Is 1 Crore enough to retire on in India?

If you had Rs 1Cr (approx USD $200,000) would you be able to retire right now in India? If you need to meet retirement expenses over 30 years, would Rs 1Cr suffice?  How much can you spend monthly, if you need the Rs 1 Cr corpus last over 20 years.  To understand these and several related questions, read on.
Similar to the 1 million dollar mark (USD $1M) as a financial milestone in the US, in India in recent times, 1 Crore (Rs 1Crore) is the magic figure that is often talked about.  It is not as small as 1Lakh which is somewhat easily achievable these days, but not so far out that it is completely out of reach for the diligent and disciplined saver.  So lets say that through hard work, patience and discipline (or by winning the lottery) you have achieved the goal of having a total accumulated corpus (networth) of 1Crore.  By total corpus, I mean the total amount you have in liquid investable assets like bank accounts, Mutual fund investments, FDs, stocks, etc.  I do not want to include your primary residence as an asset, since you need it in your retirement days to live in.  Any additional real estate equity (if you are lucky enough to have it) can be included in the total corpus, as long as you realize that the entire corpus will need to be utilized to generate income once you have retired. 

Now the big question is Is 1Crore enough to retire on in India?  Can you use this corpus to fund all your expenses and never have to work again?  If you had 1Crore Rupees right now, could you give up your job right at this moment, and retire?  Now this is a very tough question to answer, since it depends on several factors that will be unique to your situation.  It is dependent on how many years you need to spend in retirement, do you have kids?, what are your monthly expenses?, do you plan to leave a inheritance for your kids, your health etc.  Since I cant tailor this article for all situations, I will instead assume a range of expenses, and compute the probability of a 1Crore corpus enabling retirement.

I will also assume for the purposes of this example that you can generate a 12% annual rate of return on your invested retirement corpus.  This should be the average rate of return across your asset allocation which could be in rental real estate, MFs, direct equity stock holdings and dividends, FDs, PPF etc

Another key factor we cannot ignore is inflation.  Many times people forget to factor in this destroyer of wealth.  I will go with an 8% inflation rate, since these days we are subject to rampant inflation, and I think it will take several years if not decades for the inflation rate to cool off. 

With these basic assumptions let us first start with a simple example wherein you have accumulated Rs 1 Crore, and are now ready to retire.  You estimate that your annual expenses will be Rs 6Lakh (Rs 50,000 per month)  Can you fund your entire retirement expenses from your retirement corpus?  Let's do the math and see how this works out.  I have plotted the total corpus and the increasing annual expenses (since we have a 8% inflation rate) in the graph below, with the total corpus on the left axis and the annual expenses on the right axis. 

Notice that in the early years your corpus keeps increasing since you are getting 12% investment returns, while you are not withdrawing much for your annual expenses.  Your total corpus peaks in your 16th year of retirement at Rs1.6Cr !! Unfortunately for you, your annual expenses are also growing at the rapid 8% inflation rate.  So in your 16th year of retirement you will need Rs19 Lakh to fund the same lifestyle which you could afford in your 1st retirement year at only Rs6 Lakh.  Your annual expenses now keep increasing and make a significant dent in your total retirement corpus.  From the 16th year onwards your corpus steadily decreases and finally runs out completely in the 26th year.  So basically for this situation, you can fund a retirement of only 26 years.  If you are in your 60s, then potentially 26 years should be sufficient to cover the remainder of your (and your spouses) life needs.  Mind you, that you will not have any corpus left at the end of 26 years to pass on as an inheritance to your heirs.  However if you are in your 50s, you could be cutting it close since in 26 years you will be in your mid 70s, which would be a terrible time to run out of money!

Finally, continuing to assume a 12% investment return rate, I show below how long your retirement corpus will last for different inflation rate assumptions and annual expenses.  I start with Rs3 Lakh annual expenses (or Rs 25,000 monthly expenses) and keep increasing the annual expenses to as much as Rs 7 Lakhs (or Rs 75,000 in monthly expenses)  For each of these cases, the height of the bar, shows how many years you can assume the Rs 1Cr corpus will last. 

The blue bars assume an inflation rate of 8% and the red and green bars assume 9% and 10% inflation rate respectively.  Naturally as the inflation rate goes up, your total corpus runs out faster.  This table will help you pick an inflation rate you are comfortable with, and assess if you can retire with the Rs 1Cr corpus.  For example if you are in your 50s and want to be conservative in your inflation rate prediction and go with 9%, then you should target monthly expenses of Rs 25,000 or lower (Rs 4 Lakh annual expenses) to ensure that your corpus will last for atleast 30 years (which is what you will need, to ensure you have money well into your 80s)

I hope this table will help you figure out if Rs 1Cr will be enough to fund your retirement dreams.  You would be surprised at how little Rs 1Cr can fund in monthly expenses if the inflation rate continues to remain very high!