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How To Calculate Retirement Corpus?

Calculating your retirement corpus in advance can help you easily meet your retirement expenses.

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Amit Sethi
February 10, 2024
Rajasthan Pension Scheme

Rajasthan Pension Scheme

Before retirement, you can make efforts to increase your income to meet your expenses in sync with changes in your lifestyle. However, after retirement, your income from work stops, but your expenses may continue to change; thus, if you are not prepared to meet such costs, you may get into financial distress. To avoid such a situation you can calculate retirement corpus and get an idea to plan your financial strategy.

Planning can help you avoid financial distress after retirement. All you have to do is calculate how much retirement corpus you need to meet your retirement goals and plan to achieve that corpus. Now, the question is how to calculate the retirement corpus. Here are some important points that can help you to estimate your retirement corpus requirement.

Also Read: What Happens To your Property If You Die Intestate?

Assess Your Post-Retirement Expenses

The post-retirement expenses may not be the same as you had before your retirement. However, your current lifestyle and financial obligations can help you make a close estimation of the various retirement expenses. You can make a list of your post-retirement expected expenses list based on your current lifestyle. You may include things like rent payments, electricity bills, travelling expenses, holiday expenses, phone bills, party or clubbing payments, and other expenses that you have to pay after your retirement. You must include the money requirement to pay EMIs towards outstanding loans and insurance premiums.

Estimate The Period For Which You Would Need The retirement Corpus

The size of your retirement corpus would depend a lot on the number of years for which you want to meet your expenses after retirement. You may estimate your life expectancy and add an extra 10-15 years to it. Having a bigger corpus than your actual financial requirement is always better than falling short of meeting your retirement corpus. Bigger corpus can allow you a huge financial cushion if you live beyond your estimated life expectancy.

Also Read: Important To Provide Seniors Sense Of Relevance, Says Tara Singh Vachani Of Antara Senior Living

Consider The Impact Of Inflation On Retirement Expenses

Now, knowing about your retirement-related expenses and the number of years for which you have to build the retirement corpus may not be enough due to the impact of inflation. The money required to meet your retirement corpus may change with a change in the inflation rate during the period left in hand for your retirement, as well as the inflation rate after your retirement. So, you need to adjust the estimated retirement expenses with an expected inflation rate for the number of years remaining to your retirement. You should review and adjust your retirement corpus estimation every year by considering the difference between the actual inflation rate during the past year and your estimated inflation rate. If your estimated inflation rate is lower than the actual inflation rate, you need to increase the size of your retirement corpus.

Things To Keep In Mind

After estimating the retirement corpus, you also need to choose the appropriate investment instrument in sync with your risk appetite to build that retirement corpus while also beating inflation by a significant margin. Once you build the planned retirement corpus, you must remain invested so that you can beat the inflation during your life after retirement.

The author is an independent financial journalist.

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