A business couple approached Gibin John seeking professional advice to evaluate whether their current financial position would be sufficient to support their retirement plans. Having achieved their major life goals, they aim to retire within the next few years and maintain a comfortable lifestyle supported by their existing assets and income streams.
I am 49 years old, and my wife is 47. We have two daughters, both of whom are married. We run a business and earn an average net monthly income of Rs. 2,50,000. Our monthly expenses are around Rs. 75,000.
Our investments include: Fixed deposits worth Rs. 40 lakh, savings account with a balance of Rs. 12 lakh, and a residential house valued at approximately Rs. 2 crore. We also own two apartments valued at Rs. 55 lakh (currently rented out, generating Rs. 17,500 per month). Additionally, we own a plot valued at Rs. 30 lakh.
We have already achieved our major life goals and are planning to retire within the next five years. Now, we would like to know whether our existing savings and investments are sufficient to cover our post-retirement expenses. Our expected cost of living is Rs. 75,000 per month. Please review our current financial position and advise us on a suitable retirement plan.
Our Certified Financial Planner, Gibin John, replies:
After completing all your major life goals, you have rightly turned your focus toward retirement planning at the age of 49. Retirement is just as important as any other financial milestone, because after retirement, it becomes difficult to continue working and earning income to maintain the same standard of living as during your working years.
During your working years, you may be able to achieve goals with the help of loans or other financial support. However, such options may not be available during retirement, as it becomes challenging due to the lack of active income and repayment capacity. Therefore, planning for retirement is essential to ensure financial independence and security.
In your case, you have successfully built a strong asset base over the years and have achieved all your important life goals. Now, you want to know whether the remaining resources are sufficient to support your post-retirement life.
You are currently estimating a monthly expense of Rs. 75,000 post-retirement. With a 6% inflation rate, this expense will increase to Rs. 1,00,000 per month over the next 5 years. To sustain this inflation-adjusted expense, you need to create a retirement corpus of Rs. 2.80 crore. After considering the rental income of Rs. 17,500 during the retirement period, the required corpus reduces to Rs. 2.52 crore.
Currently, you have a liquid balance of Rs. 40 lakh in fixed deposits and Rs. 12 lakh in your savings account. You should set aside a minimum of Rs. 6 lakh as an emergency fund, leaving you with a balance of Rs. 46 lakh. This amount alone is not sufficient to meet your post-retirement expenses.
To bridge this shortfall, you either need to sell the property or invest the current surplus amount wisely. We recommend investing a surplus of Rs. 1.5 lakh every month in debt mutual funds or a bank recurring deposit (RD). Assuming a return of 6%, you can build a corpus of around Rs. 1.05 crore.
We also assume that your existing investment of Rs. 46 lakh will generate the same return, growing to approximately Rs. 53 lakh by the age of 54. This would result in a total retirement corpus of around Rs. 1.58 crore.
This amount should be sufficient to cover expenses equivalent to a current monthly living cost of Rs. 50,000. If you include the value of the property in your retirement corpus, it can support expenses equivalent to Rs. 60,000 per month. If possible, extend your retirement by two to three years; this will help you accumulate a higher amount for retirement.
Lastly, it is highly recommended that you take a family floater health insurance with a coverage of at least Rs. 15 lakh. This will help protect your wealth from being significantly affected by any unexpected medical expenses.
