Many people believe ₹1 lakh per month in retirement represents a financially comfortable existence; allowing you to enjoy life at leisure, travel and have peace of mind because you will never need to worry about paying a bill again. It is a target that appears both challenging and realistically attainable.
However, there are larger questions behind the comfort of this target – namely what is required to generate this consistent income after your pay checks cease? Inflation, longevity and your needs as they relate to your standard of living all have an underlying influence on how the actual picture looks.
Let’s use Meera as an example, she is currently 35 and has imagined a relaxed retirement with ₹1 lakh a month to cover her monthly expenses. However, what feels like financial comfort today may be far from financial comfort 25 years from now. That is when the real planning begins.
Step 1: Start by Understanding What ₹1 Lakh Will Mean in the Future
Firstly, understand what ₹1 lakh rupees would mean in terms of money over time.
One lakh rupees today means you could afford rent, groceries, utilities, and some luxuries. However, as we know, there is a silent wealth destroyer called inflation that slowly takes away our ability to purchase items with the same amount of money. For example, even a 6% inflation rate per year, which is very low, doubles the price of an item in just 12 years.
If you are currently 35 years old and want to retire at age 60, your current ₹1 Lakh rupees will have to become approximately ₹4.3 lakh rupees per month. In other words, your future expenses will be nearly four times higher, even if your lifestyle does not change.
Step 2: Estimate How Long You Will Need That Income
How long do you expect to be able to live off this income? Retirement is typically 20 to 25 years. In fact, many people now can live well into their 80s. So, for example, if you expect to retire at age 60, then you may want to estimate your retirement income needs through at least age 85. This means you will have at least 300 months (or approximately 25 years) of monthly expenses to cover during your non-working years.
If you anticipate a monthly expense of ₹4.3 lakhs (which is equivalent to ₹100,000 a month today), then that would mean approximately ₹51 lakhs a year. Over 25 years, that would translate to approximately ₹12 – ₹13 crores in total expenditures. Don’t be intimidated by this number.
Your investments will continue to grow and earn returns even after retirement, meaning you just need a well-structured initial corpus.
Note: For simplicity sake, we are not factoring in inflation post-retirement; for now you can generally assume the returns from the investment will offset the impact of inflation.
Step 3: Let Your Investments Do the Heavy Lifting
The key is to let your investments work harder for you rather than just putting your money into an interest-bearing savings account. There are several ways to have your money grow with inflation (and then some), such as, equity mutual funds, NPS, or PPF, that will yield you a decent average return; it is this kind of compounding where your earnings generate their own earnings, thus increasing your wealth exponentially.
The advantage of beginning as soon as possible is that a single ₹35,000 monthly investment, compounded annually at 12% (an assumption), for 25 years would be approximately ₹6.6 crores.
Say at the end of the 25 year period you move this money into a deposit that earns you say 8% per annum. That would generate an approximate income of Rs 4 lacs per month. And that’s generally in line with what you were hoping to achieve.
Of course, one needs to consider other elements too. For instance, impact of taxation, and as mentioned earlier, impact of inflation post-retirement. But broadly this is how you should think about it – you need a large pool of capital on retirement because your needs then, most likely, are going to be far larger than what you can imagine now.
Step 4: The Longer You Wait, The Harder It Gets
Time is your greatest asset in retirement planning – and also the greatest risk if you fail to plan with it. Each year you do not invest the amount needed to be saved will grow significantly. To illustrate this, consider the following: If you begin saving at age 35 for retirement by investing approximately ₹35,000 per month, you should have enough to fund the appropriate corpus.
However, if you delay investing until age 40, you may need to invest over ₹65,000 per month. Postponing it further to age 45 could push that amount to nearly ₹1.25 lakh a month.
This increase is directly due to the power of compounding – a silent, yet powerful force that increases the value of your investments exponentially as time progresses. Compounding works much like a snowball rolling down a hill. The earlier it begins its journey, the greater the speed and larger the snowball. Your investments work similarly: The longer your money remains invested, the lower the required contributions and the easier it becomes to multiply your wealth.
Step 5: Balance Growth with Safety
The most attractive part of growing your income is the opportunity to grow your investments at a higher rate than before. Smart investors will tell you that there is more to building a successful retirement plan than generating wealth – there is also the protection of that wealth. A blend of growth and safety creates steady growth in your assets, with little to no unnecessary exposure to risk.
Invest early in your working years in a way that promotes growth (i.e., high equity investments) using equity based mutual funds or NPS which are likely to yield a greater return over time. As you get closer to retirement, begin to shift into stability by slowly increasing your investment in debt based funds, government programs, and/or other stable, income-generating vehicles.
Step 6: Prepare for Increasing Expenditures, especially Medical Expenditures
Medical costs are typically increasing at a rate higher than that of other costs. Annual inflation for healthcare in India is increasing. Therefore, it would be advisable to consider a medical expense today (such as a treatment cost of ₹5 lakh) will likely exceed ₹10 – ₹20 lakhs at retirement.
Plan ahead and invest in a suitable health insurance policy early in life, maintain a separate medical savings account, and factor in the potential for increasing expenditures on a daily basis. Although a 5-6% annual increase in the costs of living may appear minimal, it can ultimately accumulate into a substantial amount of money over time. Including this increase in your calculations will allow you to ensure your expected ₹1 lakh monthly income is truly a comfortable one.
Step 7: Build a Smart Withdrawal Plan
When you retire, you want your corpus to last as long as possible, rather than merely having a large amount. As such, you can use a Systematic Withdrawal Plan (SWP), which will provide you with a constant monthly income while keeping the remainder of your money invested in hopes of growing your retirement funds.
You should plan on withdrawing approximately 4-5% of your corpus per annum, and slightly adjust this withdrawal rate for inflation each year; this will help you create a stable financial situation regardless of what is happening in the markets, and also keep your retirement funds from being depleted prematurely.
Earning ₹1 lakh a month in retirement is not a fantasy — it’s a financial goal within reach if you start early and stay consistent. The key lies in balancing growth and safety, letting compounding work its magic, and protecting yourself against rising costs.
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