Understanding the Retirement Planning
Why Plan for Retirement?
Retirement planning is the process of determining your retirement income goals and the actions and decisions necessary to achieve those goals. Because inflation continuously erodes the purchasing power of your money, what costs ₹50,000 today might cost over ₹2,00,000 when you retire. A retirement calculator helps you account for this inflation.
How is the Corpus Calculated?
The calculator first projects your current monthly expenses into the future using the expected inflation rate. Then, it calculates how much total money (corpus) you need on the day you retire to sustain those inflated expenses for the rest of your expected life. It uses the 'Real Rate of Return', which is your expected investment return minus inflation.
The 4% Rule
A famous rule of thumb in retirement planning is the 4% rule. It suggests that you can safely withdraw 4% of your total retirement corpus every year (adjusted for inflation) for 30 years without running out of money. Under this rule, you need a corpus equal to 25 times your annual retirement expenses.