Ask anyone who has read a few articles on early retirement how much they need to retire, and you will get an answer in seconds – the 25x rule. Spend Rs 12 lakh a year, or Rs 1 lakh a month, and you need a corpus of Rs 3 crore, from which you withdraw 4 per cent every year, forever. Rohit Tuteja, Co-Founder & CEO of finny.club, says that it is a neat rule, but it is inaccurate for most Indians.
“Not because the math is flawed, but because it was built for a different country and a different decade,” he said.
According to Tuteja, the 25x rule was designed for America: low inflation, retirement at 60, roughly thirty years to fund, Social Security and Medicare covering part of the gap, and no real expectation of supporting children well into adulthood. Change even one of those assumptions and the formula still hands you a confident-sounding number. However, that number can fall well short of what you will actually need in reality.
What this looks like in practice
Take Rahul. He is 35 today, plans to stop working at 50, and expects to live to 90. His life costs Rs 1 lakh a month at current prices.
That means he has 15 years to build his corpus and 40 years to make it last.
That is really the entire input list: your age, the year you plan to stop working, how long you expect to live, and what you spend each month. Notice what is missing from that list.
Your income and your savings rate do not factor into how large the corpus needs to be. The corpus only has to cover what you spend, for as long as you need it to.
What will the same lifestyle cost at 50?
Consider Rahul’s current monthly lifestyle expense of Rs 1 lakh.
Assuming an illustrative inflation rate of 8 per cent* per annum over the next 15 years:
• Current monthly expense: Rs 1 lakh
• Monthly expense at age 50: ~Rs 3.17 lakh
• Annual expense at age 50: ~Rs 38 lakh
“This is the impact of inflation compounding over 15 years. For retirement planning, Rahul therefore needs to plan around his future lifestyle cost of ~Rs 3.17 lakh a month, rather than today’s Rs 1 lakh,” he said.
*An 8% inflation assumption is a reasonable planning estimate for urban household expenses, which can rise faster than headline inflation across categories such as healthcare, education, housing and everyday consumption.
The money keeps growing while he spends it
A retirement corpus doesn’t just sit idle once you stop working. It stays invested and keeps earning returns, even as you withdraw money every month.
• Say the corpus earns 10 per cent a year, while inflation runs at 8 per cent.
• What actually matters is the gap between the two: the real return, which works out to 1.85 per cent (Real return = (1 + return) ÷ (1 + inflation) − 1)
• Running the numbers on that basis, Rahul needs approximately Rs 10.8 crore on the day he turns 50, to comfortably fund Rs 3.17 lakh a month, growing with inflation, all the way to age 90.
So how far off is the 25x rule, really?
To compare fairly, it helps to bring both numbers back into today’s rupees, since Rs 10.8 crore in 15 years and Rs 3 crore today are not directly comparable. Working out what Rahul would need right now, if he retired today, to fund the same lifestyle all the way to 90 gives roughly Rs 4.16 crore, assuming it remains invested in a portfolio that delivers 1.85 per cent real ROI per year after adjusting for inflation.
“The 25x rule said Rs 3 crore. The realistic number is closer to Rs 4.16 crore, nearly 30 per cent higher. In practical terms, that gap means someone following the 25x rule could run out of money with roughly 20 years still ahead of them, and discover the shortfall at an age when there is very little room left to fix it,” Tuteja added.
Two things worth watching closely
The instinct after turning 50 is to move your entire corpus into safe, low-return assets like fixed deposits. Resist doing this in full. The moment you do, that 1.85 per cent real return this entire plan is built on stops holding up, since safer assets typically earn less than inflation over time.
A better approach is to keep a buffer of safe assets for the next few years of expenses, while letting the rest of the corpus—money you will not touch for a decade or more continue compounding in line with your risk appetite.
Taxes are the second factor people underestimate. Every withdrawal from your corpus usually involves selling investments, which means realising capital gains and paying tax on them. A 10 per cent return on paper rarely reaches you as a full 10 per cent in hand.
The three inputs that matter are:
• Number of months to fund your retirement
• Your current monthly expenses
• The real return you expect your corpus to earn
Each of these is a lever you control, and small, honest changes to any one of them can shift your target corpus significantly.
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(This article is for informational purposes only and should not be construed as investment, financial, or other advice. Figures used above are illustrative.)
