A reader wants to know, “Can I find out how much I need to invest for retirement without a calculator? Is there any thumb rule for this? Similarly, can I determine how much equity exposure I can have after retirement without a calculator?”
We will discuss the first part of his question in this article – Can I find out how much I need to invest for retirement without a calculator? – and discuss the second part in a follow-up article.
Any thumb rule is the result of repeated use of a calculator. Still, it cannot provide a contextual answer taking an individual’s circumstances and should only be used as an approximate guideline. In this day and age, using a proper retirement calculator only takes a few minutes. So, there is no benefit in using a thumb rule, which could be an overestimate or underestimate for a specific situation.
Each month, find out your monthly expenses. If you are spending some money on your parents or relatives, remove this amount. If you have children, remove their expenses. Do not include any EMIs or expenses that you think will not continue when you retire. Call the effective sum X.
From now on, you need to invest each month, at least until you retire, a minimum amount of Y = 75% to 100% of X. Each month, each year until you retire. If X = 30,000, you must invest Y ~ Rs 23,000 to Rs 30,000 (preferably more!)
The total investment made for retirement includes EPF contributions from you and your employer (excluding amt sent to EPS). The same is true if you have NPS.
If you can hold Y = X no matter how your expenses increase over the next 10-15 years, you will have built a strong platform for your retirement.
Those below 30 can (well, must!) invest about 60% of Y in equity (stocks and mutual funds) and 40% of Y in fixed income (EPF, NPS, etc.). This asset allocation can be maintained for about 7-10 years before tapering of equity is necessary.
We recommend increasing Y by at least 10% annually (assuming your expenses do not increase as much!)
If you can manage only Y ~ 75% to 100% of X, then you should be on course to retire by age 55-60 with financial independence (assuming there is enough equity exposure in the portfolio)
If Y = 2X or 3X or 4X, then early retirement by 40-50 is possible. This means you stop being salaried and start working for yourself.
This simple thumbrule will work whether you work in IT or not. Whether you have onsite opportunities or not or whether you are an Indian or a non-resident Indian.
If your Y < < X, then do not give up. Work hard to increase your income and ensure your expenses do not proportionately increase. Invest as much as you can, but track your investment more rigorously than their current market value and try to increase it gradually. Remember, for most people (including me), Y <<< X when starting. We can change the equation with focus, determination and discipline.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 13 years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), LinkedIn, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.Our flagship course!Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions!⇐More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.Increase your income by getting people to pay for your skills!⇐More than 800 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you. (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos! Our book for kids: “Chinchu Gets a Superpower!” is now available!Both the boy and girl-version covers of "Chinchu Gets a superpower". Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. The narrative revolves around what he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management. What readers say!Feedback from a young reader after reading Chinchu gets a Superpower!
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Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 13 years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), LinkedIn, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.
Published by CNBC TV18, this book is designed to help you ask the right questions and find the correct answers. Additionally, it comes with nine online calculators, allowing you to create custom solutions tailored to your lifestyle. Get it now.
This book is designed for young earners to get their basics right from the start! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
This is an in-depth exploration of vacation planning, including finding affordable flights, budget accommodations, and practical travel tips. It also examines the benefits of travelling slowly, both financially and psychologically, with links to relevant web pages and guidance at every step. Get the PDF for Rs 300 (instant download)