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10 Simple Steps to Calculate the Retirement Corpus You Need

A lot of people procrastinate retirement planning. That is because today’s generation believes in spending more and saving less. But planning for retirement is actually not that complex, and if you start early, you might end up building a commendable retirement corpus. You will need more money when you retire than you need now and at that time you may not have enough income sources. Hence, retirement planning is essential and must not be taken lightly.

Retirement planning is not that difficult, after all. The funda (or motto) should be – Save and invest as much as you can and spend less. The earlier you start saving and investing, the more time your money will get to grow. Similarly, the smarter you invest, the more chances you have of building a decent retirement corpus. Though retirement planning is not that difficult, one might get entangled in the complexities arising out of the calculations which need to be done, in order to identify how much money you actually need to invest so that you manage to build a sustainable retirement corpus.

But don’t you worry, in 10 simple steps this article calculates how much money you need to save every month in order to get a step closer to your ultimate financial goal.

Step 1: Start with calculating how much expenses you might approximately incur during your post-retirement life. You can start by making a list of your current expenses. Everyday expenses like grocery, utility bills and monthly maintenance are some of the expenses which you will continue to live with even after retirement. But expenses like children’s education, housing loan, etc. will gradually stop as you near retirement.

Step 2: The very next step is to calculate how much monthly income you will be drawn every month from all your income sources. This might include income from office, income from pension scheme you might have invested in, income from the monthly rent, in case you own a property or any other sources from which you will be expected monthly cash flow.

Step 3: Now, the next step is calculating how much net income you might need after retirement. For that, you need to minus Step 2 from Step 1. Doing so shall ideally help you identify if your monthly post-retirement income meets your monthly post-retirement expenses. In case they don’t, you might want to look at other investment tools.

Step 4: Once you complete the above three steps, the next thing is to calculate how much more money you might need than you need now. The current inflation rate is around 3.5 percent of experts recommend that investors consider the long-term average inflation rate of 6 percent in their calculations.

Step 5: The next step is to calculate your retirement corpus at 60 years of age. This can be a bit complicated as it depends on an individual’s life expectancy, their asset allocation and expected returns from those different assets. A retirement corpus must last an individual at least 20-30 years after their retirement, and hence it is a must that you calculate your retirement corpus at 60.

Step 6: The next thing to do is accumulate all the corpus that you must have accumulated by investing in various retirement and pension schemes. Having a clear idea about how much money you currently own from existing investing tools might help you identify how much more you might possibly need to strengthen your retirement corpus.

Step 7: Now that you have accumulated your current retirement corpus, the next step is to find out how much it can potentially grow till you reach the retirement age. Investors who have started investing early must benefit from the power of compounding. If you have equity-oriented schemes, your retirement corpus has the potential to grow far better than investments made in traditional investment tools like NPS.

Step 8: The next step is to calculate how much more retirement corpus you will be needing. For that, you need to calculate the total retirement corpus needed at 60 and how much your existing corpus will grow by 60. The next step is to deduct Step 7 from the value in Step 5, and you should get your answer.

Step 9: Once you find out how much more retirement corpus you need, the next step is to identify how much more you need to invest monthly in order to achieve that extra corpus potentially.

Step 10: The final set, you need to add up all existing retirement investments (EPF contributions, mutual fund SIPs, insurance premiums, etc.) and deduct this figure from the value derived in Step 9 to identify how much additional contribution is needed per month.

See, we told you retirement planning isn’t that complicated. So stop procrastinating and invest early in a retirement fund. If you start early and invest for retirement, you can potentially build a decent retirement corpus. If you wish, you can also take the help of an online retirement planning calculator to calculate your retirement corpus using these 10 easy steps.