Geojit’s Investment Analyst, Gibin John, helps a couple nearing 50 seek retirement planning advice. With Rs 1.08 crore in liquid assets and a Rs 1.5 crore property, Gibin advises them to invest their monthly surplus in debt and equity funds to accumulate a corpus for retirement in five years.
We are an NRI couple aged 48 and 47, running a business with an average monthly net income of Rs 3,00,000. We have a daughter and she is working now. Our monthly expenses are Rs 1,45,000. We plan to settle in India within five years. Our current investments include an NRE FD of Rs 85 lakhs, an NRO account with Rs 23 lakhs, and a residential property valued at approximately Rs 1.5 crore. We’re worried whether our accumulated savings will suffice for post-retirement expenses.
Our expected post-retirement cost of living is Rs 65,000 per month. Could you advise us on a suitable retirement plan based on our financial position?
Gibin John, a Certified Financial Planner replies:
We often see people starting their retirement planning very late. This is due to two main reasons: first, they do not realize the importance of planning for retirement at an early age, and second, they are so busy working towards family goals that they overlook their own future. Consequently, by the time they address retirement planning, it is often too late to build an adequate corpus, which jeopardizes their retirement income.
In your case, you have done reasonably well. You’ve achieved other financial goals and are now focusing on retirement at age 48. It’s important to understand that retirement planning is as crucial as any other goal. Post-retirement, maintaining your standard of living without a steady income can be challenging, and continuing to work may not always be feasible.
During your working years, you might rely on loans or financial assistance to achieve your goals. However, post-retirement, such options may not be available, and repaying any obligations could be challenging. Therefore, prioritizing retirement planning is essential to ensure a secure and comfortable future.
In your case you have been doing business abroad for many years and achieved the most important goals. Now you want to know whether you have accumulated sufficient corpus for post-retirement expenses.
Let’s analyze your financial situation. You’re expecting monthly expenses of Rs 65,000 post-retirement. Accounting for 6% inflation, you’ll need to create a corpus of approximately Rs 2.50 crore to lead a comfortable life after retirement.
Currently, you have liquid assets totaling Rs 1.08 crore in NRE & NRO accounts. The first step is to set aside Rs.8 lakh as emergency fund. This works as a safety net, protecting you in case of an unplanned, uncalled for situation. After allocating this emergency fund, the remaining Rs 1 crore, while substantial, is insufficient for your post-retirement needs. If this amount grows at 6% annually for the next five years, it will reach about Rs 1.33 crore.
For filling the shortfall, I advise you to invest the current investable surplus amount wisely. You can invest your current monthly surplus of Rs 1 lakh in debt mutual funds or an NRE RD until retirement. Assuming a 6% return, this could generate a corpus of approximately Rs 69 lakhs. Additionally, consider allocating Rs 50,000 monthly to equity-oriented mutual funds, expecting a 10% growth rate. This investment could potentially grow to Rs 39 lakhs over five years. These steps could help you create a total retirement corpus of Rs 2.41 crore, which is close to your target but still slightly short. To further secure your financial future, explore ways to increase your savings and investments.
It is important to recognise that regular income typically decreases after retirement, while healthcare expenses tend to increase with age. In recent years, healthcare costs have been rising at an increasingly fast pace. You will definitely want to afford good quality hospital care, medications, diagnostic tests, and related services. Therefore, I strongly recommend obtaining a family floater health insurance policy with at least Rs 15 lakh coverage. This will protect your investments from depletion due to unexpected medical expenses.
