Our advanced Retirement Calculator can help you understand why it’s important to factor market volatility in your retirement planning
To construct a retirement plan, various assumptions need to be made. This includes assumptions for equity returns, debt returns and inflation. A critical mistake that is made when making these assumptions is that a Retirement Portfolio will earn the same equity and debt returns each year, and will withstand the same inflation.
Reality will be very different. Your Retirement portfolio will face different equity and debt returns each year, as well as different inflation. This is called the ‘Sequence of Return’ risk, and without factoring this risk, you cannot calculate the required Retirement Corpus.
Our Retirement Calculator has been built to illustrate this point. It calculates the required retirement corpus based on constant equity return, debt return and inflation. To check if this corpus is accurate, the tool has a built-in simulator which simulates actual equity and debt return.
You will notice that in most cases, the required retirement corpus is not adequate. The retirement corpus exhausts itself before the life expectancy of the retiree. This is because typical retirement computations do not factor in market volatility.
To help you better plan for your retirement, the tool also provides the required retirement corpus which takes market volatility into account. This is done by using the Safe Withdrawal Rate approach, the detailed methdology for which has been provided in our co-authored reserach.
If you face any challenges in using the calculator, do let us know at support@samasthiti.in or drop a comment below!
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Hi Ravi, super helpful. I have a question on your model assumptions. lets say I am 50 and want to retire at 55…my current expenses includes school fees et.al. for 2 kids…who will go to college for which i have an expense idea. what do i include in themonthly inout cell…with or without the school expenses for the remaining years of school…similarly, how do i factor in some event based expenses like university expenses, children’s weddings etc…those are not monthly expenses. curious where does all f this get accounted for in your x*33 calculation.
thanks.
Ayon