Fundamentally speaking, the objective of retirement planning is to prepare yourself financially for the years after retirement. It is important that you start planning for your retirement as soon as possible. Factors like inflation are always eroding the value of your money. This is exactly why you must invest in financial instruments to build a corpus that could help you on days when you are not working. This is where the retirement planning calculator comes and saves you. It is a very useful tool that shows you the amount of money you will need after you retire and thus you can plan and take informed steps in that direction.
FV is Future Value
PV is Present Value
n time to retirement
r expected inflation
For example : . Let’s just say that you are 35 years of age and you will be retiring at 60. And after retirement, you will require a monthly corpus of INR 35,000. So, what would be the retirement corpus you would need on investing the retirement savings in a bank FD that would offer you an 8% yield? We will be taking the inflation rate as 6%.
FV = 35,000 (1+0.06)^25 = > Rs 1,50,215.5
FV = Rs 150215.5 * 12 = > Rs 18,02,586.
The annual income you would require after retirement will be Rs 18,02,586.
Income required is = Rs 18,02,586
Retirement Timeframe = 20 years. (Assuming Life Expectancy of 80 years – Age of Retirement of 60 years).
Rate of return on corpus = 8%
Inflation Rate = 6%
Inflation adjusted rate of return = (1+0.08)/(1+0.06) – 1
= 1.89%/12 = 0.001575.
Retirement Period = 240 months. (20 years *12)
PMT = Inflation adjusted monthly income at the time of retirement = 18,02,586/12 = Rs 1,50,215.