# The 12 important numbers for retirement planning

The following twelve most important financial numbers will help you gauge your financial situation and help with your retirement planning. Let see what they are and how to use them.

1. Current cost of living including taxes=Gross Income-Retirement savings= A

2. The rate of inflation you assume for the future= ‘x’ %

3. Number of years before you plan to retire= ‘y’ years

4. Inflation adjusted cost of living when you retire= Your ball park estimate of how much you need to live in today’s dollars=B

Use the rate of inflation to calculate the amount needed in future dollars.=C( amount in future dollars).

You can go this website and enter B for the initial amount, x in the annual interest column and y for the number of years and change the annual interest compounded to annually.

You can then calculate what C will be.

5. Retirement income you can count on=D( this includes any pension, social security, etc)

6. Retirement income you need from your portfolio=C-D

7. Portfolio you will need at retirement =C-D x 25( assuming a 4% withdrawal rate)

8. The current size of your investment portfolio=E

9. You annual retirement savings= Retirement savings that you entered in 1. x No of years left until retirement.

10. The annual return you will need from now until you retire=Calculate it using current size of investment portfolio, annual retirement savings and Portfolio you will need at retirement. You can use this online calculator to calculate this.

11. The overall stock allocation of your portfolio now. The percentage of your portfolio that is in stocks.

12. The amount of risk in your portfolio now: This depends on the amount of stocks you have. You can go to this article and you will find a table. The risk is the worst 12 months, worst 60 months and the standard deviation.

I am going to calculate this using an Indian perspective:

• My age=35 years
• Current cost of living= Rs. 50,000 x12= 600000
• Rate of inflation over long term=6%
• Number of years to retire=30 years
• Inflation adjusted cost of living when I retire=Let us assume the cost of living is the same as today. However I have to adjust it for inflation. If you put the values into the calculator, I get 36,20,500 rupees per year
• Retirement income that you can count on=I am assuming this is 0
• Retirement income you will need from your investment portfolio=36,20,500 x 25=9,05,12,500
• Current size of my investment portfolio=1,00,00,000
• Annual retirement savings= say 12,00,000 per year(1,00,000 per month)
• Annual return you will need till you retire= If I put the values in the annual rate of return calculator, I get 3.413%.
• Percentage of my portfolio in stocks=say 0
• My risk is -4.8% per year.

So if you already have a portfolio of Rs 1 crore and are going to add 12 lakhs every year to the portfolio then you need only an annual return of 3.4% per year and if you invest it all in fixed income then your worst 12 months is a 4.8% loss.

This is illustrative and not a real life situation for most of us.

However we can use this to calculate how much return we need and how we can meet the returns by investing in a combination of stocks, cash, bonds, real estate, gold, etc.