Planning to retire at 45? Get a detail understanding of retirement calculation
Are you planning to retire at the age of 45? You must have likely heard people saying negative things about the idea. For some, it is clearly a cold-blooded murder of a promising career and a better future. On the other hand, for some, it is the beginning of a new life. Dev is one of such people who decided to opt for retirement at the age of 45 and rather spent this time fulfilling his childhood dreams of becoming an avid traveler. He had always dreamt of seeing the wonders of the world; working with underprivileged children and spending time exploring his favorite hobby– photography. However due to his busy and hectic life he almost forgot to live as he had dreamt during his school and college days.
Who is DEV and how could he plan to retire at the age of just 45!
Mr. Dev Saluja is an IT expert who worked in a multinational IT firm at the upper-level managerial position. He was nearly 40 and tired of his daily schedule, so the idea of an early retirement struck his mind. At first, he was hesitant about the whole getting retired early dream, but then he got in touch with ICICI Prudential. So what was the magical calculation that the financial planners did that helped Dev take retirement after just five years at the age of 45?
Dev had always been a smart person, and he had started saving and investing his money in the equity market from the age of 22. He diversified his investment in the equity market, Unit Linked Insurance Plans, fixed assets that can generate a regular income and bonds and FD. Therefore, at the age of 40, he had more than 1, 00, 00, 000 crore INR as fixed asset and liquid money.
Let’s have a look at what he calculated. He started saving at the age of 22 and saved for almost 18 years. He expected to live until 80 years. The total corpus with monthly income that he needs now would be:
| Current Age | 40 |
| Expected age of retirement | 45 |
| Estimated Life expectancy | 80 |
| Currently total investment and savings | 1.00,00,000 INR |
| Expected annual rate of return | 10 % |
| Current monthly expenditure | 40,000 |
| Expected monthly expenditure | 50,000 |
| Expected Inflation rate | 7.5% |
Now for a happy and financially secure life, he needed the information of the total sum required, monthly saving and monthly expenses on retirement that breaks down as follows:
| Sum required at 45 for retirement | 1,00,87,666 INR |
| Monthly expenses on retirement, total value | 48,655 INR |
| Monthly saving required | 1,48,774 INR |
He needs good amount of wealth to plan his retirement at the age of 45. This is possible only when he will plan wisely and invest smartly. A smart investor is never depleted by the difficulties of financial market but choose every opportunity to earn more. Let’s see how he can overpower his financial need at the retirement age.
| Year | Beginning Balance | Saving @ 10% | Earning @ 8% | Taxes @25% | Ending balance |
| 1 | 1,00,00,000 | 10,00,000 | 8,80,000 | 2,20,000 | 1,16,60,000 |
| 2 | 1,16,60,000 | 11,00,000 | 10,20,800 | 2,55,200 | 1,35,25,600 |
| 3 | 1,35,25,600 | 12,10,000 | 11,78,848 | 2,94,712 | 1,56,19,736 |
| 4 | 1,56,19,736 | 13,31,000 | 13,56,059 | 3,39,015 | 1,79,67,780 |
| 5 | 1,79,67,780 | 14,64,100 | 15,54,550 | 3,88,638 | 2,05,97,793 |
As depicted in the table above, he needs 1,00,87,666 INR as total corpus at the age of 45. He gets 2,05,97,793 as total savings from his earnings at the same age. Now if he lives till 75 or 80 years, let’s say he has 30 more years to live after 45 and his income from the salary will stop. He would now have income coming in only from his investments in fixed assets and others. Moreover, with the inflation, the income from the investment will grow simultaneously. Let us keep it as 8% for next 30 years and saving will be 6 % of total income. So how much corpus will accumulate at the age of 75? Let us have a glance:
| Year | Beginning Balance | Savings @ 6.0% | Earnings @ 8.0% | Taxes @ 25.0% | Ending Balance |
| 1year | 20,597,793 | 400,000 | 1,679,823 | 419,956 | 22,257,661 |
| 5th year | 28,024,202 | 504,991 | 2,282,335 | 570,584 | 30,240,945 |
| 10th year | 40,881,662 | 675,792 | 3,324,596 | 831,149 | 44,050,901 |
| 20th year | 85,315,228 | 1,210,240 | 6,922,037 | 1,730,509 | 12 |
| 30th year | 174,460,132 | 2,167,355 | 14,130,199 | 3,532,550 | 187,225,136 |
Wow! Total corpus will be approximately 18,72,25,136 INR. Isn’t this interesting? It seems Dev has taken the correct decision. So, what did he do from the age of 22 to get this luxury to retire at the age of 45?
- Start planning for your retirement as early as possible like Dev at the age of 22
- Diversify your investment in the equity market, debt market, pension plans, and fixed assets like owned properties and rented properties to get regular income.
- Regularly update yourself as per the financial market and latest financial instruments, invest, and divide your instrument that gives you good yield as well as financial security.
- Adopt the habit of saving large. Try to save and invest at least 40 % of your monthly income regularly.
- Look for short-term and long-term investment as both that can give you income even at the age of 70 and 80 like stock markets.
It says life in unpredictable and anything can happen to you anytime. If it is true, what is the use of stopping yourself from living your life like you have always dreamt. A simple and smart retirement plan at an early stage can enable you for early retirement with sound financial security till your last breath. Do plan to retire early but never stop working. Do what you love to do, what you crave to do and bring about the change as Dev did in his life.
Start planning for your retirement now with ICICI Pru Retirement plans.