A private firm employee seeks guidance from Geojit’s Certified Financial Planner, Gibin John, for his retirement planning. He has invested in mutual funds and recurring deposit but is unsure if his investments are adequate for a stress-free post-retirement life. Gibin John shares a well-defined strategy on how he can maximise his investments to reach his goal.
I am a 48-year-old private firm employee, and am planning to retire at the age of 58. I have a 17-year-old daughter. My salary is Rs. 2 lakh per month. Currently I have some investments and now my doubt is whether the investments are enough for my retirement. My living expenses amount to Rs. 75,000 and I have an EMI of Rs. 35,000. There is loan outstanding of Rs. 17 lakh that will end by May 2031. My equity investments are Rs. 12 lakh in mutual funds. I am doing SIP of Rs. 28,000 per month and depositing Rs. 10,000 per month in recurring deposit. Existing accumulated amount in RD is Rs. 2,16,000 and the maturity date is August 2027. I would like to know how much is needed to live a stress-free post-retirement life.
Gibin John, our Certified Financial Planner replies:
You haven’t yet invested or accumulated a specific amount towards your retirement. This is actually one of the most important financial goals, because during the postretirement period, most people do not have any regular source of income. In such situations, it becomes difficult to manage daily living expenses or even meet basic needs. During your working years, even if you haven’t built a corpus for other important goals, you can still manage them through loans. But retirement is the only goal for which you can never take a loan.
Here, we assume that all the investments mentioned by you are meant for your retirement. You are planning to retire at the age of 58, and since your current age is 48, you have 10 years left until retirement. Your current monthly expenses are Rs. 75,000 and your EMI is Rs. 35,000. Your home loan will be fully repaid after five years.
If you want to maintain the same standard of living after retirement, you need to factor in inflation. Assuming an inflation rate of 6%, your current living expenses will grow to approximately Rs. 1,34,000 per month after 10 years. To sustain this inflation adjusted expense until the age of 80, you will need to create a retirement corpus of around Rs. 3.20 crore.
Your existing investments are Rs. 12 lakh in equity mutual funds and, your recurring deposit is Rs. 2.16 lakh. Firstly, you have to create a contingency fund. For this purpose, you may utilize your existing and future investments towards the recurring deposit. After the maturity of your recurring deposit account, you may shift the 60% of the amount to liquid mutual fund. This fund will be sufficient to meet your three months’ living expenses.
Your net monthly income from salary is Rs. 2,00,000. After deducting living expenses and EMI, you have an investable surplus of Rs. 90,000. You already have an investment commitment of Rs. 28,000 towards SIP and Rs. 10,000 towards a recurring deposit. The remaining Rs. 52,000 may be invested in an equity mutual fund through SIP to build your corpus. If you invest Rs. 52,000 along with your existing SIPs, you can accumulate a total mutual fund corpus of approximately Rs. 2.16 crores, assuming an expected return of 12% in equity mutual funds.
Your home loan will end in May 2031, while your working period is expected to continue until 2036. After the loan closure, you can redirect the EMI amount towards investments. Since the available investment period will be short, we recommend investing in a debt mutual fund. By investing the EMI amount until 2036, you may accumulate approximately Rs. 26 lakh, assuming an 8% annual return. The total corpus will be Rs. 2.42 crore. However, this corpus will be insufficient to fully meet your future living expenses. It will only be adequate to cover monthly expenses of around Rs. 56,000.
After your retirement you will not get the corporate health insurance cover. So, you should take a health insurance coverage of Rs. 10 lakh with top ups.
