Sometimes, a quick thumb rule is far more powerful than complex spreadsheets. So, here is your quick thumb rule for Retirement Planning.


Now for some explanation (Note that this is applicable only in India).

  1. Total Financial Savings Required at the time of Retirement
  • With this saving, you should be able to deal with your income needs after retirement
  • Note that, with average life expectancy expanding, you may need to plan for a good 30-40 years after retirement
  • The objective is to ensure you have sufficient savings not only at the point of retirement, but also to maintain your future standard of living adjusting for inflation
  • Financial savings does not include the house that you live in, but all other form of savings including Debt, Equities, any real estate beyond the house that you stay, PF, etc
  1. Current Annual Expenses
  • This is your current household expenses and assumes you own the house that you stay in
  • Therefore, do not include your EMI towards your house in this
  • This would not include ‘goal based’ expense planning like Child’s college education or marriage – which needs to be planned separately
  • Objective is to simply ensure the family – husband and wife – have sufficient income available to maintain their life on retirement
  • Note that this is a quick thumb rule to ensure same standard of living. Child’s education expense at the age of 40 will be replaced by medical or ‘travel’ related expenses at the age of 60.
  1. 1.07 ^ Number of years to retirement
  • Here we try to project expenses at a future point in time, assuming a 7% rate of inflation
  • Though inflation has been lower recently, the historical rate has been closer to 7%-8%. 
  1. X 25
  • It is important one understand why you need to have 25 times your annual expense at the time of retirement
  • This assumes that your portfolio makes close to 10% pa at the time of retirement – therefore assumes you have a reasonable mix of equity, debt and real estate at the time of retirement – as debt alone cannot generate real inflation adjusted returns
  • Of the 10% that your portfolio makes, you can use 4% for your annual needs. The balance 6% needs to be invested back in the portfolio to maintain your income for future inflation protection.

We hope this is useful. This is a quick thumb rule but your specific life situation may have unique needs. As long as your planned financial savings is at least 25 times your inflation adjusted expense requirement, retired life should be fun.

Some examples: (All Data in Rs Lakhs)

retirement planning table