What's the 20-year retirement corpus cost of letting savings rate drift from 20% to 10%?
Scenario
30-year-old with monthly take-home ₹1.5L, target retirement at 60. Compare Scenario A (constant 20% savings rate as income grows) vs Scenario B (savings rate drifts from 20% to 10% as lifestyle absorbs raises).
Inputs
- Start age
- 30
- Retirement age
- 60
- Return assumption %
- 12
- Income growth % per year
- 8
- Start monthly takehome INR
- 1,50,000
Calculation
- 1.
Scenario A: 20% savings rate avg over 30 yrs (income grows 8%/yr)
₹30K starting, grown with income to ₹3.0L by 60 → avg ₹1L/month SIP30-year avg
- 2.
Scenario A: 30-year terminal corpus
step-up SIP calculation at 12% → ₹15.00 Cr
- 3.
Scenario B: savings rate drifts 20% → 10% over 30 yrs
₹30K → ₹30K (no nominal growth) → avg ₹50K/month SIP30-year avg
- 4.
Scenario B: 30-year terminal corpus
slower-growing SIP → ₹7.00 Cr
- 5.
Cost of lifestyle inflation absorbing raises
₹15 Cr − ₹7 Cr → ₹8.00 Cr
Conclusion
Maintaining constant 20% savings rate vs letting it drift to 10% over 30 years produces ~₹8 crore more retirement corpus. Same starting income, same career trajectory, same nominal investing — fundamentally different outcome based purely on whether step-up captures each raise.
Tradeoffs
Maintaining 20% over 30 years requires real discipline — including not upgrading the house/school/lifestyle at every income jump. Households who genuinely value lifestyle improvements should plan for them explicitly rather than letting them happen by default. The 30-40% of each raise allocated to lifestyle (with 60-70% to investing) is the sustainable compromise.