How much you need to retire, and why the usual number is too small
Most retirement estimates fail on the same two inputs — inflation applied to the wrong figure, and a horizon that stops too early.
Retirement corpus calculations produce wildly different answers depending on four inputs, and two of them are almost always set wrong.
The four inputs
- Annual expenses at retirement, not today's expenses
- Years the corpus must last
- Return during retirement
- Inflation during retirement
Where it goes wrong: expenses
People take today's spending and apply inflation. That is right in method, but the starting figure is usually wrong.
Some costs disappear at retirement: the home loan, children's education, retirement contributions themselves, and commuting. Others rise sharply: healthcare, insurance premiums, and help with things you used to do yourself.
The net figure is commonly 70 to 80% of pre-retirement spending — but the healthcare component within it inflates far faster than the rest, so applying a single blended rate understates the later years.
Where it goes wrong: longevity
Planning to 75 is planning to run out. Life expectancy at 60 is materially higher than life expectancy at birth, and a couple should plan for the survivor, not the average. Planning to 90 or 95 is prudent, not pessimistic.
The 4% rule, and its limits
Multiply annual expenses by 25 — a 4% withdrawal rate, adjusted for inflation each year, that historically survived 30 years in a mixed portfolio.
Three cautions before adopting it: it came from a specific market's history, it assumed a 30-year horizon rather than 35, and it assumed a portfolio that stayed substantially in equity. Early retirement, higher inflation, or a more conservative portfolio all argue for a lower rate — 3 to 3.5%, meaning a multiple of 28 to 33 rather than 25.
Sequence of returns risk
Two retirees with identical average returns can have entirely different outcomes depending on when the bad years arrive. A 30% fall in year two, while you are withdrawing, permanently damages the corpus in a way the same fall in year twenty does not.
The standard mitigation: hold two to three years of expenses in cash and short-duration debt, and draw from that during falls rather than selling equity into weakness.
Size your corpus
A worked example
Spending ₹60,000 a month today, retiring in 25 years, 6% inflation:
- Monthly need at 60: about ₹2,57,000
- Annual need: about ₹30.9 lakh
- At a 3.5% withdrawal rate: about ₹8.8 crore
The number is startling, and it is the honest one. It is also why the response should be to start rather than to stop reading — the same calculation shows that starting five years earlier reduces the required monthly saving by roughly a third.
Open the savings goal calculator
Published by FinClamp. This guide is information, not financial advice — see the disclaimer.