How to Plan for Retirement

Retirement planning is fundamentally a math problem: how much will your future monthly expenses cost after years of inflation, and how large a corpus do you need to sustain that spending for the rest of your life?

Step 1: Estimate your future monthly expense

Start with today's monthly household expense and project it forward using an inflation assumption (historically 6-7% in India) for the number of years until retirement. Even moderate inflation compounds significantly over 20-30 years.

Step 2: Estimate how long your retirement will last

Subtract your planned retirement age from your expected life expectancy. With rising life expectancy, planning for 25-30 years of retirement is increasingly common rather than the traditional 15-20 years.

Step 3: Calculate the required corpus

Your retirement corpus needs to sustain inflation-adjusted withdrawals for the full retirement period, while the remaining corpus continues to earn a return. This is typically modeled using the "real rate of return" — your post-retirement investment return adjusted for inflation — applied as a growing annuity.

Step 4: Work backward to a monthly SIP

Once you know the required corpus and your years remaining until retirement, you can calculate the monthly SIP needed to reach that target, accounting for any existing savings that will also grow until retirement.

Revisit your plan periodically

Retirement planning isn't a one-time exercise. Revisit your assumptions — income growth, inflation, investment returns — every few years and adjust your SIP accordingly.