Geojit’s Investment Analyst, Gibin John, helps a couple in their late 40s create a financial roadmap to build their retirement corpus, in 8 years’ time, with a combined monthly income of Rs. 2.25 lakh.
I am Mahesh, 47 years, and my wife, also 47, are both private sector professionals. Our combined monthly net income is Rs. 2,25,000, with monthly expenses of around Rs. 60,000. We have a daughter who is working. We are planning to retire within the next eight years. My biggest worry is whether the amount we have accumulated till now will be sufficient to meet our post[1]retirement expenses. Our savings and investments include a fixed deposit of Rs. 35 lakhs, a savings account balance of Rs. 3 lakhs, and our residential house is valued at approximately Rs. 1.5 crore.
We have achieved our major life goals and are now focusing on creating a financially secure retirement. The expected post-retirement cost of living is Rs. 40,000 per month. Are our current savings enough? What should our retirement plan look like? Please check our existing financial position and advise on a suitable retirement plan.
Gibin John, a Certified Financial Planner replies:
Many people start thinking about retirement only in their 40s, often because they’re busy with family responsibilities. They often fail to realize the importance of starting early. But waiting too long can make it harder to build enough savings for a comfortable retirement.
In your case, it’s commendable that you have already made some focused investments towards retirement. Now, we need to evaluate whether these investments are sufficient and identify any additional plans required to secure your retirement.
After retirement, it can be challenging to sustain a comparable standard of living when compared to what you have experienced during your working years. During your career, you may have achieved various financial goals by utilizing loans or financial assistance from other sources. However, after retirement, these avenues may no longer be accessible, making it difficult to meet repayment obligations without a consistent income. Therefore, it is essential for individuals to prioritize retirement planning to secure financial independence and stability in their later years.
Looking at your current financial position, you have a household income of Rs. 2,25,000 and your monthly expenses are Rs. 60,000. This leaves you with a surplus amount of Rs. 1,65,000 for savings and investments. Since you have successfully achieved all your major life goals, you do not have to allocate the surplus funds to accumulate a corpus for additional goals.
Your expected monthly expenses for post-retirement life are Rs. 40,000 per month. But when we factor in inflation at 6%, your expected monthly expenses of Rs. 40,000 will grow to Rs. 64,000 in eight years. For creating this, inflation adjusted amount, you need to build a corpus of Rs. 1.70 crore.
To achieve this goal, you should invest Rs. 1.20 lakh monthly in equity mutual funds, assuming a 10% annual return. The remaining monthly surplus after your primary investment can be directed toward low-risk investments. The existing Rs. 3 lakh in savings should be maintained as an emergency fund.
Additionally, you have fixed deposits worth Rs. 35 lakh. You may continue keeping this amount in fixed deposits for now, though you can review this strategy as you build your retirement corpus.
It is important to protect your retirement savings from unexpected medical expenses. Consider getting family floater health insurance with at least Rs. 15 lakh coverage.
The good news is that given your current financial position and saving capacity, you should be able to meet your retirement goals if you follow this investment plan consistently over the next eight years. Remember that retirement planning becomes more challenging without a regular income, so it’s crucial to build adequate savings while you’re still earning. Your early start in retirement planning, compared to many others, puts you in a good position to achieve your goals. This is also an excellent time to encourage your daughter to start her own financial planning journey early, learning from your experience.
