A few days ago, I read an article where the reader wanted to know how much corpus they need to retire by 45. I thought it was interesting and wanted to use my own calculators to see what numbers I would arrive at. I was surprised at how very close my number was, compared to what the advisor in that article gave. But do remember that for the exact same question different people will give different answers based on their own past experience and their biases. Anytime you take financial advice, do keep that in mind. No one has the perfect right answer. They are just approximations to lead you in the right direction. In the end, you need to figure out what the right advice for you is.
Here are some details about the reader
- Cost of living is approximately Rs. 50,000
- Age of the person is 31
- They want to retire by the age of 45
I plugged in those numbers in my “how much do you need to retire calculator” and found that the corpus required is Rs. 3.40 crores. I left the defaults for inflation at 6%, withdrawal rate at 4% and investment returns at 10%. The monthly expenses of the person will grow from Rs. 50,00 at the age of 31 to Rs. 1.13 lakhs post retirement at the age of 45. That corpus will last them until they are 100+ years. However, in the article the advisor recommended a corpus of Rs. 4.25 crores as against the Rs. 3.40 crores that I am recommending. It is a good 25% more, which is not too far from my recommendation of adding a 20% buffer to cover for any unexpected risks in market. Great!
I wanted to go a little further than just calculating the corpus because the reader gave some other information as well –
- They earn Rs. 1.3 lakhs per month after taxes
- Current savings are Rs. 18 lakhs
- Investing about Rs. 60,000 per month in mutual funds
- Life expectation is till the age of 85
So given what we know, I wanted to see if they are saving up enough to reach their corpus. To answer that, I plugged in those numbers in my “how much should I invest calculator”. I kept all the defaults like earlier except that I changed the SIP increment rate to 6%. What that means is that the person will have to increase their SIP by 6% every year. According to my calculator, with an investment of Rs. 59,000 every month, and increasing it by 6% every year, they will comfortably be able to reach their goal.
The reader mentioned that their income is Rs. 1.3 lakhs and the expenses are Rs. 50,000. Which means they could be investing up to Rs. 80,000 per month of which Rs. 60,000 is being invested in mutual funds. So they can easily reach the goal. Moreover, they most likely also have EPF provided by their employer, which is a bonus! So the additional money and EPF can be used to build up the 20% buffer. I give a thumbs up to the plan of retiring at the age of 45 for the reader, assuming their expenses are not going to increase considerably from Rs. 50,000. It can happen if they have kids or more kids or some new health issue or because of lifestyle creep or any other reason.
Talking of changing expenses, there is a calculator for that too on my blog. So we can find out if the corpus will really last until they turn 85 as the reader hopes for, if the expenses keep changing at various stages of life. Using the “how long will my money last” calculator and plugging in Rs. 3.4 crores as the corpus and the rest of the numbers from the reader while keeping the defaults as it is, we see that they will run out of money exactly after 85 years of age! What a coincidence. But remember that there is still the 20% buffer which can help in making the money last even longer.
Of course this is all based on various defaults I used in the calculators and your expenses may be different from the defaults. So make sure to check that first. No matter how I slice and dice, all the numbers look quite reachable for this particular reader. What I find very strange is that all my calculations match up very well with the numbers provided by the reader. Seems like they already have a good understanding of how much they need to retire early.