The last step is to determine your current retirement savings. This includes all the retirement savings you have, such as your provident funds, any other investments like mutual funds, equities or it can even be a piece of land that you bought. All you have to do is to calculate the amount that your investments will grow into at your retirement. For example, now you know that due to inflation you need to actually accumulate ₹3.2 crores and not ₹1 crore before retirement. Similarly, if you have currently invested ₹20 lakhs for retirement then it’s not like you have to save ₹3 crores. Because this invested amount of yours will also grow. ₹20 lakhs with an annual return of 10% will grow to ₹1.35 crores after 20 years.

Once you have determined your current retirement savings, you can subtract it from your retirement corpus to determine the amount of money you need to save to achieve your retirement goals.

Amount of money to be saved for retirement fund= Retirement corpus - Current retirement savings

Amount of money to be saved for retirement fund= ₹3.20 crores - ₹1.35 crore = ₹1.85 crores

Now, again don’t freak out that you have to save ₹1.85 crores. You have to simply plan and invest a certain amount that could grow to a value of ₹1.85 crores till you reach the retirement phase.

A monthly SIP of ₹12 thousand with an 8% annual increase can accumulate ₹1.85 crores in 20 years with an average return of 10% annually. Increase

Total SIP Amount Invested with Annual increase	Total Growth, with Annual increase	Total Future Value
₹ 50,68,800	₹ 1,33,89,234	₹ 1,84,58,034

Extra Tip

You can further grow your retirement funds at retirement, how? You can set aside 3 to 4 years of your annual retirement income and could invest the rest amount into less risky options. This process will help in earning some decent returns and will also shield your funds from inflation.

Conclusion

Calculating the funds required for retirement is a back-breaking process in retirement planning, but it helps to ensure financial security and stability during the retirement years. By following the steps outlined above and taking into account the factors mentioned, you can determine your retirement corpus and plan your savings and investments accordingly. Remember, starting early is the key to building a robust retirement fund. The earlier you start saving, the more time your money has to grow.