Ok I used this headline to attract attention. The other headline could have been ‘How much money do you really need for retiring’.

Actually both are hot topics, and need some thinking. Please read the post carefully.

If you go to a financial planner you will get a answer which is somewhat like this:

Sir you are 40 years of age and your ANNUAL INCOME is Rs. 15 lakhs, but by the time you are 55 and wish to retire your income will be Rs. 35 lakhs. Now the retirement requirement is simply the following formula:

55L * 20 times which is about 11 crores.

The next step is you could go to a financial calculator put in by some product manufacturer which will make you list the amount of money required. So it goes something like:

Daughter’s Ivy League Education – Rs. 2 crores

Daughter’s wedding expenses – Rs. 1 crore (arre a girl who studies in Stanford will not have a love marriage with some joker, even if she marries an American you will spend so much, sigh!)

etc. etc. etc.         all this will total Rs. 6 crores. In short your retirement will be a clear function of Robert V’s annual income, not your paltry post tax salary.

Then there are some calculators which like Subramoney where the answer is a function of YOUR EXPENSES. Let us say your current annual expenses are Rs. 400,000 over the next 15 years assume that your annual post retirement expenses are Rs. 6 lakhs (Rs. 50,000 per month), then the amount that you require will be say 30 times that amount i.e. Rs. 1.8 crores.

Why Rs. 1.8 crores? Simply assuming that you get a 10% return – you will get Rs. 18Lakhs. Assuming zero level of taxation, Rs. 12 lakhs will be RE INVESTED. This will continue to earn 10% p.a. (post tax). Assuming inflation of about 8%, you will have a surplus for about 8-9 years. For about 10 years after that your income will be equal to expenses. At about 72-73 you will start dipping into your capital. Now this is ALL RIGHT, do not panic.

By the time you are about 80 years of age your capital will be still enough to pay for your expenses.

Am I making sense? Sure life depends on how well your portfolio does, whether you are able to withdraw comfortably…etc. I have found that most Indians vary their lifestyles to the amount of money they have. They are not like their American brethren! American calculators are even worse – the kinda money that they spend on medical insurance is huge….we do not spend that kinda money. They HAVE TO SUFFER pathetic mutual fund returns. We do not. Our Senior Citizen account will happily take Rs. 15 lakhs. You will have RS. 25L in ppf. …National Savings certificate, etc will give you indexed kinda returns. Sure in a time of rampant inflation this might hurt….but soon interest rates will go up and FAST.

So relax.

How much are the safe withdrawal rates? about say 6% p.a. If you have Rs. 1 crore, you can withdraw Rs. 6L comfortably…sure there is an inflation risk….however when you have say 10 years of life left, just chill. ….


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  1. this is a very good explanation, retirement corpus should be function of your expenditure and not income. this example also relieves me a lot. thanks.

  2. “most Indians vary their lifestyles to the amount of money they have”

    Subra Sir, that is the most important quote from your post. There is a saying in my mother tongue marathi – Antharun pahun pay pasarave – i.e. you should decide how much you can stretch you legs depending upon the size of your bed.

    A breather for a 44 year old guy like me.

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