The low-stress retirement calculator (hopefully!)

The first time someone uses a retirement calculator, they are in for a couple of rude shocks!

  • The corpus required for financial independence post-retirement, taking inflation into account typically would be a few crores (if not several!)
  • Therefore the monthly investment required is typically equal to monthly expenses or even more!

Becuase of this I get more bricks than bouquets for my retirement calculators 🙁

With an aim to lower user stress here is an alternative version which explicitly accounts for three types of current  and future investments:

  • equity investments
  • taxable debt investments (fds, debt funds, gold, etc.)
  • tax-free debt investment (PPF, EPF)

It also takes into account future EPF contributions.

The corpus necessary for financial independence is reduced by the expected future value of current investments and future EPF contributions. This (hopefully!) would look a lot less daunting.

The sheet then asks you the intended asset allocation for future investments an annual increase in monthly investment.

The monthly investment required in each asset class and the expected future value at the time of retirement are calculated.

freefincal-retirement-calculator

 

My aim is to make a visual retirement tracker (like the visual SIP tracker) with this sheet as the basis.

I have annotated the inputs following a suggestion by Raghavendra Paripati. This tool was made after discussions with Aparna. Check out her presentation: An Introduction To Personal Finance For Young Earners

Do let me know if any additional features are necessary.

Update: Download the even lower stress retirement calculator!

Download the low-stress retirement calculator

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman is the co-author of two books: You can be rich too with goal based investing and Gamechanger. “Pattu” as he is popularly known, publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis, including a robo advisory template for use by beginners. Contact information: freefincal {at} Gmail {dot} com He conducts free money management sessions for corporates (see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints.

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Updated: September 4, 2018 — 10:48 am

36 Comments

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  1. Pattu: I assume the EPF contribution input to the excel includes both employer and employee contributions. Please confirm. Would also be good to clarify this in the next version of the excel calculator. Thanks for your awesome work!

    1. Thanks. I am only referring to employee contributions. My understanding: only 3.67% of employer contribution goes to EPF and rest to EPS. This 3.67%b contribution can be safely ignored by an young earner. See this:
      http://freefincal.com/retirement-planner-for-the-middle-aged-employee/

  2. Pattu: I assume the EPF contribution input to the excel includes both employer and employee contributions. Please confirm. Would also be good to clarify this in the next version of the excel calculator. Thanks for your awesome work!

    1. Thanks. I am only referring to employee contributions. My understanding: only 3.67% of employer contribution goes to EPF and rest to EPS. This 3.67%b contribution can be safely ignored by an young earner. See this:
      http://freefincal.com/retirement-planner-for-the-middle-aged-employee/

      1. Pattu: You are not entirely correct; EPS is 8.33% of the employer’s contribution – subject to max of Rs. 541 (from Sep 2014, max cap has been raised to Rs. 1250). So assuming a much higher salary than Rs. 15000 p.m., the EPF share from Employer’s Contribution will also be significant.

        1. Thank you. I will include this in a future version. For now users can enter the total monthly contribution.

  3. Dear Pattu Ji,

    It is a fact that those who know the figures (like all of us)…like retirement, child marriage, child education etc are always conscious and “under stress”. they also feel insecure….

    vs

    those who do not know these figures….are always enjoying life and happy ….

    ofcourse,,, they may be only delaying the stress… but the fact is they are enjoying their life….and people also think they are more successful (though earning 1/4th of us)….as they buy costly mobiles… cars…houses etc…

    all the best to them..

    1. All the best to them. People who plan only feel the stress initially. A couple of years down the line, the stress will go away.

  4. Dear Pattu Ji,

    It is a fact that those who know the figures (like all of us)…like retirement, child marriage, child education etc are always conscious and “under stress”. they also feel insecure….

    vs

    those who do not know these figures….are always enjoying life and happy ….

    ofcourse,,, they may be only delaying the stress… but the fact is they are enjoying their life….and people also think they are more successful (though earning 1/4th of us)….as they buy costly mobiles… cars…houses etc…

    all the best to them..

    1. All the best to them. People who plan only feel the stress initially. A couple of years down the line, the stress will go away.

  5. This is only a retirement. If gonna think about education and marriage, i will have to forget about living a life… Means More Stress… Better live me the current moment of my life.:) 🙂

  6. This is only a retirement. If gonna think about education and marriage, i will have to forget about living a life… Means More Stress… Better live me the current moment of my life.:) 🙂

  7. Resp sir
    unfortunately financial literacy & FINANCIAL data awareness,& readiness is so poor with us,that you need to develop still simpler retirement calculator,sure it may not be very perfect.
    in my opinion,inputs should be as less possible.
    keep inflation 8% fixed,return on investment 9% fixed,no variables to be offered.
    from expenses & age related details & current retirement dedicated LUMP SUM investments,corpus at retirement needed should be calculated.
    PLEASE THINK FROM PERSPECTIVES OF AVERAGE COMMON MAN-AAM AADMI

  8. Resp sir
    unfortunately financial literacy & FINANCIAL data awareness,& readiness is so poor with us,that you need to develop still simpler retirement calculator,sure it may not be very perfect.
    in my opinion,inputs should be as less possible.
    keep inflation 8% fixed,return on investment 9% fixed,no variables to be offered.
    from expenses & age related details & current retirement dedicated LUMP SUM investments,corpus at retirement needed should be calculated.
    PLEASE THINK FROM PERSPECTIVES OF AVERAGE COMMON MAN-AAM AADMI

  9. Hi,
    Thanks for an excellent blog. I have been following your blog and your discussions in FB for over a year now.
    I had a question related to low stress retirement calculator. When I change my retirement age from 60 to 45, the Total corpus reduces. I have kept my “age to live” constant. Why does it reduce? I would expect it to increase considering I have lesser years to earn.

    1. Thank you. Excellent observation! If you retire early, you will have lower expenses initially, while the corpus will have more time to compound if invested. Hence the total corpus required will be lower.

      1. Thanks for the reply. I am still not able to understand.

        In both scenarios(retiring at 45 and at 60), the corpus if invested will grow from age 45. When I retire at 45, I am withdrawing from the corpus whereas when I retire at 60, I am adding to the corpus(from age 45 to 60). Both have to last till age 90. So the corpus for retirement age 45 must be bigger. Thank you for your patience to explain 🙂

        1. We are calculating the corpus that will last from age 45 to 90 (say) and from age 60 -90.
          The initial withdrawals for age 45 is much lower and the corpus can grow relatively untouched for longer. Hence 45 requires lower corpus. Here we do not consider the investment me make but only the investment needed! I will write a detailed post on this tomorrow. Thanks for the nice idea!

          1. I think I get it now. My mistake was to assume that in both scenarios, at age 45 the corpus would be the same. Once I realized my mistake, your explanation made sense. Thanks again and will look forward to the post 🙂

  10. Hi,
    Thanks for an excellent blog. I have been following your blog and your discussions in FB for over a year now.
    I had a question related to low stress retirement calculator. When I change my retirement age from 60 to 45, the Total corpus reduces. I have kept my “age to live” constant. Why does it reduce? I would expect it to increase considering I have lesser years to earn.

    1. Thank you. Excellent observation! If you retire early, you will have lower expenses initially, while the corpus will have more time to compound if invested. Hence the total corpus required will be lower.

      1. Thanks for the reply. I am still not able to understand.

        In both scenarios(retiring at 45 and at 60), the corpus if invested will grow from age 45. When I retire at 45, I am withdrawing from the corpus whereas when I retire at 60, I am adding to the corpus(from age 45 to 60). Both have to last till age 90. So the corpus for retirement age 45 must be bigger. Thank you for your patience to explain 🙂

        1. We are calculating the corpus that will last from age 45 to 90 (say) and from age 60 -90.
          The initial withdrawals for age 45 is much lower and the corpus can grow relatively untouched for longer. Hence 45 requires lower corpus. Here we do not consider the investment me make but only the investment needed! I will write a detailed post on this tomorrow. Thanks for the nice idea!

          1. I think I get it now. My mistake was to assume that in both scenarios, at age 45 the corpus would be the same. Once I realized my mistake, your explanation made sense. Thanks again and will look forward to the post 🙂

  11. HI Pattu.. First of all thanks for the awesome blog – its eye opener.Looking tat numbers you remain focussed. Dont we need to consider investments in real estate here? May be look for reverse mortgage too as safety margin?

  12. This is amazing. You have outdone yourself with this calculator (that itself is saying something)!! Thanks again.

  13. Sir, What does ” Monthly investment required” in sheet 3 represent? Is it the amount that is required to meet the retirement goal or is it the additional amount required over the existing investments? ( though there is no cell where we give details of present monthly investments apart from PF). Got a bit confused. TIA, Ramakrishna. P.S: Online version looks wonderful. Looking forward to seeing more of your calculators online as well.

    1. It is the total monthly investment reqd to meet retirement goal

      1. Thank you. Another doubt – you have given the split up of the investment required. Does this include the PF amount/month given earlier in sheet 2? You have this “Tax-free Debt” included in the split up of the total monthly investment required.

        1. No that is already accounted for.

  14. Pattu ji

    Excellent effort as usual. Really like it.

    Since 2001 I am paying premiums in the original Jeevan Suraksha (Table No. 122) which guarantees a monthly pension when I am 57 till death. LIC closed this version of Jeevan Suraksha (Table No. 122) plan in 2002 as it was not possible to sustain the specified guaranteed monthly pension.

    Would it be a good idea to incorporate data fields for pension received from a guaranteed deferred Annuity plan in your excel file ?

    Thanks for a providing a great calculator.

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