Goals play a significant role in all the different aspects of our lives, including retirement planning. If you don’t know how much money you will need for your retirement, how will you take practical steps towards building your dream retirement? Read this post to know how much money you will need for retirement.
It is rightly said that any action or plan without a solid final goal is meaningless. This applies to every single aspect of our lives, be it personal or professional. Even for creating an effective retirement plan, you should first have a clear idea of the final goal or how much money you will need to retire comfortably.
With knowing at least an approximate amount, all your hard work, savings, and investments might fail to help you build the retirement of your dreams. So, how do you calculate how much money you will need for your retirement? Follow these steps-
- Calculate Monthly Expense
The first step is to calculate your current and future monthly expenses. Based on your lifestyle, income, and location, this can vary significantly between individuals. Give special attention to current expenses that would increase or decrease after retirement.
For instance, expenses such as travelling to work, child’s education, etc. would be no longer applicable after retirement. But at the same time, medical bills are generally higher in the later years of life. Do consider inflation as well, as the cost of goods and services will only get more expensive in the future.
- Know Your Post-Retirement Income
The next step is to know how much you will earn after retirement. Consider your income from sources such as your investment in pension plans, provident fund, insurance plans, and other investments to get an approximate idea of your post-retirement income.
Make sure that you use the post-tax income for this calculation, as this will provide a more accurate result.
- Calculate the Difference
Now that you know your approximate monthly expense after retirement and your estimated post-retirement income, calculate the difference to know the net required income.
For instance, if your monthly expense after retirement would be Rs. 50,000, and you are expecting to earn Rs. 20,000 from your investments, insurance, etc. your net required income would be Rs. 30,000 per month.
- Total Retirement Corpus
Now that you know the net monthly income needed after retirement, you can get an approximate idea of your retirement corpus. For instance, let us assume that your life expectancy is 90 years, and you want to retire at 60 years.
If the net income needed after retirement is Rs. 30,000, it would be Rs. 360,000 per year and around Rs.10,800,000 for a period of 30 years. This Rs. 10,800,000 is the amount you should have in your retirement corpus at the time you retire.
Simpler Alternative to Calculate How Much Money You Need for Retirement
While you can use the method mentioned above to know how much money you will need for retirement, the result would be only an approximate amount. In reality, there are several factors like inflation, your retirement age, life expectancy, returns from investments, etc. that impact your retirement corpus.
So, a more reliable method is to use an online pension calculator. The online tool requires you to enter details like current age, desired retirement age, current income, savings and investments, and expenses to provide you an instant summary of how much pension you will need after retirement.
As compared to manual calculations, an online calculator is not only more accurate but faster and easier to use. Based on the results, you can then invest in products like pension plans to help you get closer to your dream retirement.