Many people think retirement is far away and avoid planning for it. But the reality is — the sooner you plan, the more peaceful your old age can be. One of the biggest financial worries in retirement is running out of money. Once the monthly salary stops, your savings are all you have. That’s why knowing how much money you need for retirement is very important.
To make it easy, financial experts have come up with a few smart formulas and methods that help you estimate the perfect retirement fund amount. In this article, we’ll break this down in simple, human language and guide you on how to plan a worry-free retirement.
Why You Must Plan Your Retirement Fund Carefully
Many people save money randomly — a little in PPF, some in mutual funds, or an FD here and there. But they don’t know if this amount will be enough to last 20–30 years after retirement. And that’s where the real danger lies.
Old age brings extra expenses like medical bills, rising inflation, and daily needs without the backup of a regular income. Without a proper fund in place, you may find yourself depending on your children or others — which no one wants.
So, how can you avoid this situation?
The 25x Rule: Your Retirement Calculation Shortcut
One of the most accepted and easiest retirement planning formulas is the 25x Rule.
What does the 25x Rule say?
According to this rule:
You should save at least 25 times your expected annual expenses at the time of retirement.
Let’s break it with a simple example:
- Suppose you expect to need Rs.50,000 per month after retirement.
- That’s Rs.6,00,000 per year.
- According to the 25x rule:
Rs.6,00,000 x 25 = Rs.1.5 crore
This means you need a retirement fund of at least Rs.1.5 crore to live comfortably, assuming you don’t earn anything else post-retirement.
Adjusting for Inflation – The Hidden Threat
One major thing you should never ignore while planning your retirement is inflation.
What costs Rs.50,000 per month today might cost Rs.1 lakh per month 20–25 years later due to inflation. So, when you calculate your retirement goal, you must adjust your expected monthly expenses for inflation.
Let’s say:
- You are 30 years old now
- You want to retire at 60
- Your current expenses: Rs.40,000/month
- Expected inflation rate: 6% annually
After 30 years, your expenses could rise to nearly Rs.2.30 lakh/month. So, your actual target will be much higher.
Use a good online retirement calculator to adjust your numbers properly. Most of them automatically adjust for inflation when you enter your current age and expenses.
When Should You Start? Earlier is Always Better
This one point is non-negotiable: Start as early as possible.
If you delay saving for retirement, you will have to save more money every month later on — or you may fall short.
Let’s compare two people:
- Ravi starts saving at 30, and saves Rs.10,000/month till 60
- Amit starts at 40, and saves Rs.20,000/month till 60
Despite saving double, Amit may still end up with less wealth than Ravi because Ravi gave more time to compounding. That’s the magic of starting early — time multiplies your money.
Where Should You Invest for Retirement?
Now that you know how much to save and when to start, the next question is: Where should you invest this money?
Your retirement portfolio should be a smart mix of safe + growth investments:
1. Employees’ Provident Fund (EPF)
Best for salaried employees. It is compulsory, tax-free, and gives steady returns. The employer also contributes an equal amount.
2. Public Provident Fund (PPF)
Great for long-term saving. Lock-in period is 15 years, but you can extend it. Offers decent interest and tax benefits.
3. National Pension System (NPS)
Ideal for retirement. You get a pension at the end and also a lump sum withdrawal. Also offers tax benefits under Section 80CCD.
4. Mutual Funds (Especially Equity Mutual Funds)
For long-term growth, mutual funds are very powerful. SIPs in good equity mutual funds can beat inflation easily over time.
5. Fixed Deposits and Senior Citizen Schemes
Safe investment options, especially after retirement. Can give monthly income through interest.
Make sure your retirement fund has a mix of these instruments. Early in life, you can take more risk (mutual funds); closer to retirement, move to safer options (FDs, SCSS).
What Happens If You Don’t Save Enough?
If you don’t save enough or plan poorly:
- You may run out of money by age 70–75
- You may need to sell assets like property or gold
- You may have to depend on children for daily expenses
- You may not be able to afford good healthcare in old age
Retirement planning is not optional — it’s necessary for your freedom and dignity in later years.
A Simple Step-by-Step Guide to Plan Your Retirement Fund
- Note your current monthly expenses
- Adjust them for future inflation (say 6%)
- Multiply annual expenses by 25 (25x Rule)
- Set your retirement age
- Calculate how many years are left
- Use online calculators to get the monthly saving amount
- Start investing in EPF, NPS, PPF, and Mutual Funds
- Review your fund every 3–5 years and make changes
Final Tip: Don’t just think about retirement. Make a written retirement goal. Write down your desired retirement age, lifestyle, monthly expenses, and fund target. This keeps you focused and motivated to save.
Even if you can’t save big in the beginning, saving something is better than nothing. Let time and consistency do the rest.
If you follow this smart approach and give your retirement plan a serious start today, your future self will thank you every single day after 60.
