How much money do you need for Retirement in India?

Retirement is an exciting topic for most of us. However, we waste most of our precious time for things of least important. Sometimes we would have spent days to purchase a dress. We meticulously plan to book a movie ticket of our favourite star. Yet, we don’t plan well for our retirement

 

Retirement today is not that of a generation ago. Gone are the day of a company pension, company-paid health care and other benefits. It is necessary to plan for adequate finance for retirement. Most of us do not know how much we have to save for the retirement. In US, 4 in 10 people believe that they need $1 million to retire. In India, very few people plan for their retirement and most of us think that they can work till death to take care of their expenses. Unplanned Retirees either have to dramatically curtail their spending or keep working to survive

Believe me, there are many parameters associated with retirement.  The very first thing is you have to decide when you want to retire. Some lucky people retire at 30 but considering retiring at 40 itself seems to be a challenging one. The biggest challenge is to create a corpus which will support till the life expectancy. 

Take the case of Jim Rogers, one of the most successful investors of our lifetime, who retired even before he reached 40. Starting out in his twenties with a measly sum of $600 in his pocket, he “retired” at age 37 with more money than anyone could possibly spend. Jim Rogers is an author, financial commentator and successful international investor.

Jim Roger is not the only one to retire at the age of 37. Another famous example is J.K. Rowling, author of Harry Potter, divorced by frightening husband, became an author at the age of 31, now retired happily.

Is it possible to retire like Jim Rogers or J,K. Rowling? Frankly speaking any one can retire like Jim Rogers even without having any connections. But the happy retirement requires two basic attributes. Plan and focus. Let us first discuss about planning. The first step is to do decide on the corpus needed for retirement.

We interviewed many retirees and talked to nearly 20 financial gurus to find out the golden nest needed for retiring.  After several spread sheet calculations, we have come out with a simple rule. I call it the 25x Rule to Early Retirement.  All you have to do is to save 25 times of your expenditure.  Once you've achieved that milestone, you can consider yourself as financially free.

Let me explain the process with an example. Assume a person spending Rs. 10 lakhs a year, then he/she will need a nest egg of 2.5 crore to retire.

Having a clear rule for savings, there must be something for the withdrawal too. In US, there is 4% safe withdrawal rate rule-of-thumb. According to the 4% rule, a retiree can withdraw 4% of their investments each year for spending. Using the 4% withdrawal rule the retiree has a reasonable chance of dying before they run out of money.

We live in India. Luckily, in India our banks offer a 7-8% interest rate. We can think of living with the interest rate for ever. One may also think of investing the golden egg in the stocks. However, playing in stocks after retirement is quite risky. Any sharp fall in the market can lower the value of the nest egg.  Playing in the stock market also creates anxiety which defeats the purpose of retirement. Hence at all cost we have to avoid playing in the market unless you have excess money other than the nest created for the retirement.

To help you better we have also created a calculator to know the exact amount needed for you to retire. This calculator also accommodates the inflation. Click the link Retirement Planning Calculator in the for the calculator