There is an article by Radhika Merwin

“The first step is to calculate how much you will need towards living expenses after retirement, depending on your lifestyle. Let’s say you’re 30 years old, currently drawing an annual income of Rs 10 lakh. What percentage of your income will be enough to cover your living expenses after retirement? A meaningful estimate would be 70-80 per cent of your current income. So, in our example, that makes it Rs 7 lakh a year for expenses after retirement.

Inflation beckons

However, here is where you need to let ‘inflation’ in and brace yourself. Thanks to the eroding power of inflation, the Rs 7 lakh living expenses today will be equal to Rs 66 lakh after 30 years, when you are ready for retirement.”

Then with some calcualtions…she says you need a figure between Rs. 9-13 crores for generating this income…i.e. Rs. 66 L for 25 years…

THERE IS AN OBVIOUS mistake in the article…anybody wanting to comment?

Prof. Pattu of free fin cal NOT ALLOWED PLEASE….lol….

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1. ##### Praveen

The point not considered is today the person is spending 70% of income , the income currently is spent on childrens education, saving for house, entertainment etc.. but after retirement, these expenses are not present.

In today’s expenses only the minimum basic requirement + future health expenses need to be taken into account for calculating retirement corpus.

I would assume the actual income for daily living expenses will be 20% of today’s income which is the right measure..Assume you have a house to stay and repaid the loan, repaid all loans.

2. ##### Senthil Kumar

It is -much- easier to think of inflation adjusted returns. Over the long term, one can expect about 4% p.a. real returns on stocks and close to zero to 1% on bonds and real estate. This means that one should be able to safely withdraw 4% on a real basis on retirement every year assuming that the retirement age is 65 and that portfolio planning is properly done. Hence, if a 65 year old person retires today on 2 crores, he/she can expect to generate a real income of 8 lakhs per annum given constant living costs after adjusting for inflation. This should, I think, by today’s standards, sustain a rather modest but comfortable retirement. Further, this figure can be considerably improved if there is some flexibility in spending patterns as withdrawals can then be adjusted from the stock part of the portfolio according to current valuation metrics.

(The above averages are for the US which is one of the few countries for which extensive, long term data is available – real estate returns are probably somewhat higher in India but I would be very surprised if real estate returned more than stocks over the next 20 years or so after accounting for maintenance costs and dividends.)

Disclaimer – I am a finance professor but do not specialize in financial planning.

3. ##### kailas pethkar

Requirement should be calculated based on todays expenses. Because as the expenses grow with inflation, the capital also grows at a rate depending on the instrument chosen for investment.