Imagine planning for a monthly income of Rs 40,000 post-retirement. If you're currently 35 years old and aiming to retire at 60, the question arises: what should be your retirement fund when investing in a bank FD offering an 8% yield? (Considering inflation at 6%)

Using the formula: FV = PV (1+r)^n

Where:

FV = Future Value
PV = Present Value
r = expected inflation at 6%
n = time to retirement (60 years – 35 years) = 25 years

Calculating, FV = 40,000 (1+0.06)^25 = Rs 1,69,217.14

To get an annual figure, multiply the monthly amount by 12: Rs 1,69,217.14 * 12 = Rs 20,30,605.68.

So, the required annual income immediately after retirement is Rs 20,30,605.68.

Now, let’s find the retirement corpus needed to generate this annual income at the beginning of retirement, considering a retirement period of 20 years (till the age of 80).

Income required in retirement = Rs 20,30,605.68

Retirement Period = 20 years

Rate of return on corpus = 8%

Inflation Rate = 6%

Calculating the Inflation-adjusted rate of return:

Inflation-adjusted rate of return = (1+0.06/1+0.08)−1

= 0.0189 or 1.89% per month

Retirement Period in months = 240 months (20 years * 12).

Monthly income needed = Rs 20,30,605.68 / 12 = Rs 1,69,217.14.

Using an Excel Calculator and the PV function, with Nper = 240 months and Pmt = 169,217, the required corpus to generate the Annual Income of Rs 20,30,605.68 is Rs 3,38,43,426.58.

To accumulate this corpus, calculate the monthly savings with the PMT function in Excel. The result is Rs 35,262, representing the necessary monthly savings to achieve the required retirement corpus.

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