Retirement Calculator
A peaceful retirement is what many of us dream of after a lifetime of hard work. It's a time to spend with loved ones and do things we couldn't do during our working years. But achieving this dream takes planning, discipline, and patience. Those who use a Retirement Planner find themselves comfortably cruising into retirement without fear or stress.
One of the first steps we take when doing retirement planning is figuring out how much money we'll need in the future. Some prefer a quiet life with family in their hometown, while others dream of travelling or pursuing hobbies. Everyone's needs and lifestyles are unique, so naturally the money one would need is also different. And that's where a Retirement Calculator comes in handy. A Retirement planning calculator considers many things like income, expenses, inflation, and investment returns to help you estimate how much you need to grow your wealth. This makes sure you avoid a shortfall of cash and eliminates worry about your financial independence in your twilight years.
What is a retirement planning calculator?
There are a lot of factors that determine how much money you need to save in order to achieve your retirement goals. These include how old you are today, when you expect to retire, your income, savings, investments, inflation rate, returns on investments, and more. The calculation for this can be quite complex, but a retirement planning calculator can help you easily estimate the amount so you make a plan to achieve your dream retirement.
A Retirement Calculator is essentially an easy to use tool that can help you estimate the monthly savings amount needed to achieve your retirement goals while factoring in investment period, expected returns, inflation, and life expectancy. You can customise it to see how these factors individually impact your retirement corpus. Use it to test your retirement plan and see where adjustments might be needed to optimise your savings and investment strategy.
For example, you can vary the expected return on investments and see how your future amount changes. You can also use it to see how big a role your starting age plays, and why every Retirement Planner emphasises the importance of starting early.
How does a retirement planning calculator work?
A retirement planning calculator estimates how much you need to save annually or monthly to reach your retirement
goals by working on the input you provide. You can enter information such as
The age when you begin saving for retirement. Starting as early as possible widens the window for growth through compounding.
The age when you plan to retire. This is the target age at which you stop working and start using your retirement savings.
Helps determine the savings needed for income replacement and budgeting during retirement.
These include your current savings and the current value of your assets.
How much you expect to earn from your investments per year.
Another important factor retirement calculator india considers is how the purchasing power of money decreases over time due to inflation. This generally lies between 6% to 7%.
The retirement calculator analyses these variables to provide a customised projection of your retirement. It helps you figure out how much you need to save monthly and the returns your investments need to generate for your desired future lifestyle.
Retirement calculation formula
One of the formulas used to Calculate Your Retirement corpus is:
Future Value = Present Value (1 + Rate of Inflation)^Investing Period
Let’s understand this with the help of an example;Suppose you are a 30 year old who expects to need Rs. 40,000 per month during retirement in today's value. You plan to retire at 60 and are earning 8% returns on your investments. Let’s assume the rate of inflation is 6%, and life expectancy is 80 years. What would be the amount you need to amass?
First, we have to calculate what the Rs 40,000 monthly expense would be in 30 years. Given that,
- Present value = Rs. 40,000
- Investing period = 60 (retirement age) - 30 (current age) = 30 years
- Rate of inflation = 6% = .06
- Returns = 8% = .08
- Life expectancy = 80 years
Using the formula to calculate future value: Future Value = Present Value (1 + Rate of Inflation)^Investing Period
Future value = 40,000 (1 + .06)^30
Future value = Rs. 2,29,740
So, in 30 years, you would need Rs 2,29,740 per month to match Rs 40,000 in today's value, meaning Rs 2,29,740 *12 = Rs. 27,56,880 in the first year of your retirement.
Now we have to determine the retirement corpus needed. For this, we need to consider the returns on the corpus and the inflation rate. First, we will calculate the inflation-adjusted return.
The inflation-adjusted rate of return is given by
((1 + Nominal return)/ (1 + inflation rate)) - 1
Thus inflation adjusted rate of return = ((1 + .08)/ (1 + .06)) - 1 = 1.01886 - 1 = .01886 ≈ 0.0189 or 1.89%
This is the annual return. Now we must convert the annual return to monthly for the calculation = 0.0189/12 = 0.1575%
Since it’s given that life expectancy is 80 years, and retirement age is 60 years, the retirement period would be 80 - 60 = 20 years or 240 months.
We now have to calculate the amount you would need that would last for these 20 years. We can do this Retirement Calculation on Excel or Google Sheets using the PV function formula. =PV(rate, nper, pmt, (fv), (type)) Where,
- Rate = 0.1575%
- Nper = 240 months
- PMT = Rs. 2,29,740
- FV = 0
- And type = 1
We’ll get Rs. 4,59,56,919.
So to generate Rs. 27,56,880 annually, a corpus of Rs. 4,59,56,919 would be needed.
How to calculate your retirement corpus?
As you can see in the above example, several key parameters are needed to calculate the retirement corpus, like:
- Starting age
- Retirement age
- Life expectancy
- Rate of inflation
- Expected rate of returns
- Post-retirement expenses
You can input these parameters into a retirement corpus calculator to accurately estimate the amount of money you'll need to save for retirement. This calculator will then provide you with a personalised projection of your retirement savings goal. You can also do a manual/excel calculation as in the example instead of using a retirement corpus calculator India, but that method is much more time-consuming and may be prone to errors.
You can also play around with the calculator by adjusting the parameters to explore various scenarios, such as starting to save for retirement at an earlier age or taking a more aggressive investing approach. This will allow you to see how different strategies can impact your retirement savings over time.
Benefits of Using a Retirement Planning Calculator
A retirement calculator can give you many advantages:
- It takes into account many factors such as inflation, expenses, and returns to provide you a detailed view of the amount you need to save for retirement.
- It gives you a monthly savings target by determining how much money you’d need in your retirement.
- It lets you tweak variables, which is very helpful to understand how different factors impact your retirement corpus. For example, if you start saving at 25 and compare it to starting at 35 while keeping all other factors the same, you'll see how ten years of extra investing can make a big difference.
- Retirement calculators are easy to use and not very time-consuming, but they still give you valuable insights about retirement planning.
- You can also adjust expected returns on a retirement calculator to understand the impact of different investments on your savings and decide which investments are most suitable for you.
- It can help you compare the different retirement plans offered by different financial organisations.
- Using retirement calculators can also prevent a shortage of cash in your golden years.
- If you have specific financial goals after retirement, like travelling the world, a retirement financial planner can help you create a strategy to achieve them.
How to use the Fincart Retirement Calculator?
- Fincart’s user-friendly and interactive retirement calculator can help you effortlessly plan for your retirement. Simply follow these steps:
- Enter your personal details, like your current age, retirement age, and current income.
- Now enter the financial details - your current savings and investments, and the expected annual rate of return.
- Input life expectancy and rate of inflation. When entering the rate of inflation, remember that generally, it ranges between 6% to 7%
- Estimate and enter your monthly retirement expenses. This should also include special expenses such as hobbies that you envision during your retirement years.
- After you’ve filled in all the details, our calculator will generate a summary. It will display the amount you need for your retirement and how much you need to save every month.
Our retirement calculator’s summary can give you many insights. You can use it for different scenarios, like how much you would need to save every month if you wanted to retire 5 years early. You can also test out various retirement strategies, such as the 4% rule, the 10% rule, and the 80% rule. You can experiment with varying levels of inflation and returns, and compare the impact of aggressive investment strategies with conservative investment strategies
Start your retirement planning journey with Fincart today!