What this works out
Retirement planning is really two calculations. First, how large a corpus is needed so that it can pay you an inflation-adjusted income for as long as you live. Second, what you must invest each month between now and then to build it.
The corpus figure assumes your expenses rise with inflation every year through retirement, and that what remains invested earns the post-retirement return you have entered. It is deliberately conservative on that second point — money you are drawing on should not be invested as aggressively as money you are still adding to.
Why the number looks large
Two forces compound against a retired person. Inflation raises the cost of the same life every year, and there is no salary arriving to absorb it. Thirty years of six per cent inflation multiplies a monthly expense by roughly six times.
The corresponding good news is that time works just as hard in the other direction while you are still earning. Starting ten years earlier typically reduces the required monthly investment by more than half.
What this does not include
- Any pension, EPF, NPS or annuity you may already be entitled to — subtract those before deciding what you must build yourself.
- Medical costs, which historically rise faster than general inflation.
- Tax on withdrawals, which depends on the instruments used.