Pension Calculator

The difference between your expected retirement age and current age determines how many years you will contribute towards achieving your planned retirement goal. If you are able to contribute for a longer period, your investments will have a longer period to grow due to the benefit of compounding. This means that even relatively smaller individual investments may be sufficient to reach your planned investment goal.

Your current monthly expenses are a reflection of your current lifestyle. This provides a baseline number of your projected expenses post retirement. If your current expenses are high, it is quite likely that your post-retirement expenses will also be high. This would impact your retirement savings goal accordingly.

Post retirement expenses are represented as a percentage of your current expenses. Since your post-retirement expenses and lifestyle will be a reflection of your current expenditures and lifestyles. The higher your post-retirement expenses are, the larger will be the size of the retirement corpus that you will need in the future.

Inflation is the rate at which the general level of prices for goods and services rises, decreasing purchasing power. Over time, the same amount of money will buy fewer goods and services. If your pension income does not account for inflation, you might find it challenging to maintain your standard of living in retirement. A higher inflation rate thus translates into greater post-retirement expenses to maintain an adequate standard of living.

If you already have started contributing towards your retirement goal, you can maximise the benefit of compounding on such investments. This will reduce the quantum of further investment that you will need to reach your planned retirement savings goal.

This is the expected rate by which you expect your current and future investments to grow as you make further contributions towards your retirement savings. If the investment growth rate is higher, you will get higher returns so the calculator will show you a smaller amount of future investments that is needed. It is best to be conservative when providing this number as it is better to invest more and have a larger corpus in the long term than falling short on retirement finances later on in life.

Now that you have a better understanding of how each of the information provided by you impacts the result provided by the pension calculator, you will be better placed to assign values that are reasonable and achievable.

If you assume that your investments will grow at a higher rate, the pension calculator will show that you will need a commensurately smaller investment to reach your investment goal. But this might actually not be the case and you can end up falling short of your retirement savings goal. Thus, it is better to underestimate the rate of return on your investment and make larger contributions so that you surpass your retirement savings goals.

Failure to account for inflation can result in an overestimation of the purchasing power of your future pension income. Always consider the impact of inflation based on available historical inflation data when reviewing your pension estimate.

Increasing your pension contributions over time as your income increases can significantly increase the size of your retirement corpus. This is the same rationale as a step-up SIP calculator wherein your contributions increase with time and you have to a significant larger corpus at the end of the investment period.

We tend to save for multiple goals at the same time – a new car, an overseas vacation, down-payment on a house, etc. It is best to keep your retirement investments separate from these so that you do not end up dipping into retirement funds to achieve other financial goals. So, if you are not careful, there is good chance that even after having existing investments you might end up falling short of your retirement saving goal.

The above is just a short list of the common mistakes that you should avoid. As a rule of thumb you should take conservative estimates when planning for long-term goals such as retirement. That way you are more likely to achieve and even surpass your retirement goals rather than falling short of them.

The earlier you start saving for a long-term goal such as retirement, the more time your money will have to grow. The compound interest that you earn this way can significantly increase the size of your pension corpus over time.

Whenever possible, increase your pension plan contributions. Higher contributions lead to a larger retirement corpus and higher pension income. One way to do this is to increase your pension contribution every year by a fixed amount in response to your annual increment. This is the same method used as in a step-up SIP and can help you boost your retirement savings significantly with minimal impact on your monthly budget. 

Review your retirement-oriented investments periodically and make adjustments as needed. Life changes such as salary increases, job changes, and changes in financial goals should also prompt a review of your pension contributions. Keeping ahead of changing circumstances will improve the chances you staying on track to reach your pension goals.

Using a free online pension calculator periodically can help you stay on track with achieving your retirement goals. It allows you to see how changes in contributions, growth of your current savings, your planned retirement age, etc. affect your pension income. Should these have an adverse impact at any time, you will get adequate time to make appropriate changes that help you stay on course to reach your retirement goal.