Your retirement corpus may never be enough if you ignore this one factor

A ₹10 crore retirement corpus may seem like a substantial amount. But will it be enough if your expenses keep rising? Lifestyle inflation, medical costs and withdrawals that are higher than planned can all put pressure on your retirement savings.

Rajeev Thakkar, CIO at PPFAS Asset Management, has a simple message for retirement planners: accumulating a large corpus is not enough if your expenses continue to rise.

Speaking at the ET Wealth Summit, Thakkar highlighted the importance of controlling lifestyle inflation.

“No amount is sufficient if you’re in a continuous game of inflation,” he said.

His approach to retirement planning rests on three basic principles: keep your expenses in check, aim to build a corpus of around 25 times your annual expenses, and follow a disciplined withdrawal strategy, typically starting at 3-4% of the corpus each year.

These are useful starting points. But how much you actually need will depend on the lifestyle you want to maintain and how long your money needs to last.

Why lifestyle inflation matters

Inflation makes everyday expenses more expensive over time. Healthcare, groceries, travel and other essentials gradually take up a larger share of your budget. Lifestyle inflation can add to that burden.

As our incomes rise, our spending habits often change too. We move into bigger homes, travel more frequently, eat out more often or spend more on everyday comforts. None of these choices is necessarily a problem. The trouble begins when we fail to account for their long-term cost.

“Your retirement corpus should reflect not just how much you spend today, but also the lifestyle you genuinely want to maintain after retirement,” says Shweta Shastri, CFP and founder of Finnora Wealth Studio.

That makes estimating future expenses an important part of retirement planning. A corpus that looks adequate on paper may not go as far if your spending increases faster than anticipated.

How much retirement corpus will you actually need?

Start with your current expenses and work out how much the same lifestyle could cost by the time you retire.

Consider this example shared by Shweta Shastri, CFP.

Suppose you are 40 years old and spend ₹1 lakh a month. You plan to retire at 60 and assume inflation of 6% a year.

By the time you turn 60, maintaining the same lifestyle could cost you around ₹3.21 lakh a month, or approximately ₹38.5 lakh a year.

Applying the 25-times annual expenses rule, the numbers would look like this:

On these assumptions, you would need a retirement corpus of approximately ₹9.63 crore.

But reaching that figure is only part of the challenge. You also need to make sure the money lasts through retirement.

How long will your retirement corpus last?

The amount you withdraw each year can make a considerable difference to how long your savings last.

For illustration, assume your retirement portfolio earns 8% annually and your withdrawals increase by 6% every year to keep pace with inflation.

Under this simplified scenario, the estimated life of the corpus at different initial withdrawal rates would be:

The difference is significant. At an initial withdrawal rate of 4%, the corpus could last considerably longer than it would at 6% or 8%, assuming the same investment return and inflation.

These figures are illustrative, not guaranteed. Actual outcomes will depend on market performance, the sequence of investment returns, taxes, fees and the timing of withdrawals.

What should you keep in mind?