Retirement Planning Calculator
Age
Age at Retirement
Annual Income
Income Growth Rate
Current Investment
Current Investment (Yearly)
Pension Expected (Yearly)
What Is a Retirement Calculator?
An online retirement calculator is a utility tool that computes the amount of money you need post-retirement in order to maintain your current lifestyle. The calculations are based on assumptions like the retirement period and the expected rate of inflation.
Let’s look into the functioning of this calculator in detail.
What Is the Formula for Retirement Calculator?
The mathematical formula on which the retirement planning calculator functions is:
FV = PV (1+r)^n.
Before using the retirement calculator in India, look at the following table to understand all the fundamental parameters.
|
Formula |
Parameters |
|
FV = PV (1+r)^n |
Future Value (FV), Present Value (PV), Expected Inflation (r), Time to Retirement (n) |
How Does a Retirement Planning Calculator Work?
Here’s an example which will help you understand how the retirement planning calculator works.
Let’s say this table describes your scenario -
|
Parameters |
Data |
|
Present Age |
35 years |
|
Retirement Age |
60 years |
|
Required Monthly Income Post-Retirement |
₹35,000 |
|
Life Expectancy |
80 |
|
Inflation |
6% |
Now, let’s say you wish to invest your retirement corpus in a bank FD offering an 8% yield.
So, as per the formula FV = PV (1+r)^n,
|
FV |
Required Annual Income |
|
₹35,000 (1+0.06)^25 = ₹1,50,215.5 |
₹150215.5 x 12 = ₹18,02,586 |
|
FD Yield |
Inflation |
Inflation Adjusted Rate of Return |
|
8% |
6% |
(1+0.08)/(1+0.06) - 1 = 0.001575 |
So, the inflation-adjusted rate of return becomes 0.001575.
|
Retirement Period in Months |
PMT |
|
12x20 = 240 |
₹18,02,586/12 = ₹1,50,215 |
You can now calculate your retirement corpus in an Excel Calculator using the PV function.
Select the following in the retirement calculator, as shown in the table below.
|
PMT |
1,50,215 |
|
NPER |
240 months |
|
Type |
1 |
|
Retirement Corpus |
₹3,00,48,832 |
Therefore, the retirement corpus you need to generate the annual income of ₹18,02,586 is ₹3,00,48,832.
In simpler words, you need to invest ₹3,00,48,832 in your 60th year at a return rate of 8% to get an annual income of ₹18,02,586 for 20 years.
How to Use the Retirement Planning Calculator?
It is an easier method to use the calculator than calculating using the formula. All you need to do is follow the simple steps mentioned below.
Step 1: Provide your current age by selecting the correct age using the sliding button in between 18 to 50 years. You can also type your age directly in the given box.
Step 2: Next you need to insert your expected retirement age using the slider option similar to the previous step. The scale is between 40 to 70 years and you can also type your retirement age directly.
Step 3: Now you need to provide your annual income by dragging the scroll button between ₹ 10000 to ₹ 1 Crore.
Step 4: Your next step is to select your income growth rate over the years.
Step 5: After this you need to select if your current investments are recurring or stagnant and provide your current annual investment amount in rupees.
Step 6: Now you need to select your annual expected pension after retirement.
Step 7: Lastly you need to select an assumed inflation for the given period of time, which is set at 6% by default.
Step 8: Check the funds you need to maintain your lifestyle, and plan your retirement accordingly.
What Are the Benefits of a Retirement Planning Calculator?
An online retirement calculator has several benefits. It helps you to -
- Figure out how much you need to save monthly to retire with a large corpus at the end of your professional career.
- Determine the specific investment opportunities you need to consider.
- Compare the various retirement options and plans.
- Save time with a few simple clicks.
Now that you are aware of the working, usage, and benefits of a retirement calculator, it is time you use one to ensure a financially secure future!
