A couple approaches Geojit’s Certified Financial Planner, Gibin John, for expert retirement planning guidance. He outlines a clear, practical strategy to estimate their ideal retirement corpus, maximize existing investments, and create a balanced investment plan to secure a financially stable postretirement life.
I am 48 years old and working in a private company. My monthly salary is Rs. 90,000. My wife is currently not working, and we have a daughter. I plan to retire at the age of 58. I have some investments, but they are not structured. At present, I have a bank fixed deposit of Rs. 15 lakh, mutual funds worth Rs. 20 lakh, and gold investments worth Rs. 65 lakh. At the time of retirement, I expect to receive around Rs. 30 lakh from PF and gratuity. Our current monthly living expense is around Rs. 45,000, and I am able to save the remaining amount. I would like to understand how much corpus is required for my retirement and how I should invest my retirement savings. I am also receiving Rs. 15,000 per month from our ancestral property, and this income is expected to continue for the next 15 years.
Gibin John, our Certified Planner replies:
I am assuming that all your financial goals have been achieved or you have separate investments earmarked for them. Now, you are focusing on creating a corpus specifically for your postretirement living expenses. Our task is to estimate how much retirement corpus you will require to meet your future expenses and to assess how long that corpus can sustain your post-retirement needs.
Your current monthly living expense is Rs. 45,000. Assuming an inflation rate of 6%, the estimated monthly expense at the time of your retirement will be approximately Rs. 80,600. To meet these inflationadjusted expenses until the age of 80, you would require a retirement corpus of around Rs. 2 crore on the day you retire. This calculation assumes an average postretirement return of 7%.
Your existing fixed deposit of Rs. 15 lakh is expected to grow to Rs. 28 lakh in the next 10 years. In addition, you will receive a gratuity amount of Rs. 30 lakh at the time of retirement. Therefore, from riskfree investments alone, you can expect a total of Rs. 58 lakh by the age of 58. If your Rs. 20 lakh mutual fund investment grows at 12% CAGR, it will become approximately Rs. 62 lakh at the time of retirement. In total, you will be able to create around Rs. 1.20 crore from your existing investments, which means about 60% of your required retirement corpus can be generated from your current assets and expected retirement benefits.
The remaining Rs. 80 lakh, needs to be created through fresh investments. Since you have only 10 years left for retirement, it is advisable to follow a balanced investment approach.
A suitable allocation would be 40% in debtoriented mutual funds or fixedreturn investments, and 60% in equityoriented investments. Assuming the debtoriented investments earn 6% per annum, you will need to invest approximately Rs. 15,000 per month, which can grow to around Rs. 24 lakh in 10 years. Similarly, for the equityoriented investments, by investing Rs. 25,000 per month, you can accumulate approximately Rs. 56 lakh, assuming 12% longterm equity returns.
If you follow the above investment strategy, you will not need to depend on your gold or property investments to meet your retirement goal. Currently, you have a monthly surplus of Rs. 60,000 after deducting living expenses from your salary and rental income. Out of this, you need to utilize only Rs. 40,000 per month for creating your retirement corpus. The remaining Rs. 20,000 per month can be invested to build a corpus for your other financial goals, such as children’s education, marriage, travel goals, or emergency fund enhancement.
