Find out how much return your investment should give to retire at your desired age in just 2 mins

The other day I received an SMS saying invest Rs. 5,000 every month till the age of 60 and get Rs. 30,00,000 lump sum and Rs. 25,000 every month post the age of 60. I am sure every one of us is bombarded with these kinds of messages every other day. There are several online calculators available to check how much you should invest now to get the desired amount at the age of retirement. But what if you don’t have that much amount to invest in? Also, do you know much return your current investment should earn to generate a corpus for your retirement?  To be honest, I didn’t know so I guess we are sailing on the same boat.

So without wasting any time, let’s see how can you use our tool to know the Return on Investment (RoI) required on your current investment to generate a corpus for your retirement in just 3 steps. Download the sheet from here.

What are the objectives of this sheet? 

The whole purpose to build this sheet is to tell you how much return your investment should earn so that you can generate the desired corpus for your retirement. 

What are the questions will be answered by this sheet?

You will know how much RoI needs to be earned on your investment. You will also know the amount you require to retire with. It also calculates your per annum post-retirement expense.

For illustration purposes let us assume there’s someone called Mr. X. He is 25 years old. He wants to retire at the age of 60 and expects to live till the age of 85. His current salary is Rs. 95,000 per month.

Follow the below steps to get your questions answered:

Step 1: Enter your personal details

Here, you are required to enter your current age, age at which you want to retire and age till which you are expected to be alive. Please note, this sheet is designed for a person who is more than or equal to 25 years old and expected to live till the age of 99.

Step 2: Enter your per month income and expense

In this step, you are required to enter your current per month salary. Expected every year increment in salary and bifurcation of a monthly expense. Please note: It is required that saving as a percentage of income to be more than or equal to 15% (Otherwise person either has to increase his salary or reduce his expense)

Step 3: The easiest step among all

One only has to press submit the inputs enter by one.

The output of the sheet:

The Output indicates how much person has invested till retirement and what RoI he should target on his investment. If a person manages to get the RoI calculated by this sheet, he can achieve his corpus by the time he retires. ( Basically, in this case, Mr. X has invested Rs. 1.44 Cr. till 60 years and he has managed to get RoI of 12.44% on his investment. So at the age of 60, he has generated a corpus of Rs. 20.26 Cr. which will take care of his post-retirement expense.)

This graph indicates how generated corpus will be depleted over a period of time
This graph indicates the proportion you have invested and corpus generated by your investment with RoI calculated by the sheet

So those who are interested to know the math behind this, here we go!

Following are the few assumptions made by me while preparing the sheet. Please refer the same.

Let’s look at the Expense tab:

Expense sheet indicates how your expense will grow over a period of time. To be on the safer side I have considered 13 months as annum. I have also considered growth rates of each expense heads will remain the same for a decade and will be revised by 0.5% compounded annually (Can be edited as per your requirement). 

Salary and investment tab:

We know our annual salary and annual expense. Annual saving is just a difference between income and expense. I have kept 5% (editable input) aside as an emergency fund which will be kept aside in savings account. Available per month funds to invest is remaining funds in hand after the emergency fund is kept aside. Now, Corpus generated is a sum of funds in hand and money parked in a savings account. (Note: Funds in hand should fetch min. RoI as shown in the output box)

Corpus tab:

Corpus sheet indicates post-retirement annual expense and how that corpus will be depleted over a period of time to cover your expense. Here I have considered the generated corpus will fetch 3% post-tax return on the corpus (Pre TAX savings return is 4% -editable input).

Hope this article has helped you to understand your target RoI on current investment and required corpus to retire on desire age. Let me know topics you would like me to cover in next post in the comment section below.

Author
Kartik Tripathi
Forerunner- Finvert
(M.Sc. Finance, NMIMS – Mumbai 2018-20)

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