How the retirement corpus is calculated
Retirement planning has two halves. First, work out what your present lifestyle will cost in the year you stop working. Second, work out the corpus that can fund that rising expense for as long as you live — and the monthly investment that builds it.
Formula
Corpus = first-year expense × [1 − (1 + real return)^−n] ÷ real return
- real return = ((1 + post-retirement return) ÷ (1 + inflation)) − 1
- first-year expense = today’s annual expense inflated to your retirement year
- n — years the corpus must last
- Withdrawals are assumed to rise with inflation every year
Inflation does the damage before you retire
₹60,000 a month of expenses today becomes about ₹3.07 lakh a month after 28 years at 6% inflation — the same lifestyle, five times the rupees. This is the number most people never compute, and it is why retirement corpora look implausibly large.
Everything downstream depends on it. Underestimate inflation by a percentage point and the required corpus falls by crores, which is comforting and wrong.
Two different returns, deliberately
While working you can accept equity risk, so 11-12% is a reasonable assumption. After retiring, the corpus needs stability and liquidity, so 7% is a more honest figure — and the gap between that and inflation is what determines how long the money lasts.
The real return matters more than either number. At 7% returns against 6% inflation, the corpus grows barely 1% a year in purchasing power, which is why 25 years of retirement needs roughly 22 times the first year’s expense.
Why starting early is not a cliché
On these assumptions, a 32-year-old with ₹10 lakh already invested needs about ₹20,900 a month to retire at 60. Retiring at 55 instead needs roughly ₹39,400 — nearly double, because there are five fewer years to invest and five more to fund.
Every year of delay compresses the compounding period at exactly the point where compounding does the most work. There is no later contribution large enough to fully replace an early one.
What this calculator deliberately leaves out
Healthcare inflation typically outpaces general inflation, so add a margin and hold adequate health cover independent of the corpus. A paid-off home materially reduces the requirement, while supporting parents or children raises it.
EPF, NPS, gratuity, and any pension all count towards the corpus, so include their expected values as existing assets. And revisit the plan every few years — a projection made in your thirties is a direction, not a promise.
Example: age 32, retire at 60, live to 85
- Expenses today
- ₹60,000 a month
- Expenses at retirement (6% inflation)
- ≈ ₹3.07 lakh a month
- Corpus needed at 60
- ≈ ₹8.2 crore
- Existing ₹10 lakh grows to
- ≈ ₹2.4 crore
- Monthly SIP needed
- ≈ ₹20,900
- If retiring at 55 instead
- ≈ ₹39,400 a month
The corpus sounds enormous because it is expressed in the rupees of 2054. Relative to the ₹3 lakh monthly expense it must fund for 25 years, it is merely adequate.