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Financial Planning
Will ₹2 crore last your entire retirement? Let’s do the math
Discover if ₹2 crore is enough to retire comfortably at 60 and understand the role of inflation, medical costs, and the power of long-term investing.
Key takeaways
- The goal of retirement planning should be such that your money should outlive you.
- Using a mixed investment approach instead of relying solely on fixed deposits and conventional saving methods will help your money last longer.
- While planning for retirement, the most important aspect is to factor in the role played by inflation since it gradually increases your cost of living.
- Healthcare planning is non-negotiable and having a good health insurance policy ensures your savings aren't wiped out in case of a medical emergency.
Retirement is a time for change but also the beginning of a new chapter in your life. It is a time to slow down and enjoy the fruits of your years of hard work. Planning is needed to ensure a comfortable post-retirement life. If you have built a substantial corpus, you are off to a good start.
Are you wondering how long your retirement corpus of ₹2 crores will last after 60? Well, you are in the right place! The answer to this question isn't straightforward and involves several factors, such as your monthly expenses, inflation rate, and ability to invest. While ₹2 crores sounds like a lot right now, inflation can erode its value over time. Simultaneously, you must also factor in the steadily increasing healthcare costs. So, it's important to think beyond the size of your retirement corpus. It's important to devise a strategy to manage your money and make it work for you.
You will be introduced to simple suggestions for ensuring you can continue living your best life after retirement.
How long will a retirement corpus of ₹2 crore last?
Calculate your monthly expenses
The first step is to calculate your monthly expenses. Make a list of everything you spend on, including any repayments. Create a rough estimate based on your current standard of living.
Role of inflation
One of the biggest threats to your retirement corpus is inflation. It gradually erodes money's purchasing power. Here's an example to see the role of inflation and how it can gradually erode your retirement corpus.
For instance, let's assume Raj is 50 years old, and his monthly expenses are ₹1 lakh. It's important to consider inflation while calculating his income needs after retirement. If inflation is held at 6%, he will need more in the future to maintain his current lifestyle and standard of living.
| Age | Monthly expenses | Annual expense |
|---|---|---|
| 50 | ₹1 lakh | ₹12 lakhs |
| 55 | ₹1.35 lakhs | ₹16.17 lakhs |
| 60 | ₹1.79 lakhs | ₹21.46 lakhs |
| 65 | ₹2.38 lakhs | ₹29 lakhs |
| 70 | ₹3.14 lakhs | ₹37 lakhs |
| 75 | ₹4.19 lakhs | ₹50.35 lakhs |
| 80 | ₹5.64 lakhs | ₹67.70 lakhs |
Note: The example provided is for illustration purposes only and considers a fixed rate of inflation at 6%. Any projections or calculations shown are hypothetical and should not be considered a guaranteed outcome or financial advice.
The table highlights the dramatic effect of inflation over time. Even if your current expenses are ₹1 lakh a month, you will need over ₹3 lakhs per month in 20 years to maintain the same standard of living. However, the good news is that investing strategically ensures your corpus grows over time.
Don't overlook healthcare costs
Health insurance is one of the most crucial aspects of retirement planning. Healthcare expenses also increase with age and given the rate at which these costs are rising, it's important to have health insurance in place. A medical emergency can wipe out your savings, and to ensure this doesn't happen, opt for a comprehensive healthcare plan that covers your healthcare needs with age.
Time to estimate
Based on the annual rate of return at 7%, increasing inflation, and monthly expenses, how long your corpus of ₹2 crores will last varies. For instance, if your monthly expenses are currently ₹1 lakh, factoring in those mentioned above, your corpus can last for 18-20 years. However, this is not a guaranteed projection. If your expenses are reduced, the corpus will last longer and vice versa.
Consider investing
If you want to extend the life of your ₹2 crores corpus, it's important to have an effective investment strategy in place. Consider dividing your corpus into three parts.
- One portion must be parked in an easily accessible account, such as a savings account, for emergencies.
- The second portion can be parked in relatively risk-free investments such as a Fixed Deposit account, Post Office Monthly Income Scheme, Senior Citizens Savings Scheme (SCSS), and other government securities. Look for investment options that offer a guaranteed return and are relatively risk-free.
- The third portion of your corpus can be parked in strategic investment options offering relatively higher returns, such as mutual funds, equities, debt instruments, and hybrid funds.
Each option's allocation will primarily depend on your risk appetite and investment objective. This decision is yours to make and ensure it aligns with your post-retirement goals.
Conclusion
To sum up, a retirement corpus of ₹2 crores ensures you are off to a good start. However, careful planning is needed to ensure it lasts. By factoring in inflation, staying ahead of rising healthcare costs with proper health insurance, and making strategic investments, you can extend the life of your retirement corpus. Remember, it is not just about building a corpus. It's important to ensure the corpus grows and is protected to give you a comfortable post-retirement life. The sooner you start planning and investing, the better positioned you will be to enjoy a financially secure retirement. Reaching out to a financial consultant or expert can ensure you are on the right track.
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