Is 5 Crore Enough For Retirement In India? What factors should be evaluated before determining whether Rs. 5 Crore is adequate for retirement?
Many investors frequently pose this question, as retirement represents one of the most significant and complex aspects of financial planning. Most individuals rely on online calculators, entering data based on their personal comfort levels, ultimately leading them to assume whether a sum of 5 Crore is sufficient for retirement in India.
Is 5 Crore Enough For Retirement In India?
In my approach to retirement planning for clients, I employ the retirement bucket strategy. This method involves diversifying the accumulated funds instead of allocating the entire corpus into fixed instruments such as annuities, bonds, or debt funds. I establish three to four buckets, each covering a span of ten years. For instance, if an individual retires at the age of 50 with a life expectancy of 80, their retirement duration would be 30 years. The first bucket, designated as the “Income Bucket,” encompasses the funds needed from ages 51 to 60. The investments in this bucket are exclusively in debt products, which may include bonds, debt funds, or other similar instruments. This strategy aims to provide clients with peace of mind, alleviating concerns regarding market volatility.
The source of income required from the age of 61 to 70, which is nearly a decade away, will be structured as a “low-risk bucket” utilizing a combination of equity and debt. In this allocation, approximately 40% will be invested in equity, while the remaining 60% will be directed towards debt instruments.
The source of income required from the age of 71 to 80, which is nearly 20 years away, will be structured as a “medium-risk bucket” utilizing a combination of equity and debt. In this allocation, approximately 50% will be invested in equity, while the remaining 50% will be directed towards debt instruments.
By doing this way, you can actually reduce the stress required on your retirement corpus and also wisely can manage the risk of equity.
Now let us take an example of a guy whose age is 50 years, planning to retire in another year, his monthly expenses to be considered for retirement expenses are Rs.1 lakh, inflation considered during retirement is 8%, and life expectancy is considered as 80 years. I am assuming equity returns as 10% and debt returns as 6%.
In this case, the total retirement corpus required at the start of retirement is Rs.4,08,19.400. The amount to be deployed for the first bucket is Rs.1,41,17,612, for the second bucket Rs.1,41,17,612, and for the third bucket Rs.1,25,84,175. The portfolio returns for the first bucket is 6%, for the second bucket it is 7.6% and for the third bucket, it is 8%.
Also, the overall equity exposure from the total retirement corpus is around 29%. This is very much within the safer zone. Rest everything will be in debt.
Hence, if you are 50 years of age and planning to retire with a Rs.5 Crore surplus, then it is sufficient to manage the retirement expenses (with the above assumptions). However, do note that I have not considered the emergency fund. This must be the most important aspect of retirement life. Hence, I strongly suggest you to consider around two years of monthly expenses as an emergency fund (even though you have enough health insurance).
Conclusion – Retirement calculations are among the most complex elements of personal finance due to the many variables and conditions at play. Even a small mistake in your assumptions can have a major impact on your retirement results. Unfortunately, if an error is made, you cannot simply return to your previous job to fix it. This highlights the fact that no retirement calculator is perfect. To reduce risks, it’s wise to use conservative estimates and, when possible, to invest as much as you can instead of relying solely on calculators and assuming that a specific investment amount will guarantee a secure retirement.
Note – I use Pattu’s Robo Advisory tool for retirement calculator. If you know how to handle your money, then you simply buy his calculator and start managing the money. Otherwise, you can hire me for your financial planning. I offer a fixed fee-only financial planning module, which is completely conflict-free as I will not sell any products DIRECTLY or INDIRECTLY. The assumptions used above are just for example purposes. It again depends on person to person. Hence, I strongly suggest you to use your own method to arrive at certain assumptions.
