How much money would be required to retire today?

Thoughts on retirement

FINANCE

Lillaney, RTI For Money

5/17/20232 min read

Retirement
Retirement

Introduction:


Retirement: that magical stage of life where you can finally bid farewell to alarm clocks and embrace a life of endless leisure. But before you start practising your golf swing or perfecting your knitting skills, let's take a moment to delve into the mysterious world of retirement finances. How much moolah do you actually need to make those golden years truly shine? Hold on tight as we embark on a humour-filled journey through numbers, calculations, and a sprinkle of financial jargon. Get ready for a retirement ride like no other!


How much money would be required to retire today?


Suppose you have expenses of 2L per month as of now.


That means you will spend around 2L* 12 = 24L in a year.


Banks are giving anywhere between 2.7% to 7% on a savings bank account as per the link Best Savings Account - Interest Rates 2023 for all Banks (scripbox.com)


So assuming 7% interest rate we would have the following calculation:


7% of retirement income = annual expenses


7% of retirement income = 24L


Retirement income = 24L * 100/7


Retirement income = 342.86L = 3.4286 Cr


If we assume the lower end of 2.7% then the calculation becomes as follows:


2.7% of retirement income = annual expenses


2.7% of retirement income = 24L


Retirement income = 24L * 100/2.7


Retirement income = 888.88L = 8.8888 Cr


As you can see from the scenarios above you would need anywhere between 3.5 - 9 Cr to retire today if you have expenses of 2L per month.


But wait a minute you would also have to pay taxes. So the corpus required would be even more to get after tax income of 24L per year.


So, let's say we bump up the numbers by 30% to 4.55 - 12 Cr as the required corpus.


Now let's say you can earn a return of more than 7%.


We can use the formula below:


Retirement income = Annual expenses * 100 / Expected return.


So, if we can earn 10% returns by investing in an index fund, the calculation would be:


Retirement income = 24L * 100 / 10.


Retirement income = 2.4 Cr.


What if we can earn 15% returns by investing in equities, the calculation would be:


Retirement income = 24L * 100 / 15.


Retirement income = 1.6 Cr.


So based on your annual expenses and expected return we can use the formula below to calculate the retirement income required today.


Retirement income = Annual expenses * 100 / Expected return


Conclusion:

As we bring this delightful adventure of retirement calculations to a close, one thing is abundantly clear: determining the precise amount of money required to retire today is no walk in the park. While our lighthearted calculations provided some ballpark figures, it's essential to remember that retirement planning is as unique as your favourite pair of mismatched socks. Factors like inflation, investment choices, and your own extravagant tendencies will sway the equation. So, whether your dream is to sip margaritas on a tropical beach or start a gnome collection, seek the guidance of a financial advisor who can help navigate the twists and turns of retirement planning. And always remember, a good laugh along the way will make your retirement journey all the more enjoyable. Cheers to a future filled with laughter, love, and endless joy!


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