How much corpus is needed to spend 1 lakh per month in retirement?
This post estimates the retirement corpus to reach a target spending figure and how to save for it
This post estimates the retirement corpus to reach a target spending figure and how to save for it
Creating a corpus for retirement is one of the most important financial goals of any investor. There are multiple factors involved in getting to the retirement corpus needed and how to save for it.
How much money is needed in retirement depends on
Estimation of the expenses in retirement is covered in more detail here.
To beat inflation, one of the best options is equities. Historically equities have beaten inflation both in India and abroad and the trend is expected to continue. This article talks about choosing equity investments in detail.
Inflation: the impact on your goals and how to choose assets that beat it
Apart from equity, there are many debt instruments to invest in for retirement corpus creation. This includes debt mutual funds, NPS, provident fund and others and is covered in more detail here.
A common retirement corpus estimation formula uses the present value of the expenses in retirement discounted using real rates of return in the retirement period. This is an excellent formula to get started:
Corpus = PV(real return,time in retirement,-expense in the first year of retirement,0,1)
The issue with this formula is the difficulty of assuming the real rate of return in the retirement portfolio. An oversimplified version is to just assume that real returns will be some figure say -2% or 0% or 2% in retirement.
You can use this formula as a starting point to quickly estimate your retirement corpus but do not use it to actually plan retirement. Instead, use our plan Excel template or web-based goal-based investing calculator. Both calculators use individual expenses to provide a more accurate estimate of your retirement corpus.
We will use the plan Excel template to estimate this.
The model shows that the corpus required is ₹ 12.90 crores to be accumulated in 20 years. The SIP amounts are ₹ 1,38,327/month with ₹ 82,996 to be invested in equity and ₹ 55,331 in debt per month which implies an asset allocation of 60% in equity and 40% in debt. This looks like a massive figure but a disciplined approach in investing where a regular review and rebalancing via a proper glide-path will maximize your chances of hitting the target.
This shows the target corpus values for various amounts of monthly expenses in retirement and the SIP needed today. For example, for the 1lakh/month lifestyle after 20 years (the same example used so far) the target is a corpus of ₹12.9 crores and SIP of ₹ 138,000/month.
The following needs to be done in this order:
In this example, after 1 year, the saved amount is ₹17 lakhs say, retirement is 19 years away and the new SIP amounts are changed accordingly. The new target corpus is ₹12.05 crores and the corpus is rebalanced to ₹6.8 lakhs in debt and the rest in equity.
At all times ensure that you have the following in place
Once you start investing,
This post describes suitable debt instruments for both pre and post-retirement investing: Provident fund, PPF, Sukanya Samriddhi, FD/RD, NCD, pension plans, RBI bonds, post office and SCSS.
Published: 29 July 2021
12 MIN READ
1. Email me with any questions.
2. Use our goal-based investing template to prepare a financial plan for yourself.Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.
Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.
More posts...Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled How much corpus is needed to spend 1 lakh per month in retirement? first appeared on 05 Aug 2021 at https://arthgyaan.com