Somebody asks me this almost every week. They've read an article with a big round number in the headline, and they want to know if it's true for them. It isn't, because the person who wrote it has never seen their electricity bill. But the question is a good one, and there's a way to work out your own answer in about an hour with a pen.
Here's how I do it with clients, and there's no magic in it.
Start with what you spend, not what you earn
This is where most people go wrong. They think in terms of salary. Retirement doesn't replace your salary, it replaces your spending.
Take three months of bank and card statements and add up what actually went out. Not what you think you spend. What you spent. Most households are surprised by this number, usually in the wrong direction.
That monthly figure is the starting point for everything else.
Then adjust it for the life you'll actually have
Some things go away. The children's fees. The commute. The loan, if it's finished by then. Some clothes and travel that were really about work.
Some things go up. Medical costs, almost always. More time at home means more electricity and more of everything at home. If you plan to travel, that's new spending that wasn't there before.
So the retired figure isn't your current figure. For most households it's a little lower to begin with, then rises again later in life as health costs grow.
The part nobody likes: prices don't stand still
What costs ten thousand today will cost more by the time you retire, and more again twenty years after that.
I'm not going to put a percentage on it here, because I'd be guessing and you'd treat my guess as a fact. What I will say is that this is the single biggest reason retirement figures look frighteningly large. It isn't the spending, it's the years of price rises stacked on top of it. Our page on inflation and your savings explains the effect.
If you want to see the arithmetic with your own assumption, our retirement calculator lets you type one in and change it. That's a what-if, not a prediction, and you should treat any website that gives you a confident single number as marketing.
How long does the money have to last?
Longer than people plan for, which is the second big reason the number looks large.
Somebody retiring at sixty in reasonable health should plan for a couple of decades at least, possibly more. Plan short and you get to the uncomfortable situation of being eighty with a shrinking pot and no way to earn.
This is also why the money can't all sit in something very safe from day one. Money that has to last twenty-five years still has a long horizon, even on the day you retire, which our page on investing for retirement covers.
Now subtract what already exists
Before working out what to save, list what's already coming.
Provident fund balances, including old ones from earlier jobs. Gratuity. Any pension you're entitled to. Rental income, if it's genuinely reliable. Money in existing investments earmarked for this.
A lot of people at 45 find they've already built more than they thought, especially those who've been salaried for two decades. Others find the opposite. Either way, you can't plan without the list.
What's left is the gap
Target, minus what exists, is the gap. That gap is what your monthly investing has to fill in the years you have left.
If the required amount is larger than you can manage, you have four levers and no others: save more, work longer, spend less in retirement, or take more risk with the money. There is no fifth lever, and anybody offering you one is selling something.
Most households end up pulling a bit of the first three. The fourth one is the tempting one and the dangerous one.
Don't forget the two big one-offs
Monthly spending is only part of it.
Most retirements include at least one large, lumpy expense: a child's wedding, a major repair to the house, a car that has to be replaced, a medical event that isn't fully covered. These don't show up in three months of statements, so they get left out.
List them separately with a rough year. They're usually better planned as their own pots than folded into the monthly figure, because the timing is different. Our page on saving for a child's wedding covers one of the common ones.
What about the house?
People often count their home as retirement money. It usually isn't, unless you genuinely plan to sell it and move somewhere cheaper.
A house you live in doesn't pay your grocery bill. It saves you rent, which is valuable, and that's already reflected if you've used your real expenses. Counting it twice is how people end up with a comfortable-looking number on paper and a tight retirement in practice.
Redo it every few years
Your expenses change. Your income changes. Children arrive and leave. A parent needs support. The number moves with all of that.
Once every two or three years is enough. Doing it more often turns a planning exercise into a source of anxiety, and there's nothing useful to act on between reviews anyway.
What I'd avoid is doing it once at 40, feeling bad about the result, and never looking again. That's the most common pattern and the least useful.
Why I won't give you the round number
Because it would be a guess dressed up as advice.
Two households with the same income can need very different amounts. One owns their home, one pays rent for life. One has a family history of long life, one doesn't. One will have children supporting them, one is supporting children into their thirties. No single figure covers those.
We don't publish return projections on this site at all, and our post on the questions I can't answer explains where that line sits for us.
What matters more than the number
Honestly? Starting, and not stopping.
I've seen people with a precise spreadsheet and no SIP running, and people with a rough idea and fifteen years of steady instalments behind them. The second group is always in better shape. The plan only works if money is actually going in every month, which our post on starting at 40 covers for late starters.
A rough number you act on is worth far more than a perfect one you keep refining in a spreadsheet while nothing goes into an account. I've met people who spent two years building the model.
Work out your number roughly. Then go and set up the instalment. The precision can come later.
If you want help with it
Bring three months of statements, a list of what you already hold, and a rough idea of when you want to stop working. That's enough for a first conversation.
Myfolios is an AMFI-registered mutual fund distributor (ARN-145870) working from Indore since 2014. We won't give you a headline number, and we'll go through the arithmetic with you properly. Get in touch if that's useful.
