The 3 Mistakes in 40Cr Retirement Corpus claim!

Recently, some reels went viral where a portfolio management firm declared that a 40-year-old media personality (@ sonia shenoy) needs a 40Cr corpus. This obviously is out of reach for a very large fraction of the population. The problem with setting such high targets for people is that their quality of life will suffer in an attempt to save excessively.

Some of our clients reached out, trying to understand whether they need to update their retirement plans. That prompted us to look into the claims, and there are several glaring 

inaccuracies.

Without further ado, here are the basic assumptions:

Current Age: 40

Retirement Age: 60

Longevity: 90

Current Expenses: 2L/month

House: Living in a self-owned house.

The reels then go on to compute a 9% inflation rate and assume a 9% portfolio return. Then the corpus needed is 2L/month 12months (1 + 9%)^20 * 30 = ~40Cr.

A cursory look shows the problematic assumption and the 3 major mistakes.

1. Some expenses that are present today will vanish post-retirement. This includes at least the kids’ education expenses.

2. The 9% overall inflation rate counts education inflation and is a severe overestimate.

3. The portfolio returns of 9% in retirement and for 20 years till retirement are too conservative!

Here is the expense breakdown of a 2 L/month in a metro city and the expenses projection at the start of retirement:

Expense Head	Current (/month)	Inflation Rate	At Retirement
Household + Utilities	₹100,000	6%	₹320,714
Kids Education	₹20,000	10%	₹0
Medical	₹10,000	12%	₹96,463
Discretionary	₹70,000	10%	₹470,925
Total	₹200,000		₹888,101
Corpus			₹266,430,442
Portfolio Growth Rate (post tax)	9%
Financial Independence Number	₹47,539,421

This means that the annual expenses in retirement will be ~1Cr / annum.

Now, a 30-year period can be serviced well with a 25x corpus. This is known as the 4%* withdrawal rule in the FIRE communities. Simple math then puts the retirement corpus at ~26Cr.

The other thing to note is that this 26Cr is a mere 4.75 Cr as of today. So if you have ~5Cr saved today towards retirement, with monthly expenses of 2L, then you are A-OK. Don’t be intimidated by the 40Cr number!

Are you planning your retirement based on 'Viral Reels' or personalized math? Let's discuss in the comments.

* William Bergen, the original formulator of the 4% rule, has actually upped the number to 5% for a properly constructed portfolio (and not a 60:40 Equity:Bond portfolio). We’ll cover this in a later post.

** There are several other inaccuracies in the financial plan which we have omitted for brevity.