According to a report by Statista, more than 52 crore people in India were employed in 2022. Assuming the population of India is around 140 crore, more than 1/3rd of the Indian population lies under the working class.
Therefore, people working either in the government or private sector must plan for retirement. It is crucial to have sufficient funds to support your lifestyle during your golden years.
However, planning for retirement in India can be challenging, with factors such as inflation, changing lifestyles, and increasing life expectancy. So, it’s essential to understand retirement planning and how much money they need for retirement.
How Much Money is Required to Retire in India?
The amount of money needed for retirement in India varies depending on various factors such as your lifestyle, goals for life after retirement, source of income, inflation, etc. However, considering that you will adequately make expenses after retirement, you can estimate your retirement corpus through a simple formula.
Retirement corpus = (annual expenses after retirement X number of years left in retirement) / (1 + inflation rate)^(number of years left in retirement)
For example, if you want to retire in 40 years, estimate your yearly expenses after retirement to be around ₹10 lakhs. So, with an inflation rate of 7%, you will have to save 3 crores for your retirement. However, this goal can be achieved by making some effective investments. So, here’s all about the investment that will help you live a good life after retirement.
How to Achieve the Estimated Retirement Corpus Early in Your Life?
To save your estimated retirement amount as soon as possible, multiple investment methods are available. Here are some of the best ways of investing money for your retirement.
1. Employee Provident Fund
It is one of the most trusted sources of money after retirement if you work in an organised sector. In an EPF (Employee Provident Fund) account, the employee and the employer contribute the money in a 50-50 ratio. Moreover, the funds can be withdrawn after the person reaches 55, which is still five years less than India’s average retirement age. In addition, your annual contribution to your EPF account can become tax-free if the total yearly contribution is less than 1.5 lakhs. You can take this benefit under section 80 C of the Income Tax Act.
- EPF’s Estimated contribution to the retirement corpus
Let’s calculate how much your EPF will contribute to the money required to retire in India.
If your EPF account was started at 30 and your income was ₹60,000 a month. Then, 6% of your income will be contributed by you and 6% by your employer in your EPF account. So, the total contribution becomes ₹7200 per month. Supposing the interest will be 8.1%, and if you retire at 60, your money will become ₹1.6 crores.
2. Systematic Investment Plan
SIP (Systematic Investment Plan) is another way to collect your remaining retirement fund on your end. Here’s a calculation of the amount you would get from SIP if you start it at the age of 30.
- SIP’s estimated contribution to the retirement corpus
To get the remaining ₹1.4 crores, you will have to invest ₹4000 per month for the next 30 years. This amount is estimated with an annual interest of 12%.
Also Read: Calculate Returns for SIP Investment
How to Invest Retirement Money after Retirement in India?
Government and private sector employees must invest their money to get effective returns. Even if you could not get the estimated corpus, you could still retire by investing a part of your corpus after retirement.
Senior Citizen’s Savings Scheme
If you’re wondering where to invest retirement money, then SCSS (Senior Citizen Saving Scheme) is the best option to invest your money after retirement. By investing ₹10 lakhs in SCSS, you can get ₹20,000 every quarter of the year. Moreover, you can invest a maximum of ₹30 lakhs for five years in SCSS. You can extend the investment time by three more years if you want.
Other Investment Options
There are many other investment options where you can invest your retirement money such as bonds, stocks, commodities, real estate, etc. Diversification of investment is essential. Otherwise, you may lose all your money due to uncertainty in the market where you have put your money.
Investing in bonds and stocks you earn around 7-8% interest annually. While the interest can increase to 10-12% in stocks. Other traditional means, such as real estate, can also give you around 10-12% interest annually.
Determining how much money is enough for retirement in India is complex and highly individualised. It depends on various factors such as your desired lifestyle, healthcare needs, inflation rates, and expected lifespan. While there is no one-size-fits-all answer, starting planning early and considering multiple financial aspects is crucial.