Retirement corpus: Will your savings last a lifetime? 8 factors to check | Personal Finance

A retirement corpus is not simply a number such as Rs 1 crore or Rs 2 crore. The amount required depends on how much you expect to spend, how long you may live after retirement, inflation, healthcare costs and the income you can generate from other sources.

 

With retirement potentially lasting two or three decades, the bigger challenge is ensuring that savings continue to support expenses throughout those years. Rajesh Khandagale, principal officer, PFRDA, at Kfin Technologies, says retirement planning should therefore focus on creating a sustainable income stream rather than chasing a fixed corpus.

 

1. Begin with the lifestyle you want

The first step is to estimate how much you may actually spend after retirement.

  

Some expenses, such as commuting and work-related costs, may fall once you stop working. However, spending on travel, hobbies, family commitments and healthcare could rise.

 

“Rather than aiming for an arbitrary target such as Rs 1 crore or Rs 2 crore, estimate the income you are likely to need annually to maintain your desired lifestyle,” says Khandagale.

 

This expected annual expense gives you a more meaningful starting point for calculating the retirement corpus.

 

2. Factor in inflation and healthcare

A retirement plan made using today’s expenses can underestimate future requirements.

 

Inflation reduces the purchasing power of money over time. An expense that appears manageable today could be considerably higher two or three decades from now. Healthcare is another major consideration, particularly because medical expenses can become a larger part of household spending in later years.

 

Khandagale says retirees should account for rising living costs, healthcare expenses and an additional buffer for unexpected costs.

 

3. Start investing early

Time can make a significant difference to retirement savings because investments get more opportunity to compound.

 

Starting early also means the required monthly contribution can be spread over a longer period. Someone who starts saving for retirement in their 20s or 30s does not necessarily have to set aside as much each month as someone who begins much later.

 

Retirement-oriented products such as the National Pension System (NPS) are designed for long-term accumulation. Regular contributions over several years can help build pension wealth gradually.

 

“The key is simple: Start early, stay consistent and remain invested for the long term,” says Khandagale.

 

4. Plan for longevity and dependants

Retirement planning should not stop at estimating expenses for the first few years after leaving work.

 

A person retiring at 55 or 60 could potentially need to fund another 25 to 35 years of living expenses. A corpus that appears adequate initially could come under pressure if withdrawals continue for several decades.

 

The calculation should also consider the financial needs of a spouse and other dependants. These could include dependent parents or children. Some people may also want to leave money behind for their family.

 

The longer the expected retirement period, the more important it becomes to manage withdrawals carefully.

 

5. Include other sources of income

Your retirement corpus may not have to fund all your expenses on its own.

 

Pension income, rent, interest income, annuities and returns from other investments can provide additional cash flow after retirement.

 

For example, if annual retirement expenses are expected to be Rs 8 lakh and reliable income from other sources is Rs 3 lakh, the investment corpus would need to fund the remaining Rs 5 lakh.

 

This exercise can make the retirement target more realistic and help identify how much additional saving may be required.

 

6. Review your retirement plan regularly

Retirement planning is not a one-time calculation. Income, expenses, investment returns and retirement goals can change over the years.

 

NPS subscribers can track their contribution history and accumulated pension wealth through the records maintained by the Central Recordkeeping Agency. Khandagale says such information can help investors assess whether they are moving towards their retirement target.

 

If a shortfall emerges, investors still have several possible ways to address it, including increasing contributions, reviewing their investment strategy or working for longer.

 

The NPS Trust also provides a retirement calculator that can help investors estimate their requirements.

 

7. Building the corpus is only half the job

Accumulating a large retirement corpus does not automatically ensure that the money will last. How the money is withdrawn after retirement is equally important.

 

Large withdrawals in the early years can reduce the corpus faster and leave less money invested for later years. A withdrawal strategy should therefore consider both the income required and the amount that needs to remain invested.

 

NPS now provides options such as Systematic Lump Sum Withdrawal (SLW) and Systematic Unit Redemption (SUR), under which the eligible amount can be withdrawn periodically rather than being taken out at once. PFRDA’s regulations also provide for periodic payout options at exit.

 

This can allow the remaining pension wealth to stay invested while providing periodic cash flows, although the actual payout under unit-based withdrawal can vary with the applicable NAV.

 

8. Tax also matters

Tax treatment can affect both retirement savings and the amount available after retirement. NPS contributions can qualify for tax deductions subject to the applicable conditions and limits. For example, the Income Tax Department lists a separate deduction of up to Rs 50,000 under Section 80CCD(1B), while employer contributions can qualify under Section 80CCD(2), subject to prescribed limits.

 

Investors should consider the tax treatment applicable to their own tax regime and circumstances rather than assuming that the entire retirement corpus will be tax-free.

 

No one size fits all

There is no universal retirement corpus that works for everyone. The required amount depends on lifestyle, retirement age, inflation, healthcare costs, longevity, dependants and other income sources.

 

The more useful question is not “How much corpus do I need?” but “How much sustainable income will I need after retirement, and where will it come from?”

 

Starting early, contributing regularly, reviewing the plan and having a disciplined withdrawal strategy can help reduce the risk of running out of money during retirement.