Dreaming of retiring early? It’s not difficult. This article calculates how much money you really need before you can retire.
Retiring early
The Indian economy has been booming for a prolonged period, and it is having far reaching impact on the way we think about earning, spending and investing.
This booming economy has resulted in some high paying jobs – jobs having salaries that were unheard of even a decade back. Even entry level salaries have gone up significantly – meaning that many young people today earn a lot more than their expenses.
This obviously results in a surplus every month. This not just gives a sense of security, but also presents an opportunity to think and do things differently than what our earlier generations did.
And here’s a trend that is fast emerging: Retiring early has become an aspiration of many of today’s young people!
They don’t want to work till the age of 60 or 65 – they want to work hard when they are young, save up enough, and retire at a relatively young age so that they can spend more time with their families, and pursue things that genuinely interest them.
Do you want to retire early as well? Let’s see what you would need.
The assumption: You want to retire in 2025.
The Calculations
What is the financial criteria to decide when you can retire? It’s simple – you should make enough money, without working, to meet your expenses!
For that, you have to consider your current expenses, and based on this, you need to find out your expenses at the time of retirement. For example, if your current monthly expenditure is Rs. 25,000, you can’t aim for earning Rs. 25,000 in 2025.
Why? Due to inflation. Inflation reduces the value of the rupee each passing day. Therefore, you need to earn a lot more then Rs. 25,000 in 2025 in order to retire comfortably.
(Please read “Saving enough is not enough – Effect of Inflation on Savings” to know more about the impact of inflation on your savings)
So, in 2025, how much would be the equivalent of today’s Rs. 25,000? Well, that depends on the rate of inflation. If we assume the inflation to average out to 6% from now till 2025, this amount works out to Rs. 67,319.
{filelink=27} Download the spreadsheet that has all these calculations. You can change the figures as per your needs, and find the amount that YOU would need when you retire!
Rs. 67,319 – This is the amount you would need every month in 2025 to enjoy the same standard of living you enjoy today (for Rs. 25,000 a month!). This works out to Rs. 8,07,832 per year.
And how would you get this income? When you retire, you are not going to get a monthly pay cheque! The only option for you is to earn this amount as interest.
If we assume the rate of return on investment to be 7%, the amount you need to earn Rs. 8,07,832 every year is – hold your breath – Rs. 1,15,40,455!
But wait – what about the unavoidable Income Tax? Wouldn’t your interest income be subject to income tax? Of course it would be – there is no way to escape income tax!
Here we go – if we assume the average rate of income tax for you in 2025 to be 25%, the corpus you would need to retire is Rs. 1,53,87,273! Yes – it is Rs. 1.54 Crores!
{filelink=27} Download the spreadsheet that has all these calculations. You can change the figures as per your needs, and find the amount that YOU would need when you retire!
So, now you have a clear picture of how much you would need if you want to retire early. Sounds intimidating? Unachievable? Unattainable?
NO! It is quite achievable. Now that you have a goal for yourself, you can easily achieve it if you make regular, disciplined investments. Want to know how? Please read “Goal Based Investing” for an easy, step-by-step explanation.
Happy retiring early!
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