Geojit’s Investment Analyst, Gibin John, helps a 45-year-old man who plans to retire in ten years build his retirement corpus to cover expenses until age 80.
I am 45-years-old, working in a private company for a salary of Rs. 1,60,000. My wife is not working presently. I am planning to retire at the age of 55 and I don’t have many investments. We are staying in our own flat. I have equity shares worth Rs. 10 lakh and bank fixed deposits of Rs. 8 lakh. At the time of retirement, I will get around Rs. 30 lakh from PF and gratuity. Our living expense is around Rs. 60,000 and I can save the balance amount. Now I want to know how much is required for a comfortable retirement life for my wife and myself and how to invest the retirement corpus.
Gibin John, a Certified Financial Planner replies:
You are planning to create a corpus for post-retirement living expenses. Your current age is 45, and you have only 10 more years until retirement. You want to know how much corpus you will require to meet your expenses during retirement and how long that corpus will last based on your given monthly expenses. You have not mentioned the other goals, so I assume that you have nearly completed all your other financial goals.
Your current living expense is Rs.60,000 per month. Considering the inflation rate of 6%, the cost of living at the time of retirement will be approximately Rs. 1,07,450 per month. To cover inflation-adjusted living expenses until the age of 80, you will need a corpus of Rs. 2.90 crore on the day you retire. Here, we assume an average return of 6% during the post-retirement period.
At the time of retirement, you will receive a retirement benefit amount of Rs. 30 lakh. Additionally, you own equity shares worth Rs.10 lakh. If this investment generates an average return of 12%, its value will grow to Rs. 31 lakh by retirement. Therefore, you can expect a total amount of Rs. 61 lakh from existing investments at the age of 55.
For the remaining Rs. 2.29 crore, you need to build a corpus through fresh investments. Since you have only 10 years until retirement, it is advisable to invest in a combination of equity and debt-oriented mutual funds or fixed-return investments in a 70:30 ratio, respectively. Assuming an average return of 10.2% on your investments, you would need to invest Rs.1,12,500 per month to accumulate Rs.2.29 crore. However, the maximum amount you can save from your income is Rs.1 lakh per month. If you invest the entire Rs.1 lakh monthly, you can create a corpus of approximately Rs. 2.03 crore in 10 years.
Thus, the total corpus you could accumulate, including existing investments, is around Rs.2.64 crore. With this corpus, you will be able to withdraw Rs.55,000 per month in today’s terms, with a 6% annual increase in the withdrawal amount until the age of 80.
You have a fixed deposit of Rs. 8 lakh, out of which Rs. 3 lakh should be set aside for contingency requirements. Since you have not mentioned any other financial goals or obligations, the remaining Rs. 5 lakh can be kept as a buffer. If these funds remain unused, you may add them, along with any accumulated growth, to your retirement corpus.
Most people prioritize family-oriented goals and spend their savings on immediate needs, leaving little time and resources for retirement planning. However, if one starts planning for retirement early in their career, they can build a sufficient corpus with minimal monthly investments.
The power of compounding works best when investing over a long period, allowing even small contributions to grow into a substantial amount. Early retirement planning ensures financial security and reduces the burden of saving large sums later in life. Instead of playing catch-up in their 40s or 50s, a disciplined and early approach helps individuals retire comfortably without financial stress.
