Estimating retirement corpus — Learn the thumb rule to calculate

Know how to estimate your retirement corpus

How much should I save for my retirement and when should I retire?

These two questions are like uninvited relatives. One cannot chase them out but at the same time got to treat them special.

What is the 4% Rule?

The retirement pool or fund is no exception to the whirlpool of stats. Amongst them, the “4% rule” is probably the simplest. This rule answers the fundamental question of what should be the size of your investment portfolio when you retire? The rule helps you plan for a corpus that would enable you to enjoy the current lifestyle till your last breath. Generally, one lowers his/her standard of living after retirement. If you plan well in advance and accumulate enough corpus, maintaining your current standard of living should not be an issue.

Calculate your retirement corpus

How Inflation affects Retirement Corpus?

You might ask what about inflation? That’s a very important aspect that can jeopardize any financial plan. The 4% rule is built in such a way that you can withdraw enough money to maintain the same lifestyle despite inflation, say 3 to 4%. So, you can withdraw in the second year an amount of (11 lacs + 33K for inflation) and third-year withdrawal will be 11.67 lacs and so on.

Caveats

  • This is just a thumb rule — consult your financial advisor for detailed advice.
  • This corpus is only to maintain regular expenses. Any extraordinary major expenses like college admission, children’s weddings are not covered. One should create separate funds for them.
  • Financial discipline is paramount — DO NOT withdraw big chunks from the corpus. This will affect future earnings and might lead to financial distress.
  • Not applicable in hyperinflationary economies like Venezuela.
  • Pension is not considered

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