4% Withdrawal rule for retirement: While making a long-term investment, one needs full clarity about its investment goal. It has been found that while investing for retirement, those investors who keep inflation in mind find it easy to meet their investment goal. But, it's not that easy to calculate how much retirement corpus one would need post-retirement. According to tax and investment experts, the simplest way of deciding financial requirements post-retirement is to list out one's monthly needs and calculate that sum at present rate. Then take 7 per cent inflation and calculate the current sum rising at 7 per cent for the period he or she would be retiring. They said that 4% withdrawal rule for retirement is applicable on that net sum that one would need at the time of retirement.
Speaking on the retirement fund that one would need post-retirement SEBI registered tax and investment expert Jitendra Solanki said, "For a lower middle and middle middle class person, monthly fund required today post-retirement is around ₹45000 to ₹50,000. That means ₹6 lakh ( ₹50,000 x 12) in a year. Using 4% withdrawal rule for retirement, one who is retiring today will require ₹1.5 crore ( ₹6 lakh x25) because 4% withdrawal rule allows a person to use one's retirement corpus for 25 years post-retirement."
Solanki said that investor who is aged 30 years today need to keep this ₹1.5 crore figure in mind and the 7 per cent average inflation while deciding how much fund one would need post-retirement. Using mutual fund calculator keeping 7 per cent annual rise of inflation, one would need around ₹11.5 crore if the investor is retiring after 30 years.
Advising investors to keep 7 per cent inflation in mind in post-retirement period as well Manikaran Singhal, Founder, goodmoneying.com said, "As the person would be withdrawing 4 per cent for the next 25 years post-retirement, inflation would be again rising at 7 per cent per annum. so, the person is advised to remain invested in options giving 7 per cent or more returns to the investor post-retirement.
