How Much Amount is Enough to Retire at 45 in India?

The concept of retirement planning is fast changing in the recent days. Gone are the days where everybody works upto the age of 60, gets a decent pension/PF/Gratuity and lives rest of his life on this income. This was possible because of assured returns and relatively low inflation. Now lots of changes are happening in retirement planning. Most of us are thinking that retirement planning can be done at the advanced age of 40 -45. But this is the biggest mistake in retirement planning.

In today`s scenario, Lot of employees, due to high work pressure and related stress, want to retire by the age of 45. My friend was telling me that he feels like locked in a pressure cooker in the office!  Too much work pressure. Work –life balance is an issue for most of the corporate employees. But can you take the risk of early retirement? Can I manage the finances? Most of the people do not know how much money is enough to retire at 45 in India? The truth is, there is no definite answer of this. The amount of requirement depends on 4 factors

• Current Age
• Retirement Age
• Monthly Expenses after retirement in today`s cost
• Life Expectancy

Let us start with a case study

Suresh is 30 years and his wife is one year younger to him. He wants to retire at the age of 45. He expects to live till the age of 85. His monthly expenses are 40,000 per month and he wants to maintain the same level of living after his retirement.

What do you think, how much money is enough to retire at 45 in the above-mentioned example? Again, there can be 2 scenarios

1. Suresh does not want to work after age 45
2. Suresh would be doing something of his own and would be able to earn his monthly household expenses of Rs. 40,000(inflation adjusted) from age 45 to age 60. In this case, we will consider age 45 as semi-retirement age.

Also Read – Retirement Planning Calculator

Scenario 1 – Suresh does not want to work after age 45

• For retirement, Suresh wants to provide 40,000 per month.
• Value of 40,000 will be around 96,000 at age 45, at 6% inflation.
• This has to be continued till age 85 of his wife, around 41 years.

Suresh will require 3.90 Crores at age 45 to ensure this cash flow of 96,000 per month (inflation adjusted) for 41 years. I have assumed 1% real rate of return for the retirement kitty.

This is the case, where Suresh would not be able to generate any income after the age of 45.

So, if Suresh does not want to work after his retirement age, which is 45 years in the case.

3.9 Crores in enough for him to retire comfortably at age 45.

Assuming a 9% return, he will require monthly investment of around 1.07 Lakhs to generate a corpus of 3.9 Crores in 15 years. This can be invested in a mix of equity & debt.

Now let us consider scenario 2, where he would be able to generate monthly expenses from age of 45 to 60. It may be because

1. His wife is working and will keep working.
2. Suresh would be able to generate monthly expenses by following his passion of photography, which he thinks, can be a big business if he follows his passion.

Now, how much money is required in this case where 45 is a semi-retirement age?

Also Read: Asset Allocation- By Age, Return or CRATON

Scenario 2 – Suresh would be able to generate monthly household expenses from age 45-60

• For retirement, Suresh wants to provide 40,000 per month.
• Value of 40,000 will be around 2.3 Lakhs at age 60.
• This has to be continued till age 85 of his wife, around 26 years.

The corpus required in this case is 6.3 Crores at age 60. Now you will ask me, how come this is more, even when I am managing my monthly expenses for 15 years.

Now, let us do some back calculations here.

Corpus Required at age 60- 6.3 Crores

Assuming a 9% return from age 45 to 60, Corpus required at age 45- 1.73 Crores

(This corpus of 1.73 Crores will give you 6.3 Crores in 15 years assuming 9% return)

Now to generate this corpus of 1.73 Crores, Suresh need to invest 47,000 per month from age 30 to 45, assuming a CAGR of 9%.

Please not that I have not considered any existing investment and other goals in the above article. It is very difficult to generalize the asset allocation as it varies from person to person. Also, you may have to invest more for different goals like child education, child marriage, house purchase goals, vacation etc.

Conclusion

Whether you want to fully retire at 45 or semi retire at 45, my only suggestion would be to be active and follow your passion.  It will generate passive income & make you active & physically and mentally fit. Trust me, sitting idle is not an option.