Is Rs 1 Crore enough to Retire?

When Kaun Banega Crorepati (KBC) was launched, people could not believe the fact that someone can win Rs 1 Crore in a game show? Not sure how many actually won that but still lot of people have dream to become Crorepati someday. Later KBC increased price money to Rs 5 Crore.

But if I recall my childhood I still remember even having lakhs was a big thing – I am not too old & just talking about 2-3 decades back. If you remember movies of 80s & 90s – Villains were doing diamond or drug deals in lakhs & kidnapping kids for thousands. But movies in current era talk about crores & sometimes 100s & 1000s crore.

Rs 1 Crore enough to Retire

Image courtesy of hyena reality at FreeDigitalPhotos.net

Who’s the villain in your life?

Your biggest enemy brought this change – INFLATION. Above movie example clearly shows that value of money is reducing & we require more money to buy same things, which were earlier available at lesser price. If I talk about housing sector – it may bring tears to many eyes. But we don’t have any choice but to live with this and new set of numbers.

But whatever said & done, still lot of people feel 1 Crore is a decent number to achieve all of their dreams. Let me try to break this myth. And here I am not going to talk about child future goals or any lifestyle goals but a goal which is common for everyone – RETIREMENT.

Is Rs 1 Crore enough to Retire?

I think if I will ask “Is 1 Crore enough to Retire?” most of you will say “Yes” & even I agree in some of the cases it will be YES. But unfortunately in most of the cases, Rs 1 Crore will not be able to provide you decent income to survive.

So I am trying to answer this question after taking couple of assumptions & 3 families of different age  groups.

Assumptions:

  • Retirement Age: 60 Years
  • Life Expectancy: 85 Years (hope you know, living longer is risk after retirement)
  • Note: Age & life expectancy of husband & wife are considered same. 
  • Inflation: 7% (if inflation will be higher than this – things will be even worse)
  • After tax Retirement Portfolio Return: 8.5% (Debt 70% @7% & Equity 30% @12%)

Family 1 – Current Age 55

Here is an old Sharma couple from Mumbai– worked hard through out their life & expect to retire in next 5 years. They don’t have any financial dependents – as kids are well settled. They don’t expect any support from kids. They have met all other goals & expect that any how they will be able to achieve Rs 1 crore retirement corpus. They would like to will they have decent money for comfortable retirement & small luxuries here & there……

Monthly Requirement

30000

50000

75000

100000

Yearly Requirement

360000

600000

900000

1200000

Expenses in First Year of Retirement 5.04 L 8.41 L 12.62 L 16.83 L
Retirement Corpus Required 1.07 Cr 1.79 Cr 2.68 Cr 3.6 Cr

Note: Monthly/Yearly Requirement is in present value & expenses in first year of retirement are in Future Value.

Sharma Ji was bit of shocked that there entire lifetime savings & dream figure of Rs 1 Crore will not even generate Rs 30000. He checked his expenses & realized that this is not at all sufficient for meeting monthly expenses. He asked me for the options so I shared this article. When you are not ready for your retirement.

Situation 2 – Current Age 40

Mr Singh is a smart chap & working for MNC in Delhi. He is having 2 daughters & is looking for “best” education for them. He has made investments for every goal but unfortunately most of the investments are in insurance products. He has also started feeling burnouts due to hectic job & retirement questions are started looming. But he is practical & feels his retirement kitty is very small to think about early retirement. Plus kid’s “best” education is biggest priority now & only after that he will be able to add more funds towards retirement. He also plans to buy flat before retirement which is another concern. Still he feels he will reach that magic number “Rs 1 Crore” before retirement. He would like to know, is he on track…..

Monthly Requirement

30000

50000

75000

100000

Yearly Requirement

360000

600000

900000

1200000

Expenses in First Year of Retirement 13.93 L 23.21 L 34.82 L 46.43 L
Retirement Corpus Required 2.9 Cr 4.93 Cr 7.4 Cr 9.87 Cr

After looking at the numbers Singh Sahab is in little panic but I told him he is still have time on his side. I asked him to read this article – “Retirement Planning Vs Child Future Planning”.

Situation 3 – Current Age 30

Agarwal is happy go lucky guy & working in Bangalore. He is working in IT industry from last 5 years but hasn’t saved anything – he feels retirement is still couple of light years away from his place. 2 years back he got married against wish of his parents. (Off course love marriage) But good part is both of them are earning & minting decent money. He is expecting nothing in inheritance & no financial support from family but feel that someday he will become Crorepati – the number that keeps coming to everyone’s mind.

When I told him that looking at your current lifestyle Rs 1 crore will only take care of first year of your retirement – he laughed & asked me to share numbers so here you go……

Monthly Requirement

30000

50000

75000

100000

Yearly Requirement

360000

600000

900000

1200000

Expenses in First Year of Retirement 27.40 L 45.67 L 68.51 L 91.34 L
Retirement Corpus Required 5.82 Cr 9.71 Cr 14.56 Cr 19.42 Cr

This guy is doubting my calculations– he is searching for other retirement calculators to prove me wrong. I can understand, this will take some time to sink. But still forwarded him this article – “Delay at your own cost”.

I can understand, that these numbers were shocking for lot of readers but you prepare or not your retirement is going to be there. One should have balance in lifestyle before & after retirement but in case people are not ready with these numbers, they have no choice but to compromise on lifestyle.

We have recently launched “Goal Based Investment Planning” Services – this also includes retirement analysis & projections.

Feel free to ask questions & share concerns that you have about your retirement in comment section.

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{ 17 comments… add one }
  • vvraghav August 12, 2013, 11:55 AM

    i disagree
    in your projections, either use all amounts discounted to current year PV or projected to retiring age FV. not both.

    on realistic terms, it depends on the lifestyle
    I dont need 1cr or 10 cr when i retire. I will retire debt free with decent health and live in a suburb in my own house.
    Whatever PF and gratuity comes will be more than enough to maintain “my” luxurious lifestyle.

    • Hemant Beniwal August 12, 2013, 12:40 PM

      Hi Vvraghav,
      I agree “on realistic terms, it depends on the lifestyle” and that’s the reason I have shared monthly numbers – 30 k to 1 lakh.
      Retirement corpus numbers will always be in future value & will be based on your future monthly expenses numbers. But now the problem is – how can someone say his future monthly expenses will be XYZ. So he need to look at present monthly expense numbers (adjust that number – lets assume 70-80% of existing expenses) – inflate those numbers till retirement. In my “Financial Life Planning” book – I have discussed this at length & also shared some tables to calculate exact numbers.
      You should also understand “hope is not a strategy” – so in your case, check 2 things: What should be your retirement corpus & how much you are going to get as retirement benefits from your employer. If there is some gap – try to bridge that.
      Check this article
      http://www.tflguide.com/2011/06/are-you-ready-for-your-retirement.html

      • vvraghav August 12, 2013, 1:52 PM

        hi.
        I am very sceptical on usage of PV, FV and TVM. They have lot of tacit assumptions on quantifying risk and return. Everybody using it means it is only popular and not right.

        The 1Cr, 10Cr numbers are FV. Ideally one should project all current investment value @”expected rate of return” (ahem) to your retirement date and then evaluate the gap.
        or bring all the numbers to current NPV and compare.
        ———–

        Question is not whether 1 Cr is enough for retirement ( What’s up with everybody on the 1Cr number??? seriously!).

        Question is what to do to retire comfortably if you are in 20s, 30s, 40s and 50s now.

  • rohit patel August 12, 2013, 12:00 PM

    the monthly requirement 30000/50000/75000/100000 is present day value or the value which we will generate per month after retirement if retirement corpus requirements are fulfilled.

  • Rishi August 12, 2013, 2:45 PM

    I am doubting the numbers but can we break these down to smaller numbers we can understand ? Like medicines will be more in use and costlier, but education costs will go down – it will be good to know of a granular calculation rather than a gross 1Cr a month calculation

    • vvraghav August 12, 2013, 10:13 PM

      if you retire at 60 now and expect to live minimum 70, the villain is not inflation of consumer goods but medical and transportation costs

      expect to waste > 60% of your monthly drawdown from your corpus if you have sugar,bp and any surgeries.

      stay healthy as a family, invest in your career, cut down expenses year on year. rest all will take care by itself

  • Shravan Garg August 12, 2013, 3:29 PM

    Hi Hemant,

    I have been reading your column for a while now. I am a business man and a couple of years ago I too was planning to undertake the CFP programme, as an alternate career to boost my income but have chosen different vehicles. Given my current income, expenses and debt I doubt there is anyway that I will be able to save enough for a lifestyle that will only get better with time. I agree with your retirement calculations and dont see a way out except increasing income substantially and a recurring one at that. I have started selling life and health insurance (on the side) and become an Amway Business Owner to generate a lifetime of cashflows.

  • Mohit August 12, 2013, 8:47 PM

    Nice article……. Retirement corpus will vary person to person depending on way of living…..

  • vvraghav August 12, 2013, 10:18 PM

    Hemant,

    thank you for the articles and i have forwarded the video to all my retired relatives. they were really useful.

    good luck with your book

  • Naveen Prasadula August 13, 2013, 7:29 AM

    Hemant

    Please accept my congratulations You are doing a great job as Good financial Planner, and I’m looking forward to seeing the direction you are going to take your upcoming articles with shares holding for long term investment which will be more help full to current as well as next generations .

  • Soni August 14, 2013, 4:30 PM

    I agree with the post but unfortunately I have no clue how I will achieve this corpus.

  • Annapurna August 20, 2013, 12:58 PM

    Nice post. But is the PV of all the future expected outflows a realistic figure..unless they have a seperate emergency fund to dip into in times of monetary needs over and above this monthly requirement.I have seen a few retirement calculators which use the target retirement corpus required as the principal which should generate the monthly retirement corpus required.. in which case the amount reqd is a unreasonably huge sum !!

  • Dr.Paritosh V Trivedi September 28, 2013, 7:01 PM

    Good article. Financial literacy in need of the Time. Keep educating us. Thanks..

  • Himatejaswi December 27, 2014, 1:58 PM

    Hi hemanth
    mind blowing.
    I am 27 right now , How much will be sufficient for my retirement ??? after reading this I am confused and little bit afraid tooooo

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