Principle 21. Think of retirement when you’re young!


Retirement is a stage in your life where you stop doing a regular job. From that day onwards, your money flow is limited.

For businessmen and self employed professionals, retirement is by choice. For employees, there is an age fixed by the organization, for sports men when their body doesn’t listen to their minds and for actors, when they are no longer accepted. However, it’s not necessary that all of us would work till retirement age as said above. For some of us, a compulsory retirement may be required due to health issues or any other unforeseen circumstances. Irrespective of whatever job/profession you’re in , retirement reduces (or stops) your monthly income. However, since expenses will only keep increasing, your post retirement life is not secure unless you’ve financially planned ahead for it. Hence, the most prudent retirement is when you have made enough money to retire. This thought brings us to two basic realities about retirement -

  • Retirement is not when you cross a particular age or health condition. You can think of retiring when your wealth crosses a certain limit.
  • Retirement can happen unexpectedly. All your plans may turn upside down in a day. Hence, it’s very important not to postpone your plans to make a retirement corpus.

Retirement doesn’t mean that your monthly income has come to a dead end. For example, my cousin who retired as an RTO, now takes road safety classes and keeps his monthly income alive. May be he can do this until he turns 65 or 70. So, post retirement, some of you may have some income coming from sources like the one mentioned above. It depends from person to person. It is after this stage that you rely solely on funds that would generate a solid monthly income- like fixed deposits and RBI bonds.


Step 1. The first step in retirement planning is to know how many years are left to retire.

Step 2. This step is very personal.  You have to estimate how long you’re going to live ! God knows, isn’t it? Well, nobody can estimate that correctly but, for the purpose of calculation, some sort of an ‘estimated remaining life’ has to be arrived at. From these figures, you should calculate the length of post retirement life you expect.  Nobody can help you on this. This is an entirely personal calculation.

Step 3. The third step is to project your retirement needs.  How will you estimate your post retirement expenses at a young age?  The first task is to assess your present life style. Your post retirement life style you would like to maintain will not be much different from your present one. The key to estimating expenses is to know the concept of inflation and then know how to compute inflation adjusted expenses.

We will explain this with an example. We assume that you are 45 years old and hence 15 years away from retirement. Right now your monthly living expenses are Rs 10,000 and the inflation rate is 8%. To know the equalent monthly expenses after 15 years, this is what you’ll do-

  • Present expenses x   (1+inflation %) N (number of years left)

How to apply the formula ?

  • First, calculate 8/100 = 0.08
  • 1+ 0.08 = 1.08
  • Type 1.08 on your calculator , press the multiply sign and hit ‘=’ button 14 times. You’ll get 3.17 as the answer. (If you are calculating for 20 years hit the ‘=’ button 19 times!)
  • Multiply Rs 10,000 with 3.17 = Rs 31,721. This is the answer.

What does that mean?

This means that, today if your living cost is Rs 10,000 per month, then 15 years later you’ll have to spend Rs 31,721 to maintain the same standard, assuming that the cost of living rises 8% every year.

You‘ll have to estimate your future expenses using the same logic. Generally in India, 8% can be assumed to be the average inflation rate.  The only difference you have to make in your estimation is that certain expenses like traveling expenses tend to come down when you retire (because you may not travel as frequently as you do today) and certain expenses like medical expenses will go up (because as you grow older, your health deteriorates). Applying this logic, you’ll have to estimate your reasonable future living costs.

Step 4. From the estimate, you will be in a position to find out how much fund you need in fixed income generating instruments so that you can maintain your present standard of living in future. If you require Rs 30,000 per month in future, then you need roughly 35 lakhs in FD at 10.50% interest rate, 15 years hence.

Now that you know your goal, start investing in various assets !!


The biggest mistake most of our parents did was that they failed or they kept postponing about their retirement plans until it was very late. Right now- for all the working youngsters out there – the advantage for you is that there is plenty of time to plan and accumulate wealth for your retirement life. Earlier the start, lesser the effort. An early start will also give you a lot of freedom to make risky choices like equities and mutual funds.

You may like these posts:

  1. Principle 9. You are not safe with fixed deposits alone.
  2. Principle 10. Have a Monthly budget
  3. Principle 6: Never stretch beyond your limits.

3 Responses to “Principle 21. Think of retirement when you’re young!”

Ramprasad R

June 8, 2013 at 8:57 pm

Very good & usefull information.

Thanks & Regards,
Ramprasad R

Manish Gupta

October 11, 2013 at 5:44 pm

I like it most keep it up


July 31, 2016 at 2:55 pm

Hi victor
This is really a wonderful website. And I appreciate the work you are putting in. Iam actually a govt employee aged 27. Since I have joined after 2004, so I am no more entitled to the old pension scheme. I am a NPS holder. Every month govt deduct 10% from my salary and the govt also contribute an equal amount. And this amount is invested in the market out of which 85% is in debt funds and govt bonds. The rest 15% is invested in equities.
Now my question is since 20 of an amount equal to my salary is getting invested every month, so is it important for me to save any more money for my retirement. Your reply will be really appreciated.

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