One of the thumb rules for retirement is to have “30x” your expenses at age 65 so that if you live till 95, you have all the expenses provided for. This is of course assuming that the return that you get post expenses and taxation is enough to cover inflation, and you do not lose any money.

Sadly ‘knowing’ does not mean ‘applying correctly’. So when I say a person will need Rs. 3 crores for retirement, some people do a calculation and say No, it will be only Rs. 1.3 crores. Great.

Remember no thumb rule will work if the basic assumptions go wrong. If a person retires at 40, he will need 60X his expenses. Simply because he could live till age 100. I am sure it will not be 60x, it will be less, but the way to look at the 30x rule is to look at the number of years remaining.

People make benign assumptions like 5% inflation, 7% post tax portfolio return, zero sequence of return risk, no sudden drawdowns, client (ifa) will SURELY die at age 80, …EVEN though their own grandma staying with them is 94 going strong.

Please understand in a Retirement calculation you do not know the following:

  1. how long will you live
  2. what will be the return on your blended portfolio
  3. whether you will be fit to handle a complex portfolio, and how well.
  4. your ability to ensure that you do not lose money to poor investment skills
  5. how much you will spend on medical care
  6. how much you will spend on support staff as your body can’t do some things
  7. what if portfolio return is much lower than INFLATION?
  8. For long times the market can remain IRRATIONAL
  9. what if you live till 115 instead of 85 (point 1 is being quantified)

So thumb rules do not always work perfectly – which means if run into sequence or return risk, or bad investments, or ……so stop USING thumb rules..unless you know how to apply it. Thumb rules are thumb rules, that is all.

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  1. Sir, apologies in advance for making you write a whole blogpost (I am those ‘some people’ who comment 1.3cr)… but I still tend to disagree…
    what is the point of a retirement calculator/ thumb rule for “planning” if we have to account for unforeseeable factors (living too long/ irrationality of returns etc) and ultimately double that number? If unpredictability couldn’t be accounted for – then why retire in the first place? one may face a several accident the next day even after retiring with 60X which not only wipes out the medical insurance, but also 30X of the corpus itself? Or god forbid, one may die in that accident itself and entire 60X gets wasted?

    Again, if unpredictability is the guiding factor – then coming up with sort of planning even to reach a 1.3cr/ 3cr/ 30cr portfolio is useless…
    My sense is (and a much less experienced and learned sense than yours certainly) that aiming for 1.1-times or even 1.15-times result of reasonable retirement calculator is fair; but if we are to double it – then we might as well as triple it and still not feel safe..!

  2. Dear Sir, I am a regular reader of your blogs and also have “bought” your books and I find your counter perpectives on FIRE etc very insightful.

    If I just take the factor of when to retire (30, 40 or 50 years), some of the givens clearly are:
    1. We don’t know how long we will live
    2. We dont know unforeseen expenses especially in a country where there is nil social coverage like medicals etc
    3. We have to retire one day if not by free will it will be employer’s will.

    Given these truths or certainties how should one consider these factors in the retirement calculator? For example, you say 30x if we plan to retire at 60 and higher if we plan to retire earlier – higher the factor better it is to have the safety net.

    Are there other ways of ensuring the social security in the future? Insurance etc will only be expensive and work to a limit.

    Thanks again for the articles and insights.

  3. Mohit,
    If you are going to visit some place with family say Goa which cost like Tickets 20 k, hotel 10 k, food 2 k and other 3 k so total 35 k.
    Now how much money you will carry.
    Ask your friends and your self
    Some will say 35 k ..some 70 k ..some even 100k based upon their past experience .
    I keepwill personally 100k .
    But total cost is 70k then I might keep 120 not triple in this case..

  4. Well said Mohit. If someone is constantly worried about all the things that can do wrong then it is best for him to keep working (and earning) till the day he dies. It is impossible to be 100% certain about the future no matter how much you accumulate.

  5. Each person’s life events are different. One cannot put a strait jacket, plain vanilla figure of 1.3 Cr and say it is sufficient. A 3 Cr is arrived at considering present Indian scenarios, probabilities and possibilities as a figure with some Margin of Safety.

    Having said that, 80% of Indian public who may be ignorant about retirement and may not even reach 3Cr savings. But still they will live through the retirement. If majority of people are not going to see 3Cr, then it is unlikely that an average person may need 3Cr. Economy will also condition itself such that the average person survives. For eg. the Rice & Dal/Kg will not become Rs 1000 today, just because 3Cr person can afford it. Price of items will have to strike a balance based on availability, demand and for the poor man also. (Don’t tell a famine is going to strike, you will also die). But then if you secured less for the end game – you are susceptible to eventualities of life, you may have to tell your prayers that nothing hits you hard, have to cut down things here and there and tone down your lifestyle etc & play the life’s test match.. Believe me, Indians are masters of this game.

    If you are there, and have a 60X use it live happily.. Even if one dies tomorrow by an accident etc. Nothing will go ‘wasted’. Rest of us are all here, no ?? 🙂 your family members, siblings etc.. Kuch to puny kamavo.

  6. point taken sir 🙂

    I sincerely hope efforts of kind-minded people like you will probably put a lot more Indians on personal-saving track & majority end-up with 3cr (or even more) in 2040s and 2050s !

  7. Dear Sir,

    Further to the points you have made, a person who wants to retire at 40, has much more financial commitments in the form of children’s education, children’s marriage and post marriage financial support, commitments towards parents, unpaid housing loans, higher lifestyle expenditure compared to a 65 year old (cars, vacations etc)s on. So his retirement corpus should not only include his monthly expenses but he should have a separate corpus for each of these expenses.

    So, someone who is 40 years of age, who has both parents alive and with two school going children, can not retire with less than Rs 5 Crore. This is my humble opinion. Thanks.

  8. (Continued from prev post)

    It will be even better to create 5 portfolios of Rs 1 Crore each in the following manner. 1) Self 2) Self+spouse 3) Self+parents 4) Self+Kid #1 5)Self+Kid#2. Each of these portfolios should be having fixed goals and methods to achieve the goals.
    Under no circumstances should money be diverted from one portfolio to another (except in life threatening situation of one of the kids)


  9. Subra, I 100% agree with Mohits opinion. While bidding in projects, if a company starts considering all the conditions as worst, that particular company will never win any project. Calculated risks have to be taken. Exactly the same in retirement planning. Put all the figures as worst and look at the amount that you will need to put together to retire comfortably. Compounding will play its part. You will require to take birth several times for reaching that amount.

    Best way is to take practical view. Arrive at a figure after tracking your expenses for a couple of years, put some buffer over it and target that amount. Once you reach that amount take a call.

  10. fully agree with Mohit..and others. After all once India becomes a developed country inflation will go down to say 3-4% so even a PPF investment will be enough during retirement. Unnecessary to think in terms of crores for retiring. So if he has 1.5 crores at 40, it should be more than enough. Not everybody will live to 110..we have to assume that we will die at 71 – the average age for Indians, and we will get about 7% return on fixed deposit. Subra exaggerates the need for big retirement fund. After all our parents and grand parents did not have so much of a corpus, they lived well no? My grandfather died at the age of 94, and he was looked after his sons..Now I am 59..and my father is 85 and in good health.

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