How much money do you need for your retirement? Simply Save

To listen to the podcast, click above. To read the podcast conversation, scroll down.

If you are 30 years old and currently spend Rs 6 lakh annually, you will require Rs 26 lakh a year by the time you hit sixty. This assumes a 5 percent annual inflation rate. Then, to fund your retirement, you will require a corpus that is 33 times the size of your annual expenses, that is, Rs 8.5 crore! Ravi Saraogi, a SEBI-registered investment adviser (RIA) and Co-founder of Samasthiti Advisors highlights these numbers. He says, if you begin investing early, these numbers are achievable.

In a conversation with Moneycontrol, Saraogi talks about how to chalk out a basic retirement plan, important factors to consider when planning for your retirement and how to safely withdraw from your retirement corpus without risking its depletion.

Here are a few points that Saraogi highlighted.

• As per being a publicly available research, 70 percent of Indians still depend on their family wealth or children to finance their retirement.


• Step-by-step approach to retirement planning – first, estimate your retirement expenditure. For this, you can take your current expenditure as a starting point. Then, apply an inflation rate to arrive at your likely expenditure in the first year of retirement. Next, you need to know the corpus you will need to fund this expenditure. A generic rule that works for most people would be to have a corpus that is 33 times this annual expenditure. Then, start investing to reach this target amount.


• Step-by-step approach to retirement planning – second, you need to know the rate at which you can withdraw safely from this corpus to generate a sustainable pension. That is, without exhausting the corpus itself.


• What’s this safe withdrawal rate (SWR) - Saraogi suggests a SWR of 3-3.5 percent based on a study he conducted with Rajan Raju, a career banker and researcher on Indian financial markets. The study uses last 20 years’ data on equity, debt and gold returns and inflation numbers for India to arrive at this SWR. The study considers a balanced investor - one with an asset allocation of 60:30:10 (equity: debt: gold) at the time of retirement.


• How to generate retirement income –this is as important as building a retirement corpus. This requires comparing all your retirement assets on taxability and their risk-return profile to generate an income in a tax-efficient way. This can be complex and may require regular rebalancing of your portfolio. For example, if equity markets have gone up sharply, it may make sense to book profits in equity to generate an income, and at other times, look at other assets for this.


• Common mistakes – often retirement plans don’t seem to take market volatility into account. The asset allocation strategy for most retirement portfolios is very suboptimal – it is either too debt-heavy or too equity-heavy. What is needed is the right balance.