When I started saving for my retirement at the age of 30, a corpus of Rs 25 lacs looked very big. Because my income at that time, was Rs 10,000 PM and the corpus was like 20 times my CTC.
Now after 25 years, the purchasing power of Rs 10,000 has reduced 5 to 10 times (depending on what I am buying). The corpus of Rs 25 lacs, is today, my one year income. Even the best investment will not give me more than Rs 20,000 PM. What kind of standard of living and health care will I get for that?
Today's version of the same mis-selling: Promise a corpus of few crores, but 30 years from now. If you adjust it for today's money value, you will immediately see how grossly inadequate it is.
Which is why, most financial advisors don't show you inflation adjusted values.
But we at Save First Foundation, being a not-for-profit organisation, are not afraid of the truth. We are members, helping each other take control of our financial lives. We want to hold the bull by its horns and look in to its eyes, so that, we are aware of the gap between what we need to save and what we actually save.
Each family has multiple saving goals. College education, Marriage expenses, Property, Retirement. In this blog, we are focused on just one of those goals. How much do we have to save from Age 30 to 60, so that we can live with dignity from 60 to 80.
Go to the link below, open the Google Sheet and then download it in to your PC in Excel Format. Or make a copy to your own google drive.
You won't be able to change any numbers on this sheet, unless you download it or make a copy.
First update the GREEN ITEMS; your current age in D4, your current monthly income in F1 and the expected Post retirement income in C1. If you have already saved some amount for retirement corpus, enter that amount in Present Corpus G6
Then adjust the savings % in F4 till you match (at-least approximately) the "Corpus Required" (C6) with "Corpus Reached" (F6)
The corpus reached is automatically taken from the 30 year table based on your age. For example if your age is 32, you will reach 60 in the 28th year and hence the corpus reached number is taken from the 28th year. Needless to say, the older you are, the more you have to save, as you have less time left.
The corpus required is calculated based on the expected post retirement income you have given in C1. We have also assumed that you will draw down on your corpus from Age 60 to 80 leaving nothing to your children after 80.
You can also change the assumptions in Orange - such as:
Your annual average income growth % (F2)
Compounded (CAGR) ROI % of your investments during the pre-retirement period (F3)
CAGR ROI % of your Corpus during the Post retirement period (C3)
But read the Important Notes section below, before changing these numbers.
You might think that the annual increment when you change jobs or get promotion will be 30% and so assuming 10% is low. What we have taken is the average income growth over 30 years. This includes and averages out - years you have normal increases, years you have promotion and years you change jobs. For example I was earning Rs 10,000 when I was 30. At a CAGR of just 10% , my earnings would be Rs 1.75 Lacs PM after 30 years. But yes, if you are in the top percentile of your occupation, and you are confident that your CAGR income growth will be 12% or 15% instead of 10%, please feel free to use that number. If you want to know how much your income growth will be for a given income growth %, please check the Column E in the 30 year table. And also notice that the amount you have to save every year, also goes up automatically.
The Investment and Corpus ROI of 10% CAGR has been taken, assuming you diversify your investments across various asset classes such as PF, Govt Schemes, Property Rental, Gold, Mutual Funds and Equities. It is the average CAGR after adjusting for risk of loss in some assets, with abnormal gains in others. If you are putting everything in PF then reduce it to 7%
If you decide to reduce the inflation expectation from average 7% to a lower number, remember, average return on investment % should also be proportionately reduced.
Do not change the Formula in other cells as it may corrupt your sheet and make it unusable. (Unless you are an Excel Wizard and know what you are doing)
The % of saving that you have to do (F4) (and the annual savings from F8 to F37), is the answer to your question "How much should I save for my retirement". It is not an absolute number, but a %. It means, when the income grows, you should also increase the actual savings every year, in proportion to your income.
Please note that most people save approximately 10% of their gross salary as PF and NPS, which is grossly inadequate. This you would have seen it for yourself, while trying to match the corpus required with corpus reached.
Another way to match the corpus required with corpus reached, is to reduce your expectation on your post retirement income given in C1. But this will also reduce your standard of living and how you spend your retirement life. Please remember, dignity is more important than anything else.
Don't get confused with the big numbers that you see in other financial planners and calculators. Those are not adjusted for inflation / eroding value of money. Whereas our sheet shows everything in terms of today's value of money. This gives a more accurate and true picture.
If you have questions, please feel free to ask in our Whatsapp Members group (Join if you are not already in it) or write to firstname.lastname@example.org
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Save First Foundation is a not-for-profit organisation focused on the financial discipline and well being of middle class salaried employees and self employed professionals. We do not sell, market, distribute or represent any financial products. Hence we can provide unbiased advice on all aspects of personal finance from loans and insurance to savings and investments.
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