This post uses goal-based investing principles to keep investors on track for their retirement goals.

📚 Table of Contents

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• Introduction
• Assumptions for the model
• Minimum corpus table
• What if the corpus figure is very high
• Yearly review process
• A note on having the prerequisites in place

Introduction

This post aims to provide a call to action in case you have not set your retirement goals and taken the necessary action.

As a follow-up to this post on the minimum investment needed for retirement, we will now calculate how much corpus you should have accumulated at different ages.

Our metric will be the corpus saved in mutual funds, provident funds (PF, PPF, VPF), NPS and other assets as a multiple of current monthly expenses. In addition, we will assume that the current lifestyle, post inflation adjustment, will continue in retirement. We will see how the age of the investor and current expenses impact the minimum corpus you need to have accumulated.

Assumptions for the model

There are multiple assumptions in a calculation like this. It would help if you kept in mind that the calculations shown below will be valid only as per the assumptions made below:

• 7% inflation both before and after retirement
• 40 years in retirement starting at 58
• 5% increase in yearly investment until retirement
• Risk profile is moderate (60:40 equity and debt allocation for goals > 15 years away: see this for details)
• 11% and 3% as long term returns (post-tax) of equity and debt respectively

Minimum corpus table

The table shows the current expenses as a percentage of annual post-tax income in the columns. The rows show the current age of the investor.

For example, if you are 35 years old and spending 50% of your 20 lakhs annual income, you should have saved 13x of your yearly expenses as retirement corpus by now. So in this example, the retirement corpus you should have saved by now will be ₹1.3 crores (13 * 50% * 20).

What if the corpus figure is very high

In the assumptions above, we have assumed that you will maintain current lifestyle expenses in retirement. Any corpus figure in the tables that is very high indicates

• current investments are too less
• current expenses are too high

To remedy you need to do some introspection as to what needs to be done

• reduce discretionary expenses like entertainment and travel
• EMIs on household goods and paying too much for a car loan
• high EMI on home loan

Suppose the lifestyle in retirement will be a lot less expensive than today, for example, by shifting to a low cost of living location. In that case, the target corpus will be a lot less.

The calculations in the table are not thumb rules. They are actual corpus figures for the current portfolio, expenses and income of the investor, including increasing the SIP amount every year. If you need a tailored result, please see

• How do you get the SIP amount for retirement?
• Use the online Goal-based Investing calculator for retirement planning

Yearly review process

This post also shows why it is crucial to review your progress towards your goal continuously. This yearly review process will require you to repeat the retirement? goal planning process to check if you are on track. In addition, you will need to alter the SIP amount based on the progress you have made. If you have not started investing yet, please do so immediately since the SIP amount goes up very quickly if you delay.

A note on having the prerequisites in place

At all times, ensure that you have the following in place

• An emergency fund with 6-12 months of expenses
• A term insurance policy (unless you are retired with no income)
• A health insurance policy (separate from the company-provided one, if any) for 10-15 lakhs as a base policy with a 50-100 lakhs super-top up
• A personal accident insurance coverage to safeguard against accidents where you do not die but cannot earn
• No high-interest debt like credit card or personal loans

Once you start investing,

• perform yearly review and rebalancing as per your glide-path
• never interrupt compounding by making these avoidable mistakes