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: not necessarily… 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: Calculate current expenses (X)

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 (for example, if you have a separate goal to purchase your own house before retirement). Let’s call this number: X. 

Incidentally, here’s a ready-made template you can use to get started quickly: Expense Tracker

Step 2: If you were to retire today, how much would you need?

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

For example, if your current lifestyle expenses are Rs. 2 Lakhs / month as in the viral video example, you’ll need about Rs. 7.2 Crores to retire today. This corresponds to a safe (initial) withdrawal rate of 3.33% in the first year, which is appropriate for Indian contexts, unlike the 4% withdrawal rule popular in the US. The rest of the corpus will continue growing until your next withdrawal in the following year, where you’ll adjust your withdrawal based on inflation. 

If your current lifestyle expenses are Rs. 1 Lakh / month, you’ll need only about Rs. 3.6 Crores. If you think you don't need more than Rs. 50,000/month for survival expenses, you can comfortably retire with just Rs. 1.8 Crores. Depending on your specific X, multiple or divide the above numbers accordingly.

Step 3: Retirement 10-years away

It is likely that you may not be ready or able to retire today. Say, you want to retire in 10-years, and you expect to need the money to last for another 30 years from there. Double your X to adjust for inflation. (At 7% inflation, money value halves every 10-years). Multiply this by 30 to get your new corpus target to achieve in 10-years. 

X = Rs. 24 Lakhs / year (Rs. 2 Lakh / month)

X10 (in 10 years) = Rs. 48 Lakhs / year (Rs. 4 Lakh / month)

Corpus needed = 30 x 24 Lakhs = ~Rs. 14.4 Crores. 

If your current X is Rs. 1 lakh per month or Rs. 50,000/month, you need to target Rs. 7.2 Crores or Rs. 3.6 Crores in 10-years.

Step 4: Retirement 20-years away

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. 24 Lakhs / year (Rs. 2 Lakh / month)

X20 (in 20years) = Rs. 96 Lakhs / year (Rs. 8 Lakh / month)

Corpus needed = 30 x 96 Lakhs = ~Rs. 28.8 Crores. 

If your current X is Rs. 1 lakh per month or Rs. 50,000/month, you need to target only Rs. 14.4 Crores or Rs. 7.2 Crores in 20-years.

That’s much less than the Rs. 40 Crores mentioned by the speaker in the original viral video. While that speaker assumed a 9% + inflation rate of expenses, leading to a much higher target, we believe 6-7% is appropriate. Anything lower may be too optimistic.The point is to not get hung up by such 'viral' headline numbers, but calculate what makes sense for your specific situation, and your household inflation. You may also need to keep re-calculating and adjusting this every year, to test if your inflation and expense assumptions are still valid. What you spend at 40 may not be what you spend in your 50s or 60s. 

Step 5:

Do these numbers sound daunting? Then you are doing the right thing exploring and learning about all of this today. Whichever scenario you look at, you will need to plan for a corpus in multiples of crores. But it is also not as difficult to accumulate that corpus, given enough time. Remember that in investments, time is an equally valuable currency as much as money. Even a consistent monthly SIP starting with what you can afford and increasing it over time can grow into a corpus of a few crores over 20 years. Here’s a quick SIP calculator you can play around with to understand how your money can grow with time: SIP Calculator

Just remember to ensure appropriate risk management at the portfolio-level, check your asset allocation and carry out 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, as a thumb-rule, 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 of course. Consult your financial advisor for a goal-based investing plan that is relevant for your specific situation.