Working out the retirement corpus you actually need

How to size a retirement corpus from your own expenses rather than a multiple of income, and why inflation makes the target move every single year.

The short answer: A retirement corpus is sized from the expenses it has to fund, not from a multiple of income. The sequence is: work out annual expenses in retirement in today's money, inflate them to what they will cost at the retirement date, subtract any income that will continue, then divide the remaining annual need by a sustainable withdrawal rate. The step that produces most of the shock is the inflation adjustment — at 6% a year, costs roughly triple over twenty years — and the step that produces most of the error is using current income rather than current expenses, which overstates the target for anyone with a decent savings rate and understates it for anyone without one.

Key points

Size the corpus on expenses, not income: you need to fund what you spend, not what you earn.
Inflate the expense figure to the retirement date — at 6%, costs roughly triple over twenty years.
Subtract continuing income such as rent or a pension before dividing, or you will over-save substantially.
The corpus is the annual need divided by a withdrawal rate, so the rate assumption drives the whole answer.

The four steps

Annual expenses in today's money. From your actual spending, adjusted for what stops and what starts. Not a percentage of income.
Inflate to the retirement date. Multiply by (1 + inflation)^years. This is the step that produces the number people find hard to believe.
Subtract continuing income. Rent, a pension, part-time work you genuinely intend to do. Only what you are confident of.
Divide by a withdrawal rate. The remaining annual need divided by the rate you consider sustainable gives the corpus.

Retirement corpus: Corpus = (E × (1 + i)^n − C) ÷ w

E — annual expenses in today's money.
i — assumed annual inflation.
n — years until retirement.
C — annual income that continues in retirement, at that future date.
w — the sustainable withdrawal rate, as a decimal.

Worked, with the inflation step visible

A household 20 years from retirement

Current annual expenses: ₹9,00,000
Expenses that stop (commute, work costs): −₹90,000
Expenses that rise (healthcare provision): +₹1,20,000
Retirement expenses in today's money: ₹9,30,000
Inflated at 6% over 20 years: ₹9,30,000 × 3.207 ≈ ₹29,82,000
Continuing income (rent, at that date): −₹4,00,000
Annual need from the corpus: ≈ ₹25,82,000
At a 3.5% withdrawal rate: ₹25,82,000 ÷ 0.035 ≈ ₹7.4 crore
At a 4% withdrawal rate: ₹25,82,000 ÷ 0.04 ≈ ₹6.5 crore

The inflation step tripled the requirement, and half a percentage point on the withdrawal rate moved the target by roughly ₹90 lakh. Both are assumptions, which is why the honest output is a range rather than a figure.

From the target to a monthly figure

A corpus target is only useful once it becomes a monthly contribution, and that conversion is the future-value annuity calculation in reverse — the same arithmetic as SIP maths, solved for the instalment instead of the balance.

Two things reduce the required instalment more than any investment decision. Starting earlier, because the later years of compounding do a disproportionate share of the work. And a step-up, because a contribution that rises with income matches the way earnings actually behave and lowers the starting figure substantially.

Reverse Goal Planner: The Reverse Goal Planner solves for the monthly instalment a target and horizon require, with an inflation adjustment and a 10% step-up option — which is this calculation run backwards.

Existing retirement accounts count toward the target and should be subtracted before solving. For most salaried households in India that means EPF, and increasingly NPS — see EPF versus NPS.

The subtraction has to be done properly, which means projecting what those balances will be worth at the retirement date rather than using today's figure. An EPF balance twenty years from retirement will grow through both continued contributions and its own return, and treating it as static overstates the shortfall considerably — sometimes enough to make a household believe a target is unreachable when it is not. Grow the existing balance forward at a rate appropriate to what it is invested in, add the projected future contributions, and subtract the total.

A final caution about the horizon. Retirement is not a date at which spending stops but the start of a period that may run thirty years or more, and a corpus sized for twenty years of withdrawals does not simply fall a third short of one sized for thirty — the arithmetic is worse than proportional, because the later years are funded by the compounding of what was not withdrawn earlier. Where the planning horizon is uncertain, err long.

Frequently asked questions

Why size it on expenses rather than income?

Because retirement funds spending, and spending is what you need to replace. Someone earning ₹20 lakh and spending ₹10 lakh needs to fund ₹10 lakh, not ₹20 lakh — the rest was going into the very savings that built the corpus. Using income as the base systematically over-targets for good savers and under-targets for people whose spending exceeds their income.

Do expenses really fall in retirement?

Some do and some rise, and the net effect is smaller than the popular "you will need 70% of your income" suggests. Commuting, work clothing, professional fees and the savings contributions themselves stop. Healthcare rises, often steeply, and discretionary spending frequently rises in the early years. Build the figure from your own categories rather than applying a percentage.

What inflation rate should I assume?

Something in the region of long-run consumer inflation for general expenses, and a higher figure for healthcare and education, which have historically risen faster. Whatever you choose, run the calculation at two rates a point or two apart. The spread between the answers is the honest output — a single number implies a precision the assumption does not support.