Retirement Planning Calculator

A retirement planning calculator is a financial tool that can be used to calculate how much money you will need after retirement. It aids in financial planning so that you can plan ahead and have a sufficiently large retirement corpus to secure your post-retirement finances. The calculator uses key details such as your current expenses, liabilities, and savings to estimate the future size of the retirement corpus that can ensure that you can maintain your existing standard of living during your golden years.

Like any financial tool, the retirement calculator uses some key user inputs to provide its output i.e. the estimated size of the retirement corpus that will be needed post-retirement and the inflation-adjusted monthly income necessary during one’s golden years.

You have to enter your current age, the age you intend to retire, your life expectancy, and the estimated monthly income you will require post-retirement into the applicable fields of the retirement planning calculator. Some additional details that you have to enter into the calculator are the expected return on investment, the estimated annual rate of inflation till your retirement and the current size of your retirement savings corpus.

On providing the above-mentioned inputs, the retirement planning calculator will display the inflation-adjusted annual income you will need post-retirement to maintain your current standard of living. Additionally, the calculator will also immediately display the estimated size of the retirement corpus you will need to have when you retire, and the amount of money you need to save each month to reach your target retirement corpus.

To better understand how the retirement planning calculator works, let’s take an example:

Annual Income required in retirement = Rs. 18 lakh
Retirement Period = 20 years (life expectancy of 80 years – age of retirement of 60 years)

Estimated Rate of return on savings = 8%
Estimated Rate of Inflation= 6%

Inflation-adjusted rate of return = (1+0.08)/(1+0.06) – 1

= 1.89%/12 = 0.001575

Retirement period (in months) = 240 months
PMT = Inflation adjusted monthly income at retirement = 18 lakh/12 = Rs 1.50 lakh.

Hence, an Excel calculator can help you calculate the retirement corpus, through the PV function. 

Select NPER = 240 months and PMT= 1.5 lakh. Type = 1.

The calculator will show that you need a corpus of around Rs. 3 crore at retirement i.e. when you are 60 years old. This amount can help you generate an annual income of Rs. 18 lakh to ensure you have adequate money for a financially secure retirement till the age of 80 years.

While you now have a clearer idea of how the retirement planning calculator works, let’s take a closer look at how the inflation-adjusted expenses amount is calculated. 

Let's say you require Rs 35,000 a month to maintain a comfortable standard of living currently. You intend to work until you are 60 years old, and you are currently 35 years old. What is the retirement corpus you need to put your assets in an investment that gives 8% p.a. as return, assuming average annual inflation rate of 6% till you retire. 

Below is the formula that is to be used in this case:

FV = PV (1+r)^n

Where,

FV = Future Value

PV = Present Value = Rs. 35,000

r = expected inflation at 6%

n = time left until retirement (60 years – 35 years) = 25 years.

FV = 35,000 (1+0.06)^25 = Rs 1.5 lakh

So to maintain the same standard of living as today, you will need Rs. 1.5 lakh monthly at the time of retirement. This translates to annual expenses of Rs. 18 lakh when you are 60 years old, if you plan to maintain the same standard of living. 

Note – The values used above are only illustrative purposes and might not exactly reflect real-life circumstances.

There are various benefits of using a free online retirement planning calculator in India. Some of the key ones are:

 It makes it easier to figure out how you will need as savings at the end of your working career in order to have sufficient money for your retirement.

• 1. It helps you estimate how much you will need to save monthly to help your reach retirement corpus goal.

• 2. You may also use a retirement planning calculator to work out different scenarios and figure out which of those is achievable based on your current circumstances.

• 3. The retirement planning calculator can help you compare the efficacy of different retirement planning techniques and investment options to help you choose one that suits your unique need.

• 4. The results provided by this calculator are instantaneous and the calculations are error free, which saves time as you do not have to do tedious error-prone calculations manually.

Planning for retirement is essential for ensuring financial security and maintaining your desired lifestyle after you have stopped working and do not have a regular income. A retirement planning calculator is an invaluable tool in this process, helping you to estimate the funds you will need ahead of time, so that you can make prudent financial decisions.

By considering key information such as your current age, desired retirement age, expected returns on investment, and inflation rates, you can get a clearer picture and come up with an suitable plan to secure your financial future. So, you can use the retirement planning calculator to make informed decisions, optimise your savings strategy, and achieve a comfortable and worry-free retirement.