Find out how much you need to retire in 15 mins: build your own calculator!

Published: February 27, 2019 at 10:07 am

If you do not trust retirement calculators or would like customize calculations, or would like to understand how they work, here is how you build your own in just 15 minutes! So let us get right into it. You can watch the video version linked below in case few steps are hard to implement.

Inputs necessary for retirement planning calculation

  1. Current age, say 30
  2. Age at which you want to stop working, say 55
  3. Age at which you are likely to die, say 85
  4. Current post-tax annual income, say 12 lakh
  5. Current annual expenses, say 60% of post-tax annual income, 7.1 lakh
  6. Rate at which salary grows each year, say 5%
  7. Rate at which expenses grow each year (= inflation), say 6%
  8. post retirement return on entire corpus after tax, say 8%
  9. post-tax entire portfolio return expected on investments to achieve the retirement corpus by retirement age, say 10%

Find out how much you need to retire in 15 mins: build your own calculator!

Step 1: create an income and expense cash flow projection

Use the above assumptions to create the following columns on Excel or Google spreadsheet

formulae for create an income and expense cash flow projection

The result will look like this

create an income and expense cash flow projection the numbers

The salary will be projected up to age 55 and the expenses up to age 85.

Step 2: finding the retirement corpus needed

Add two new columns as shown below. Set the post retirement income from age 56 to 85 to be equal to the expenses. In the retirement corpus column, enter a random number, say one crore as the corpus at age 55 (year end). In the picture below, this number is 75921705. In the cell below, notice that we have removed the entire years expenses from the corpus and the rest grows at 8%. You can wach the video for more clarity on this.

formulae for post retirement income calculation

This is how the numbers would look

the numbers used in post retirement income generation

The cell in yellow has a random number which will be varied as below. OUr goal is to ensure the corpus goes to zero only at age 85 (blue cell).

Step 3 using goal seek to find the retirement corpus

Now to find the retirement corpus, that is the value of the yellow cell that will make the blue cell zero, go to data –> what if analysis —-> goal seek.

using goal seek to find the retirement corpus

When you click the goal seek button a small window will open as shown below.

how to use goal seek to find retirement corpus in excel

In the window, the set cell entry should the address of the blue cell. The value is zero and the changing cell should the address of the yellow cell. When you click ok, excel will change the value of yellow cell until the blue cell goes to zero as shown above. This will happen so fast that you cannot notice it. Please recognise that this happens because the blue cell depends on the yellow cell via the formula in the cells in between.

Step 4 finding the investment amount necessary

Now that we know the retirement corpus needed, we find the amount to be invested each year so that by age 55, the investment value is equal to greater than the retirement corpus necessary.

formula to find the investment amount necessary

So we add another column, value of the retirement corpus. We assume 30% of the annual salary will be invested towards retirement each year. This number can be changed to suit personal requirements. The cell $G$1 refers to the investment return = 0.1 = 10% (cell g1)

matching investment value to retirement corpus to find the investment amount necessary

The return in cell G1 and the fraction of the annual income to be invested (30% above) should be adjusted so that the green cell is equal to or above the yellow cell. The green cell is the projected final investment value and the yellow cell is the corpus determined by using goal seek. The retirement calculation is deemed as complete then. If you change any of the numbers do not forget to use goal seek again to recalculate the corpus (yellow cell).

Your calculation is right if your get the follow plot. Notice that the investment curve should go and touch the retirement corpus.

completed retirement planning calculation

Watch the video version

Download resources

The sheet used for the above demonstration

This is a basic calculation. More advanced calculations using a retirement bucket strategy and variable asset allocation is possible. You can try the free version of the freefincal robo advisory ttemplate or purchase the pro version which allows you to make changes.

Watch latest content from freefincal on YouTube

 

Do share if you found this useful
Share your thoughts on this topic at the  Reddit freefincal_user_forum

Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps