What is a Retirement Corpus Calculator?

Retirement planning is an often-ignored yet critical financial goal. It requires prudent planning, as daily expenses continue while income flow stops post retirement.

The first and foremost step in retirement planning is estimating the retirement corpus you need. A retirement corpus calculator is an easy-to-use tool that calculates the amount of corpus an individual requires at retirement age. The corpus is projected based on various financial assumptions and variables you input, and any change in your inputs may impact the resultant amount.

Considering the sensitivity of different assumptions and variables to the financial goal, you may provide your current lifestyle expenses after considering monthly spending. You also need to input your retirement age, estate details and expected inflation. These details help calculate the desired corpus to support your lifestyle once you retire.

How does it work?

The retirement calculator considers the below factors to arrive at a suitable corpus amount: Present expenses (monthly) Inflation rate (%) Post-retirement returns (%) Retirement age Life expectancy Estate value Apart from displaying your customised corpus, it also recommends the investments you need to make. If there is a shortfall in the amount required to create the retirement corpus, this Calculator will calculate and recommend a monthly Systematic Investment Plan (SIP) for you.

Benefits of Retirement Corpus Calculator

Quantifying the goal

The corpus calculator for retirement helps quantify the requisite amount, incorporating your current lifestyle expenses and estimated future costs considering inflation. Such careful planning ensures that the current lifestyle may be maintained in the future without much deviation.

A step towards financial independence

Quantifying the goal of retirement planning is the first step toward achieving financial independence post-retirement. Such a calculator helps investors calculate the corpus amount objectively and without bias.

A systematic approach

Once the retirement corpus amount has been quantified, it is always easier to chalk out a prudent financial plan to achieve such a corpus over time. This can involve creating an investment roadmap to achieve the financial goal by registering Systematic Investment Plans to make regular investments.

Features of Retirement Corpus Calculator

The Calculator uses the following inputs to calculate the retirement corpus:

Inflation

It is well-established that any currency would lose its purchasing power over time due to inflation. For example, what can be bought with ₹1000 now may have been available at ₹100 ten years ago. As such, the retirement corpus should consider such a decrease in currency's purchasing power over time. This ensures that such a corpus will also cover the current lifestyle expenses at future prices.

Expected returns

Often investors, especially first-timers, wonder how to plan for retirement. One may estimate the desired returns and choose investment products best suited to their risk appetite. If one is starting early and there is sufficient time until retirement, equity investments may be able to create the desired retirement corpus.

However, as retirement nears, the risk appetite steadily lowers. As a result, investors may be more comfortable with safer asset classes like debt during such times, thus aiming to generate reasonable returns with lower volatility.

Frequently Asked Questions

1) How to calculate your retirement corpus?

Retirement is an inevitable part of life; everyone may have to retire at some point. While it is considered the second innings of life where individuals can live to their fullest, they have to plan their retirement well to live that life. One can be financially independent by ensuring sufficient retirement corpus and/or a regular income stream post-retirement to meet their expenses.

However, retirement planning is easier said than done. One of the stepping stones of retirement planning is to decide the retirement corpus individuals must have to sustain themselves for the rest of their lives. One of the best ways to compute the retirement corpus is to assess the current and expected future expense.

The projections for future expenses must include the current lifestyle expenses and consider the future medical costs incurred due to the increase in age. Additionally, inflation tends to lower purchasing power in the future, thereby further increasing the retirement corpus requirement.

Apart from regular savings, the returns from the investment portfolio also fund the retirement corpus. However, the return expectations from the investment portfolio must be kept at a reasonable and fair level, which keeps the investor's expectations practical.

Individuals can use the retirement calculator to know how much they need to invest to accumulate the desired corpus. These calculators use a specific retirement corpus formula for calculation and showcase the figures based on the inputs provided.

2) Why should you plan your retirement early?

One may plan for retirement well and early to avoid leaving out post-retirement aspirations due to financial constraints. Planning for retirement is a critical facet of the financial planning process. But many individuals may have no idea how to plan for their retirement.

Since the investment portfolio funds the retirement corpus through the investment returns, more time must be given to the investments to flourish and grow. Therefore, as the investment period increases, the returns earned during the earlier periods contribute to further returns to the investment portfolio growing exponentially.

Therefore, it is advisable to plan for retirement early and start investing towards that goal well in time. The earlier one starts, the more time they allow the investments to grow. This helps the investors to reap the benefits of compounding over the long term.

3) How to plan for retirement?

Retirement planning is an integral part of overall financial planning. However, many individuals fail to give it the importance it deserves mainly because they have no idea how to plan for retirement.

One can systematically plan for retirement by regular investing and balancing the portfolio risk profile with an optimal asset allocation mix. The investment journey towards retirement planning can be best achieved by registering Systematic Investment Plans (SIPs) to make regular investments towards the common goal.

One should also aim to maintain an optimal asset allocation for their investment portfolio. Investment can be made towards different goals per individual risk appetite and investment horizon. One may opt for a higher proportion of equity investments at the beginning of the investment journey, when an investor may have lesser responsibilities, lesser expenses and an extended time horizon before the retirement age knocks at the door.

These factors contribute towards an aggressive risk appetite during the early working days with lesser responsibilities, lesser expenses, and extended time before the retirement phase. However, as one ages and retirement approaches, the risk-bearing ability steadily reduces. As such, portfolio investments should also shift steadily into relatively safer asset classes, which exhibit lower volatility.

Disclaimer- The above calculation on retirement corpus is for illustration purpose only and not an indication of the performance of any schemes. Calculation is based on assumed rate of return and actual return may vary. Performance may or may not be sustained in future.