Rs 1 crore or Rs 2 crore? Use real numbers, inflation, taxes for realistic retirement corpus
Real numbers? What is that?
You are creating a retirement corpus to draw a regular income to take care of your living expense after retirement. So, you can take your current annual living expense and inflate it for every year to find out its future value. Once you know this, you can calculate how much corpus do you need to generate the income at a modest rate.
But how much should be the inflation rate?
There is no universal inflation rate for all future goals. For examples, the inflation is very high for education, health care cost, etc. However, most financial planners believe you can use 7-8 per cent to calculate lifestyle inflation.
Inflation is not a steady number
You should revisit the assumed inflation figures once in three to five years and take needed action in your portfolio. It will help you in achieving your financial goals in time.
Your life expectancy
You are going to living another 20-25 years after retirement because of increased life expectancy due to advances in health care. This means you should have large retirement corpus. And what if you outlive your assumed expected life? You should be prepared for that as well.
Equity is not tax-free anymore
Long term capital gains on equity mutual funds of over Rs 1 lakh are taxed at 10 per cent. You should also include the taxes in your calculations as you need to pay taxes every time you sell your investments, be it equity or debt mutual funds.