Retirement planning

How much money do I need to retire?

The honest answer is that the number comes from your spending, not your salary, and that four inputs decide almost all of it.

Almost every retirement target is built the same way: take what you expect to spend in a year, grow it to the year you stop working, and multiply it by the number of years the money must cover. Everything else is detail. The reason two people with identical salaries end up with targets that differ by a factor of three is that they answered those three questions differently, not because one of them used a better calculator.

Step 1: start from spending, not income

Your salary is irrelevant to your retirement number except as the source of the savings. What matters is the amount that leaves your account each year for living. Work it out from bank and card statements over a full twelve months rather than from a monthly budget: the annual view catches insurance premiums, school fees, festival spending, travel and the car service that a typical monthly budget quietly omits.

Then adjust for the things that change at retirement. Some costs disappear: commuting, work clothes, and (for many people) the mortgage and the money currently going into the retirement fund itself. Others rise: health cover, and usually the discretionary spending that fills newly free time. It is common for retirement spending to land somewhere between 70% and 100% of pre-retirement spending, but the range is wide enough that a personal estimate beats any rule of thumb.

Step 2: grow that figure to your retirement year

This is where most informal estimates go wrong. If you need ₹10,00,000 a year today and you retire in 20 years, you do not need ₹10,00,000 a year at retirement. At 6% inflation you need ₹32,07,000, because that is what the same basket of goods will cost. At 25 years out it is ₹42,92,000.

This single step usually triples the target of anyone planning two decades ahead. It is also the step that a spreadsheet built in an afternoon most often skips.

Step 3: decide how many years of spending the corpus must hold

The common shorthand is 25× your first year of retirement spending, which comes from the 4% withdrawal-rate research. It is a reasonable anchor, not a law. Retire at 45 and the money may have to last 45 years, which argues for a larger multiple. Retire at 62 with a pension covering part of the bill, and a smaller one may be sufficient for the part you are self-funding.

The multiple and the withdrawal rate are the same decision described two ways. Choosing 25× is choosing to withdraw 4% in year one. If that framing is more natural to you, how long a retirement corpus lasts works through the same question from the withdrawal side.

Step 4: subtract what you already have, then solve for the gap

Money already invested keeps compounding whether you add to it or not, so the amount you still have to contribute is smaller than the target. The FIRE Calculator does this in one pass: it inflates your expenses to the retirement year, applies your multiple, grows your existing savings over the same horizon, and converts whatever is left into the monthly investment needed to close the gap.

The inputs that actually move the answer

If you are going to spend time refining anything, spend it here, roughly in this order:

1. Years until you retire. This drives both the inflation multiplier on your target and the compounding on your savings, so it appears on both sides of the equation. It is almost always the most powerful single input.
2. Annual spending. The target is a direct multiple of it. Getting this within 10% is worth more than getting your expected return within one percentage point.
3. Assumed inflation. Over 25 years, the difference between 5% and 7% changes the target by around 60%.
4. Assumed return. Important, but it mostly determines how hard you have to work to reach the target rather than what the target is.

For the last two, choosing return and inflation assumptions covers how to pick numbers you can defend rather than numbers that produce a comfortable answer.

What a target like this does not tell you

• It is a point estimate built from smooth averages. Real markets do not deliver a steady return in an orderly fashion, and the order in which returns arrive matters once you are withdrawing. See sequence-of-returns risk.
• It ignores tax, both on the way in and on the way out. Every RetirePeace figure is pre-tax.
• It assumes your spending rises with general inflation. Healthcare in particular tends to rise faster.
• It treats retirement as a single event on a single date, whereas most people phase out over several years.

None of this makes the exercise pointless. A target you can state, defend and revisit every year is far more useful than no target at all, as long as you treat it as a direction of travel rather than a promise.

A reasonable first pass, in ten minutes

1. Add up last year’s actual spending.
2. Subtract costs that stop at retirement; add health cover and any extra you expect to spend on free time.
3. Put that figure, your ages and your assumptions into the FIRE Calculator and note the target and the required monthly investment.
4. Take the target into the SWP Calculator as an opening balance and check that it really does support the income you had in mind, for as long as you need it.
5. Change one assumption at a time and watch which ones move the answer. That is the part that teaches you something.

This guide is educational and general. It is not financial, investment, tax or legal advice, and it takes no account of your circumstances. Every figure quoted is an illustration produced by the arithmetic described, not a forecast or a guarantee. Investment returns, inflation and market conditions are uncertain and will differ from any assumption used here. See the full disclaimer.