Unfortunately there is, or at least can be, a big difference between:
"When I WANT to retire" and "When I CAN retire"
WANT is governed by job pressure, stress, burnout etc.
CAN is unfortunately governed by how one can save, inflation, interest rates, life expectancy
Find out when you CAN retire using the excel based calculator.
Using the calculator is pretty much self-explanatory. Some additional notes are given below:
- Financial instruments like EPF, NPS, PPF and long-term equity investments dont attract tax on maturity or withdrawal. If you build your retirement nest egg with these you dont have to pay tax
- Estimated tax rate on your pension is calculated in the following way: Assume you earn Rs. 1 lakh a year and your monthly expenses are Rs. 30,000. Your taxable income them is Rs. 12 lakh (ignoring other sources and 80 C deductions for simplicity). The calculator calculates the tax payable per month if your monthly income = monthly expenses (that is Rs. 30,000). This will be typical situation when you retire. The pension you get will be predominantly used for expenses and not for investing. So it should be lower than or at best equal to the present tax payable per month for a monthly income of Rs. 30,000.
- Do as directed in cell 'C12' until results are displayed.
- The money flow chart worksheet gives a detailed view of how your corpus will grow year-on-year to retirement and deplete year0on-year after retirement.
- If you wish to and if you can retire early at say, age 45, you should assume will live at least until 80. That is a good 35 years in retirement. You are not ready for retirement until and unless you have a corpus which will give a inflation-indexed (increase with inflation each year) pension for 35 years. Of course you can supplement it with part-time work, but it is best to not reply on this too much. If you do it will be come a full-time job before you know it.
- Why did I do this calculator? I didn't do this calculator for my use. I use the retirement calculator that is uploaded in the 'Calculators Offered' tab. This uses the same mathematics as the other retirement calculator with one important difference which interested me and may also interest students of finance. In a compound interest problem if the principle is fixed the period or time (in this case time to retirement) can be found out easily. If the principle varies (increase or decreases by a set rate) each year then the problem cannot be solved by algebra and therefore by excel. I have made a simple workaround in which the user iteratively arrives at the answer.