A recent short video clip has been going viral, where the speaker claims that someone in their late 30s / early 40s spending about Rs. 2 Lakhs / month today, needs about Rs. 40 Crores to retire at 60. 

Is this really true? The answer is well… it depends. Let’s break down the formula to calculate this and you will be able to calculate your own ‘FIRE number’ from there. 

Step 1:

The first step is to calculate your current yearly expenses, that will persist in retirement. This means, you not only total up your regular monthly bills, but also take into account your once-in-a-year non-recurring expenses such as insurance premiums, vehicle service, annual vacations, etc. But you can leave out expenses that will not persist in retirement such as children’s school fees, or rent (if you have a separate goal to purchase your own house before retirement). Let’s call this number X. 

Incidentally, if you would like to do this exercise now, here’s a ready-made template you can use to get started quickly: Expense Tracker

Step 2:

If you were to retire today, and want your investments to last you for the next 30 years at least, multiply X by 33. 

For example, if your current lifestyle expenses are Rs. 1 Lakh / month, you’ll need about Rs. 3.96 Crores. At a safe withdrawal rate of 3.33% in the first year, you’ll withdraw about Rs. 12-13 lakhs and the rest will continue growing until your next withdrawal in the following year, where you’ll adjust this based on inflation. 

If your current lifestyle expenses are Rs. 2 Lakh / month, you’ll need about Rs. 8 Crores. Depending on your specific X, multiple or divide the above numbers accordingly.

Step 3:

It is likely that you may not be ready or able to retire today. Say, you want to retire in 10-years. Double your X to adjust for inflation. (At 7% inflation, money value halves every 10-years). Multiply this by 33 to get your new corpus target to achieve in 10-years. 

X = Rs. 12 Lakhs / year (Rs. 1 Lakh / month)

X10 (in 10 years) = Rs. 24 Lakhs / year (Rs. 2 Lakh / month)

Corpus needed = 33 x 24 Lakhs = ~Rs. 8 Crores. 

If your current X is Rs. 2 lakhs per month, your 10-year corpus target is Rs. 16 Crores. 

Step 4:

If your retirement is likely 20-years away, do the same as Step 3 but double it again. (for every 10 years, double your current X). 

X = Rs. 12 Lakhs / year (Rs. 1 Lakh / month)

X20 (in 20years) = Rs. 48 Lakhs / year (Rs. 4 Lakh / month)

Corpus needed = 33 x 48 Lakhs = ~Rs. 16 Crores. 

If your current X is Rs. 2 lakhs per month, your 20-year corpus target is Rs. 32 Crores. 

Step 5:

That’s close enough to the rough 40 cr mentioned by the speaker in the original viral video. However, note that this applies to only a 20-year investment period and a 30-year retirement period. If you are young, your investment period could be longer and your retirement period could be shorter. Or if you are 50+ it would be vice-versa. If you are planning for early retirement, 33X may not apply to you, you may need 50X or more. Consult your financial advisor for a retirement plan that’s relevant for your specific case. 

Step 6:

Do these numbers sound daunting? Then you are doing the right thing exploring and learning about all of this today. Remember that in investments, time is an equally valuable currency as much as money. 

A monthly SIP of Rs. 1,00,000 for the next 20-years can help you reach Rs. 8 Crores. A 2,00,000 SIP can get you Rs. 16 Crores. You may also be able to start small and increase investments as you grow in your career. Here’s a quick SIP calculator you can play around with to understand how your money can grow with time: SIP Calculator

It is important to ensure appropriate risk management at the portfolio-level and balance your asset allocation accordingly, with periodic rebalancing. 

What’s more important is to have a right balance between spending all your money today versus investing for the future. For example, if you are able to save 50% of your income today and put it aside for the future, you will already be on track to have a comfortable corpus in 20 years that can take care of your expenses for the next 30. 

Individual mileage may vary. Consult your financial advisor for a plan relevant for your specific situation.