How much money do you need to retire?

by Manshu on September 2, 2010

in Retirement Planning

Reader Gaurav wrote in some time ago with a question about retirement investment options and plans, and I have been thinking about them for some time now. But every time I think about investment options, my mind wanders to the question of how much do you really need to retire?

To answer that you need to think about the following questions:

1. How much money will you spend per annum ?

2. How many years do you have till retirement?

3. Number of years you need the money after retirement.

4. Annual Inflation

5. Expected return

Take a look at this Retirement Calculator from Bank Rate. It lets you plug in the numbers, and tells you how much money you will need at the time of retirement to last the rest of your life.

It also tells you how much money you need to invest today to get to that number on your retirement age.

I suggest you play with this calculator alone because you don’t want people hear you yelling obscenities when this thing throws up the number you need today (not that it happened with me).

But I am not really interested in the number that I need today – I am interested in the number that I need when I retire, so my next instinct was to try and plug these numbers into a Systematic Investment Plan calculator to see how much money I need to invest per month to get to the final amount at my retirement age.

Now, the thing with this is that you need a SIP calculator that allows you to increase contributions every year because you are on a really long time horizon, and if you say you are going to invest 15,000 every month – that might be big now, but in 15 years time, it will probably just buy you a movie and popcorn.

Use this increasing SIP calculator to  plug in the numbers and find out how much you need to save today to get enough for your final retirement plan.

Using this calculator brought me close to a reasonable but significant number, and I must say this has been a really good exercise for me to see how much I need for retirement, and then back calculate to see what I have today. The numbers seem a bit daunting today, but I am much better off because now I am not shooting in the dark, and have some sense of what I am looking at.

Play with the calculators, and be careful about your assumptions, that will make a lot of difference. Hopefully you will come up with a number that will be the beginning of a solid retirement plan.

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