Geojit’s Investment Analyst, Gibin John, helps a couple working in the private sector plan for their retirement. Gibin John analyses the client’s current investments to help them invest and plan ahead for life.
I am a finance manager at a private firm. My wife is 46 years old and I am 48. I am planning to retire at the age of 55. We have two kids. One son is in his final year of an MBA program, and the other has recently begun a position as a manager at a private company. My monthly salary is Rs. 85,000 and rental income is Rs. 15,000. Our monthly expenses are around Rs. 45,000.
We have a residential property and the first floor of our house is rented out. Other investments include mutual fund investments of Rs. 8.75 lakh, shares worth Rs. 18 lakh, bank fixed deposit of Rs. 5 lakh and gold ornaments worth Rs. 30 lakh.
I intend to retire at age 55, and I need to create sufficient corpus to cover my post-retirement expenses. Please help us to plan ahead.
Gibin John, a Certified Financial Planner replies:
You plan to retire at the age of 55, and you are currently 48 years old. You want to check if you have accumulated sufficient retirement corpus. So, let us first analyze whether the corpus which you have accumulated so far is sufficient to support your retirement needs and other goals.
Your current salary income is Rs. 85,000 and rental income is Rs. 15,000. Therefore, your total monthly income is Rs. 1,00,000. Your monthly expense is Rs. 45,000 leaving you with an excess of Rs. 55,000. This amount you can invest towards your goals.
Firstly, you have to create an amount for meeting the contingency requirements. You have not mentioned the savings account balance or any other liquid funds in the letter. In such a case, you have to create a new fund for this purpose by using the existing surplus amount. Ideally, you should keep an amount equal to three to six months’ expense as an emergency fund to meet unexpected financial emergencies in life. In your case this amount is Rs. 2.5 lakh. You may allocate Rs. 2.5 lakh from fixed deposit for this purpose.
Your most important goal is to accumulate sufficient corpus for retirement. Currently, you are getting a rental income of Rs. 15,000. Here, we make the conservative assumption that rent will rise by 5%. Taking this income into account, you will need a corpus of Rs. 1.50 crore to cover your post-retirement living expenditure. If not, this sum will be around Rs. 1.81 crore.
Your existing accumulated mutual fund of Rs. 8.75 lakh and share value of Rs. 18 lakh can be allocated towards retirement goal. If these investments fetch a 12% return, then the mutual fund value will become Rs. 19.34 lakh and the share value will become Rs. 39.80 lakh. The total accumulated value from existing equity-oriented investment will be Rs. 59 lakh. You have a surplus amount of Rs. 55,000 and if you invest this fund in a debt oriented mutual fund or recurring deposits for the next 7 years then you can accumulate Rs. 60 lakh. Yet, the retirement corpus will be short by Rs. 30 lakh. You may sell the gold to make up this shortfall. You will be able to increase the retirement corpus if you postpone your retirement date.
You have not mentioned health insurance. If you don’t have insurance, you should take a minimum of Rs. 5 lakh coverage insurance immediately.
