Retirement investing: planning for a thirty year second act

Working out what you need

Most people either avoid this calculation or accept a number from an advertisement. It is worth doing roughly yourself, because the rough answer is enough to act on.

Start with annual expenses in retirement, in today money. Not your income. Some costs fall, such as commuting, children education and loan payments. Others rise, particularly healthcare. Many people land somewhere around 70% to 80% of current spending.

Then adjust for inflation between now and then, which is the step everyone skips. At 6% inflation, prices roughly double every twelve years. Expenses of ₹6 lakh a year today become something in the region of ₹24 lakh a year in twenty five years. That is the number your corpus has to support.

A common rough guide is that you can withdraw somewhere around 3% to 4% of your corpus in the first year and increase it with inflation thereafter. Working backwards, an inflation-adjusted requirement of ₹24 lakh a year suggests a corpus in the region of ₹6 crore to ₹8 crore.

Why inflation dominates this goal

For a three year goal, inflation is a footnote. For a thirty year goal followed by a thirty year retirement, it is the main character.

This is the specific reason a retirement plan built entirely on fixed deposits usually fails. A deposit paying 7% before tax, taxed at 30%, leaves under 5% after tax. Against 6% inflation, the money is losing buying power every single year while the balance rises. It looks safe and quietly is not.

It is also why equity belongs in a retirement plan despite its volatility. Over thirty years, the risk of a fall you can wait out is smaller than the near certainty of inflation eroding a fixed return.

And retirement does not end the horizon. Someone retiring at 60 may need the money to work until 90. A retiree with everything in deposits at 60 can face real difficulty by 80.

EPF, the foundation you already have

If you are salaried, EPF is already running. A share of your basic salary goes in each month, your employer contributes as well, and it earns a rate declared annually.

Its strengths are real. It is automatic, it is government backed, the rate has historically been reasonable, and you never see the money so you never spend it. For many Indians it is the single largest retirement asset without any decision being made.

Its limits are equally real. It is unlikely to be enough alone, particularly for anyone whose lifestyle is well above their basic salary. And the temptation to withdraw it when changing jobs is the most damaging retirement decision most people make. Transfer it instead. Money withdrawn at 32 is not a small amount, it is a very large amount at 60 that will now never exist.

NPS, and the one deduction left standing

NPS is a retirement account where your money is invested across equity and debt in proportions you choose, with very low costs. It is locked until 60, which is a restriction and also the point.

The tax position, which changed

This is the most valuable part and it is widely missed.

Employer contribution to NPS is deductible under both tax regimes. Under the new regime the limit is 14% of basic salary plus DA, for private sector as well as government employees following the Budget 2024 change. Under the old regime it is 10% for private employees and 14% for government employees.

Since the new regime is the default and removes almost everything else, this is the one large deduction most salaried people can still claim. On a basic of ₹10 lakh, 14% is ₹1.4 lakh of income made deductible, without any reduction in take-home pay if it is structured through a flexible benefit arrangement. It is worth asking your payroll team whether that option exists.

Your own NPS contributions, under what were Sections 80CCD(1) and 80CCD(1B), are available only under the old regime. The extra ₹50,000 is now Section 124 under the Income-tax Act, 2025.

One cap: employer contributions to NPS, EPF and superannuation combined cannot exceed ₹7.5 lakh a year, and anything above that becomes taxable in your hands.

What happens at 60

• You can withdraw up to 60% of the corpus as a lump sum, which is tax free.
• At least 40% must be used to buy an annuity, a product paying you a regular income for life.
• Annuity income is taxable at your slab rate as you receive it.
• If the total corpus is small, currently up to ₹8 lakh, the entire amount can be withdrawn without buying an annuity.
• Partial withdrawal of up to 25% of your own contributions is possible after three years, for specified reasons.

Building the plan

A workable structure for most salaried people, in order.

• Let EPF run and never withdraw it when changing jobs. Transfer it.
• Ask payroll about employer NPS. The 14% deduction is the largest single tax lever available under the new regime.
• Run a monthly SIP into a broad index fund for the flexible portion. Unlike EPF and NPS, this money is accessible if life changes.
• Add PPF if you are on the old regime and want a guaranteed, tax free component.
• Increase contributions with every raise, before lifestyle absorbs it.
• Shift gradually toward debt as you approach retirement. Not the day you retire, but over the final decade.

The gradual shift matters more than people expect. A 60% fall in the year you retire, with everything in equity, is a problem you cannot recover from by working longer. Reducing equity progressively from around age 50 protects against retiring into a bad year.

But do not overcorrect. Moving entirely to deposits at 60 exposes you to thirty years of inflation. A meaningful equity component usually remains appropriate well into retirement. See asset allocation.

The one thing that matters most

Consider two people investing ₹10,000 a month at an assumed 12% a year. Illustrative figures, not a forecast.

The first invested ₹12 lakh more and finished with roughly three and a half times as much. The difference is not skill, discipline or fund selection. It is ten years.

This is the argument for starting with an imperfect plan now rather than a good plan later. No investment decision you make at 35 will recover what starting at 25 would have given you. Nothing else in investing has this property.

If you are already past 25, the same logic applies from today rather than from next year. The best time was earlier. The second best is now, and that is not a platitude, it is the arithmetic in the table above.