Planning whiz – April 2023

Plan for retirement

Geojit’s Investment Analyst, Gibin John, helps a client working for a private firm to plan for his retirement. Gibin John analyses the client’s current savings and helps him invest and plan ahead for his retired life. 

I am 43 years old, working for a private company. My salary is Rs. 55,000. My wife is not working now. We have a daughter. I am planning to retire at the age of 55. We are staying in our own flat. I have bank fixed deposit of Rs. 12 lakh. At the time of retirement, I will get around Rs. 10 lakh from PF and gratuity. Our living expense is around Rs. 30,000 and can save balance amount. I would like to know how much amount is required for retirement and how to invest to create the corpus.

Gibin John, a Certified Financial Planner replies:

As you are planning to create a corpus for post-retirement living expenses, here our first task is to find out how much corpus you would require. This corpus is for meeting your living expenses during your retirement and how long you can continue spending that corpus while maintaining the current standard of living.

Your current living expense is Rs. 30,000. After considering inflation rate of 6% then the cost of living at the time of retirement would rise to Rs. 60,365. For getting inflation adjusted living expense till you are 80 years old you would need to have a corpus of Rs. 1.62 crores on the day you retire.

You have only twelve more years for retirement. If you invest into equity-oriented investment which fetches 10% returns, you need to invest Rs. 60,000 per month to create Rs. 1.39 crores. But the maximum amount you can save from your income is Rs. 25,000.  If you invest the entire amount, you can create Rs. 67.50 lakh in twelve years.

Your existing fixed deposit of Rs. 12 lakhs will become Rs. 27 lakh in twelve years’ time and you will get gratuity amount of Rs. 10 lakh at the time of retirement. Therefore the maximum amount you could create by the age of 55 is Rs. 1.04 crores. By using this corpus, you can withdraw Rs. 39,000 per month in the initial year and there will be a 6% increase on the monthly withdrawal amount every year till your age of 80. This amount is equal to the today’s living expense of Rs.19,000.

If you have any other investments which you have not mentioned in the letter, that amount could be utilized for retirement. I also suggest that if you have any property or gold you can use that towards enhancing the corpus.

Also, here we have not considered payment towards any insurance coverage. As life is unpredictable, it is best to take precautions for your family’s safety now rather than later. Your medical expenses will be covered by health insurance, and your family will be taken care of in your absence by life insurance. These two insurance policies are essential for all of us.

We hope you could assimilate enough funds for your retirement, since there is no option to take a loan to meet retirement expenses.

Most of us prioritize just family-related goals and use all our savings in fulfilling these goals, leaving too little time for accumulating the retirement corpus. We never know how much money we would need for our post-retirement lifestyle, so we end up accumulating very little corpus at the time of retirement.

As I mentioned earlier, you will be unable to accumulate the required corpus by the time you retire. If you had done so, you would have been able to create a larger corpus with a very minimal monthly investment amount. We advise all to start planning and investing for retirement earlier.

Contact STEPS, our financial planning division, to plan your financial future

Leave a Reply

Your email address will not be published. Required fields are marked *

You May Also Like