When most Indians think about retirement planning, they start with one crucial question: How much money will I need?
Over the last couple of years, there has been growing consensus around a practical formula:
Retirement corpus = (85 – current age) × annual expenses
This assumes a life expectancy of 85 years and that post-tax returns and inflation remain the same throughout retirement. In simple terms: if your return on investment (RoI) equals inflation, the corpus works. If returns are lower, you need more. If returns are higher, you need less.
For example, if you’re 40 years old and your annual expenses are ₹12 lakh, you can retire now if you have ₹5.4 crore and earn returns equal to inflation.
If returns are 1% lower than inflation, the requirement rises to ₹6.8 crore.
If returns are 1% higher, it drops to ₹4.3 crore.
Given today’s lifestyle costs, most retirement targets run into multiple crores. That number often feels overwhelming.
The missing link
Often, I have noticed people getting disheartened after hearing their respective number and think it is impossible because they either simply divide the target by the number of income earning years or think it’s unachievable as they try to work towards the target by putting aside a fixed amount every year.
Both approaches ignore a key reality:
- Income typically rises each year (increments, bonuses, promotions).
- Expenses rise, but usually at a slower rate than income.
- Savings, therefore, rise in absolute terms.
For example, if income is ₹1 lakh a month and expenses are ₹70k a month, savings are ₹30,000. Now imagine a 10% hike in salary. Despite expenses increasing by 6% inflation rate, savings can increase by about 20% from ₹30,000 to about ₹36,000 a month.
So the individual can easily increase the second year’s investment by at least 10% (in this case) if not the entire 20%. Also, if the individual is not certain of the hike sustaining beyond a certain number of years, it’s better to commit to a lower increase in the investment amount.
This is called step-up investing and if sustained over a longer period becomes a game-changer, with respect to achieving the targeted corpus.
The corpus multiplier
We modelled the effect of increasing your investment contributions every year—known as a step-up—and assumed RoI fixed at 10% p.a.
The following sensitivity table highlights how many times the first-year contribution grows amidst different step-up rates and the corresponding number of years staying invested.
The number you see inside the grid is how many times your first-year investment grows by for a given year of investment and % of annual increase committed to. For example, if you invest for 20 years with a 15% step-up, your final corpus will be 212 times your first-year investment.
So, when you start with ₹2 lakh a year ( ₹16,500 per month) the corpus becomes ₹4.24 crore after 20 years with a 15% annual increase.
Marrying formula & multiplier
Now, let’s go back to our 40-year-old with a ₹5.4 crore retirement target.
Assuming the individual now plans to retire at 60 years of age and has 20 years to invest. His expense at 60 will be about ₹38.5 lakh per annum ( ₹12 lakh at 40 becomes ₹38.5 lakh at 6% inflation).
For a retired life of 25 years (60-85) the revised corpus requirement will be ₹9.6 crore. We know that a 15% step-up gives a 212× multiplier of the first year investment for an investment horizon of 20 years.
So in this case, the individual would need to invest only ₹4.5 lakh in the first year, increasing that amount by 15% every year, to reach the target. At zero step-up your requirement would be ₹15.3 lakh. The targeted corpus seems within reach now, since step-up investing allows you to start with a much smaller commitment while still hitting the same retirement number.
How to implement the corpus multiplier
- Fix your retirement number first—use the formula to get your target.
- Decide your investing horizon—how many years till retirement.
- Choose a realistic step-up rate—10–15% is achievable for most salaried and self-employed individuals.
- Automate the process—set up SIPs with an annual step-up feature.
- Review annually—adjust if your income growth or expenses change significantly.
Final word
The retirement formula tells you what number you need.
The step-up multiplier tells you how to reach it.
Used together, they convert a vague “I’ll save what I can” mindset into a disciplined, practical and achievable retirement strategy—one that aligns with income growth, inflation and investment returns.
Shankar K, a Sebi registered investment advisor