How To Calculate Your Retirement Savings Corpus

Retirement planning often becomes a combination of anticipation and fear, excitement and satisfaction. You now finally get the time to enjoy the fruits of your labour and you can now follow your unfulfilled hobbies, spend quality time with family or travel the world.

However, there is a constant worry about finances i.e. if you’ve saved enough to sustain your retirement lifestyle or how much is it that you should save.

But there’s no need to worry: There are various formulas and retirement calculators available that calculate your retirement savings. These give you a customized calculation by taking into account your current income, savings, lifestyle, future income expectations, and your post-career goals.

Let us explore some easy ways to help you plan for your golden years so you don’t have to compromise on your lifestyle when you retire.

The golden 4% rule

Devised way back in 1994 by financial advisor Bill Bengen, the “4% rule” has remained a timeless classic when it comes to calculating retirement corpus while keeping price rise and purchasing power in mind. The rule suggests that one should save enough for retirement that they are able to meet their annual expenses of the first retirement year by withdrawing just 4% from their retirement savings.

This rule implies that if you have Rs 1 crore saved for retirement, you can make an annual withdrawal of Rs 4 lakh. Now, think about your expenses and find out how much you will need annually and use this rule to work backward to arrive at a figure.

Age-based investing

Your life priorities, as well as your ability to save for your retirement, will change as per your life-stage and professional progress. For instance, young people are able to take more risks in their portfolio for higher returns but mid-career professionals have more financial legroom to increase their investments for their retirement savings. To have optimal retirement benefits, experts suggest following this benchmark timeline to keep your retirement corpus robust:

• Age 25: 50% of your annual salary in retirement savings

• Age 35—two times annual salary

• Age 40—three times annual salary

• Age 45—four times annual salary

• Age 50—five times annual salary

• Age 55—six times annual salary

• Age 60—seven times annual salary

These numbers provide you with a basic idea of how much money you should have specifically earmarked for your retirement corpus. But, be careful to not include your organisation’s retirement benefits in this calculation. These are in-cash-in-hand savings that you must have over the years so that you can gain from the power of compounding. Treat the organization’s retirement benefits as bonus funds for personal goals and/or emergencies.

The bottom line

Planning your retirement corpus is one of the most important decisions you will make and it’s recommended to start as early as possible to make the most of your life. Having an earmarked retirement corpus will give you peace of mind and allow you to fulfill your retirement goals without having to worry. While you can use any of these methods or retirement calculators to come to an approximate number, the key is disciplined investing with your contribution rising commensurately with your income and prices in the economy.

At the same time, it’s important to choose a high-growth financial product for your retirement savings. Many people choose new-age ULIPs for its triple benefits – life insurance cover, market-linked returns and tax benefits.