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How To Calculate Your Ideal Retirement Corpus

The increasing life expectancy and the rising cost of healthcare forces us to think about how our expenses would look like a couple of decades down the line. That thought also highlights the need to work on our retirement planning. One good way to plan for retirement is to invest in a pension plan or a retirement plan early in life. These plans often offer a retirement corpus at maturity. An ideal retirement corpus will help you manage all your post-retirement expenses and help you fulfil your life goals. Therefore, it is important to accurately calculate your required retirement corpus so that you have sufficient funds to meet your day to day expenses and do much more post retirement.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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Let us take a look at the steps you need to follow to calculate your retirement savings corpus:

1. Make a few assumptions

Assume a few essential factors like the age at which you want to retire, your life expectancy, your rate of returns, which you could earn on your accumulated corpus, the rate of returns on your investments and the inflation rate. Once you’ve made all these assumptions, you can easily calculate the number of years still to go for your retirement, the number of years of your life post the retirement period, and the rate of returns considering the inflation.

For instance, take a look at the example mentioned below:

• Current age= 30 years

• Expected retirement age= 60 years

• No. of years left to retire= 30 Years

• Life expectancy= 85 years

• No. of years left after retirement= 25 years

• Rate of return during accumulation= 14%

• Rate of return after retirement= 8%

• Inflation Rate= 7.00%

• Inflation-adjusted returns= 0.93%

2. Evaluate the amount of required money

The second step to calculate an ideal retirement corpus is to find out the amount you will require every year to manage your daily expenses after retirement. The first step to calculate this is to be aware of your current yearly expenses. You can evaluate the amount by inflating the existing annual expenditure. For instance, assume your current expenses as Rs 7,20,000 per year and the annual inflation rate as 7%. Now, further to our assumptions above, take a look below to know the inflation-adjusted rate:

• Current annual expense= Rs. 7,20,000

• Inflation Rate= 7%

• Inflation-adjusted annual expense at retirement= Rs. 54,80,824

3. Calculate your retirement corpus

After following both the steps mentioned above, you can easily calculate your retirement corpus. A retirement corpus looks after your financial needs after your retirement. To find out the corpus amount, you should calculate the current value of your total expenditure needed for all the years after retirement. Given below are the calculations based on the assumptions:

• Inflation-adjusted expense at retirement= Rs. 54,80,824

• No. of years after retirement= 25

• Inflation-adjusted return= 0.93%

• Required corpus for retirement= Rs. 12,28,23,871

4. Create the target corpus

After calculating the corpus, you should find out the amount, which needs to be invested on a monthly basis to generate your target corpus. It can be calculated with the help of a PMT formula.

Go through the calculations given below:

• No. of years remaining for retirement= 30 years

• Rate of return during accumulation= 14%

• Retirement corpus required post retirement= 12,28,23,871

• Monthly investment= Rs. 22,360.

Using a retirement calculator is the simplest way to measure your retirement corpus. Once you’ve learned these steps, play around with the figures to understand the working of retirement calculators. In case there is a change in your retirement plan, use the calculator for precise calculations.

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.

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