A more detailed retirement savings estimate that includes both investment returns and inflation during your retirement itself.
Unlike the simple 4%-rule estimate, this models withdrawals that grow with inflation each year, funded by a corpus that keeps earning a return.
Real rate: (1 + return) ÷ (1 + inflation) − 1
Corpus: Present value of a growing annuity at the real rate
This calculator asks a sharper question than a simple multiple of expenses. If you need a certain amount every month in retirement, your expenses rise with inflation every year, and your remaining savings keep earning a return, how big must the corpus be on day one so that it runs out exactly at the end of your planned retirement? It answers that with a real-rate annuity calculation.
It suits people who are close to retirement and have a clear idea of their expenses and how long they want to plan for. A retiring school principal in Jaipur who expects to need ₹50,000 a month for thirty years can use it to see whether her savings are enough, and how much the answer depends on the gap between her investment return and inflation.
1. Write down the monthly expense E, the retirement period n in years, inflation g and the return on the corpus r, all as percentages.
2. Compute the real rate: real = (1 + r ÷ 100) ÷ (1 + g ÷ 100) − 1.
3. Find the yearly expense: A = 12 × E.
4. Apply the present value of an annuity at the real rate: corpus = A × (1 − (1 + real)^(−n)) ÷ real.
5. If return equals inflation, the real rate is zero, and the corpus is simply A × n.
6. Compare the answer with your savings, and test a lower return or higher inflation to see the range.
If money grows at r and prices grow at g, then one rupee of savings buys (1 + r) ÷ (1 + g) times as much after a year. So the growth in purchasing power is (1 + r) ÷ (1 + g) − 1. People often approximate this as r − g, which is close when rates are small, but the exact form is slightly lower. At 8% return and 6% inflation, the exact real rate is about 1.89%, not 2%. Over thirty years that difference noticeably changes the corpus.
Withdrawals that rise with inflation are awkward to value directly. Dividing each year's withdrawal by that year's price level turns them into a constant amount in real terms, and discounting at the real rate gives the same answer as discounting nominal withdrawals at the nominal rate. The calculator therefore uses the ordinary present-value-of-annuity formula with the real rate. In its convention, each year's expense is inflated for that year and withdrawn at the year's end, which makes the result slightly cautious.
If your corpus sits in instruments that earn less than inflation, the real rate is negative. Then the corpus needed is more than the simple total of all future withdrawals at today's prices, because the savings lose purchasing power each year. This is the risk of keeping an entire retirement fund in savings accounts or low-yield deposits. Keeping part of the money in growth assets, within your comfort with risk, aims to hold the real rate above zero.
Sunita, a school principal in Jaipur retiring this year, expects to need ₹50,000 a month for 30 years of retirement. She assumes 6% inflation and an 8% return on her invested savings.
Answer: Corpus needed at retirement ₹1,36,49,424
Subtracting inflation from return instead of using the ratio, which slightly overstates the real rate.
Planning for too short a retirement. Many people now live well into their eighties.
Using a return higher than the portfolio can reasonably earn after tax and costs.
Leaving out large irregular costs, such as medical expenses or home repairs, from the monthly figure.
Comparing this result with a 4% rule answer without noticing that the two use different assumptions.
Checking whether savings at retirement are enough for a planned lifestyle.
Understanding how much a higher return or lower inflation changes the required corpus.
Deciding how much of the corpus to keep in growth assets during retirement.
Comparing the required corpus for 25, 30 and 35 year retirements.
Why is this more accurate than the 4% rule?
The 4% rule uses one fixed percentage, no matter what your own return and inflation guesses are. This calculator uses both of your own numbers, to give a result made just for you.