Retirement Planning: Want a monthly pension of ₹25,000? Find out how large your retirement fund needs to be..

Retirement Planning Corpus Calculator: Ensuring a regular income after retirement is a top priority for every working professional. If you wish to receive a monthly pension of ₹25,000 (or ₹3 lakh annually) after retiring, let us look at the simple math behind the retirement corpus required to achieve this.

According to financial advisors, factors such as your current age, retirement age, estimated life expectancy, and the inflation rate play a crucial role in calculating the retirement fund.

Understanding the fund math using the 4% Rule (Rule of 25)

The '4% Rule' is widely used in financial planning. According to this rule, you withdraw 4% of your accumulated retirement fund in the first year and subsequently adjust the withdrawal amount to account for inflation.

Annual pension requirement: ₹25,000 × 12 months = ₹3,00,000

Corpus required based on the 4% Rule: ₹3,00,000 ÷ 4% (i.e., 25 times the annual pension) = ₹75 lakh

If you were to retire today and sought returns from safe investments (such as SWP, SCSS, or annuities) without factoring in the impact of inflation, you would need a retirement corpus of at least ₹75 lakh to ₹80 lakh.

How much would the fund need to be if inflation is factored in?

If you are currently 30 years old and plan to retire at 60—meaning there are 30 years left until retirement—the value of today's ₹25,000 will change significantly over three decades, assuming an average inflation rate of 6%:

Value of ₹25,000 after 30 years: It will rise to approximately ₹1,43,000 per month. Inflation-adjusted retirement fund: To receive a monthly pension of ₹1.43 lakh after 30 years, you will need to build a corpus of approximately ₹3.5 crore to ₹4 crore.

How much SIP is required for a ₹25,000 monthly pension?

If you aim to build a corpus of ₹75 lakh to ₹1 crore by the age of 60, you need to start investing in mutual fund SIPs based on your current age (assuming an average annual return of 12%):

If you are 25 years old (35 years remaining): You need to start with an SIP of just ₹1,200 to ₹1,500 per month.

If you are 35 years old (25 years remaining): You need to invest approximately ₹4,500 to ₹5,000 per month via SIP.

If you are 45 years old (15 years remaining): You need to invest approximately ₹16,000 to ₹18,000 per month via SIP.

Options to receive a ₹25,000 pension after retirement

Systematic Withdrawal Plan (SWP): By investing a lump sum in a balanced or hybrid mutual fund, you can withdraw a fixed ₹25,000 monthly while the remaining amount continues to grow within the fund.

National Pension System (NPS): Upon maturity, you can purchase an annuity plan using 40% of the NPS corpus to secure a fixed monthly pension for life.

Senior Citizen Savings Scheme (SCSS): After turning 60, you can invest a lump sum in this government scheme to receive a pension in the form of secure quarterly interest payments.

Ultimately, delaying retirement planning comes at a high cost. The earlier you start investing, the easier it becomes to build a substantial retirement corpus with a smaller monthly investment, thanks to the magic of compounding.

Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.