A lot of people dream of becoming a Crorepati someday and assume a random ballpark figure of 1 crore, 5 crores, or maybe 10 crores that would take care of all their needs. They Feel, If they have this amount accumulated through savings, they can comfortably retire from the 9 to 5 working life and do whatever they want.
The popularity of the concept of Financial Independence and Early Retirement (FIRE) had made us quite impatient to wait until 60/65 to follow our passion and be “financially free” at the earliest. So, we work hard, and try to save and invest money to accumulate the assumed big number- as early as possible. This is not all, in this eagerness you always seek out the high return products and never shy from investing in unregulated ones like Cryptos. (Read : Cryptocurrency – Is it worth riding the wave?)
Well, presuming a hypothetical big number as your retirement corpus might give you a sense of mental satisfaction but the question is would this figure of 1 crore or 5 crores be enough to cover all your post-retirement expenses?
The answer to it lies in doing the Retirement planning wisely. It would require some mathematics and number crunching to be done, rather than following an intuition or randomly assuming any big 8 or a 9-digit number. (Read: Why Retirement Planning should be the most important financial goal?)
Remember, the earlier you want to retire, say at 40 or 45, more would be the size of the retirement corpus requirement.
Thanks to the increasing life expectancy and the ever rising inflation in the economy. Also, not only retirement corpus, you need to make arrangements for other important life goals as well that may arise in-between like- Children’s Higher Education, Wedding, loan repayment, and so on.
In this post, let us break-down the numbers for you and see under different situations, would 1 crore or 5 crore be enough for you to retire comfortably in India?
Inflation- the Silent Killer
Inflation is an important metric to be taken into consideration while doing the retirement planning and calculating your retirement kitty.
It is like a slow poison that can eat up the value of the money faster than you think. Not accounting for it is a sure-shot recipe for a disaster. It is highly likely that your retirement plan may fail and the corpus might not last the number of years you want it for. (Read: Reasons why your retirement plan may fail)
It’s not only the general inflation that may impact the expenses, but your lifestyle, medical expenses etc. all rise differently and impact your savings and saving potential differently, and so estimate the retirement corpus requirement. (Read: Types of Inflation and its impact on your Financial Plan?)
Not only increasing the expenses, inflation erodes the returns on investment as well, in real-terms. For example, if the inflation rate in the economy is 7% p.a., and you are generating a 6% p.a. Interest on your investments (Post taxes), in real terms you are earning a -1% p.a. return on your investments.
So, it is imperative to take into account a reasonable estimation of inflation not only in retirement planning but for other financial goals like- Child Education, Wedding, etc. and devise a robust investment strategy to beat inflation in the long-term. (Read: Bucketing strategy to manage post-retirement income flow)
We assume a 7%p.a. general inflation and all other types of inflation- education, medical, and lifestyle inflation are assumed as 10% p.a.
How much do I need to retire in India?
See, not only inflation but a host of other factors will play an important role in estimation of retirement corpus, like-
- The pattern of expenses: It may include- basic living expenses (food, clothing, utilities, etc.), health expenses, gifts, vacations, lifestyle, and luxury expenditures;
- Expected life expectancy: the longer it is, more would be the corpus requirement;
- Pending liabilities: if any, needs to be setted from the retirement kitty; and so on.
- Other Responsibilities: Especially when you are seeking for early retirement
Also Check: The non-financial aspects to plan for Early Retirement
Let us take three retirement planning case studies and see how much retirement corpus would be required for each one of these.
Here are some of the assumptions for retirement corpus calculation:
- Inflation- 7% p.a. (for the sake of simplicity, we are ignoring the medical and lifestyle inflation for now)
- Life expectancy- 85 years (If we assume a longer life expectancy, the corpus required would be even more)
- Post-retirement return- 8% (Assuming an asset allocation of 30% Equity and 70% Debt)
Case-1: Mr. & Mrs. Sharma
| Current Age (Mr. Sharma) | 40 | 40 | 40 |
| Current Age (Mrs. Sharma) | 37 | 37 | 37 |
| Retirement Age (Mr. Sharma) | 60 | 60 | 60 |
| Monthly Expenses Today (Rs.) | 50,000 | 75,000 | 1,00,000 |
| Annual Expenses (Rs.) | 6,00,000 | 9,00,000 | 12,00,000 |
| Expenses at Retirement @7% p.a. | 23,22,000 | 34,83,000 | 35,41,000 |
| Post-retirement life (until Mrs. Sharma Reaches 85 years) | 28 | 28 | 28 |
| Retirement Corpus Required (inflation adjusted) | 5.70 Crores | 8.55 Crores | 11.41 Crores |
Case-2: Mr. & Mrs. Singh
| Current Age (Mr. Singh) | 45 | 45 | 45 |
| Current Age (Mrs. Singh) | 42 | 42 | 42 |
| Retirement Age (Mr.Singh) | 60 | 60 | 60 |
| Monthly Expenses Today (Rs.) | 50,000 | 75,000 | 1,00,000 |
| Annual Expenses (Rs.) | 6,00,000 | 9,00,000 | 12,00,000 |
| Expenses at Retirement @7% p.a. | 16,55,000 | 24,83,000 | 33,11,000 |
| Post-retirement life (until Mrs. Singh Reaches 85 years) | 28 | 28 | 28 |
| Retirement Corpus Required (inflation adjusted) | 4.07 Crores | 6.10 Crores | 8.13 Crores |
Case-3: Mr. & Mrs. Gupta
| Current Age (Mr. Gupta) | 50 | 50 | 50 |
| Current Age (Mrs. Gupta) | 46 | 46 | 46 |
| Retirement Age (Mr. Gupta) | 60 | 60 | 60 |
| Monthly Expenses Today (Rs.) | 50,000 | 75,000 | 1,00,000 |
| Annual Expenses (Rs.) | 6,00,000 | 9,00,000 | 12,00,000 |
| Expenses at Retirement @7% p.a. | 11,81,000 | 17,71,000 | 23,61,000 |
| Post-retirement life (until Mrs. Gupta Reaches 85 years) | 29 | 29 | 29 |
| Retirement Corpus Required (inflation adjusted) | 3.00 Crores | 4.50 Crores | 6.00 Crores |
For many of us, the numbers shown above might be quite overwhelming and unbelievable, isn’t it?
As evident from the above analysis, Rs.1 Crore would be a hugely insufficient retirement corpus for all these three couples to maintain a healthy and comfortable lifestyle.
But yes, anything between Rs.5 Crores to Rs.10 Crores may be enough to comfortably manage the post-retirement needs, depending upon the expenses structure.
However, please note that we have taken very reasonable expenses figures. If the expenses are more (which in high probability would be for people Living in Metro cities), the corpus requirement may even exceed Rs.10 Crores! (Also Read: Be aware of your spending pattern)
How long can you live in India with Rs.1 Crore?
Hope by now you got the answer to the question- “Is 1 crore enough to retire in India?”
But to reinforce the point further, let us do a reverse calculation and see, if you retire today with Rs.1 crore, for how many years the corpus would last.
| Monthly Expenses | Time, Rs.1 Crore would last |
| Rs.50,000 | 19 years |
| Rs.75,000 | 12 years |
| Rs.1,00,000 | 9 years |
This makes the point more clear that a Rs.1 Crore retirement kitty is not enough for you to sustain your lifestyle for a long-period of at least 25-30 years ( if you are going to retire at 60).
Either you need to cut-down your expenses drastically which may not be possible overnight or the other option could be to search for any source of regular income.
Yes, if you have some other source of regular income post-retirement like- Government pension, rental income, income from practicing a hobby, freelancing, etc. then it might work for you. Of course, depending upon your health, lifestyle, and expense structure. It needs to be checked on a case-to-case basis. (Also Read: How to create a second source of income for the family?)
Conclusion:
Retirement planning is not an easy task. It requires mathematics, number crunching, what-if scenario analysis, and a whole lot of other things. More importantly, it requires the understanding that numbers only will not lead you to comfortable retirement, you need to be in sound health and active mind to actually Retire happily.
When it comes to financial planning, copying others is the worst thing you can do. You are unique. What works for others, may not work for you. (Also Read: Do not fall for social proof- you are unique)
You need to do your calculations to know how much is enough for you to retire, depending upon your lifestyle, expenses pattern, financial situation and plan for it accordingly. If things look overwhelming, or you cannot dedicate the required time and effort, do not hesitate to take up professional help.
Hope this article serves as a reality check or an eye–opener for those who think- Rs.1 Crore is enough to retire in India.
Mere knowing the amount required for your retirement is not enough. You need to start saving for it by following a suitable financial plan. Remember, the earlier you start, greater is the possibility for you to reach financial freedom early. (Also Read: Is it really possible to achieve Financial Freedom?)
Manikaran Singal is the founder and Chief financial planner at Good Moneying Financial Solutions. He is a CERTIFIED FINANCIAL PLANNER CM and SEBI registered Investment adviser (Regd no. INA 100001620). He’s having 20+ years of experience in financial services space.
