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How can a 38-year-old couple earning 175k/month achieve a 10Cr retirement corpus in 10 years?

Ramalingam Kalirajan |6292 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 20, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Aug 17, 2024Hindi

I 39 yr and my wife 32 both make about 175k in a month. We have no obligation and our monthly expense is 35-40k. We have savings of 80lac in FD, Gold ornament of 25 lac. No equity exposure. We want to retire in 10 years with a corpus of 10Cr. Kindly help us in our planning

Ans: You and your wife have a combined monthly income of Rs 1.75 lakhs. Your expenses are between Rs 35,000 to Rs 40,000. This leaves you with a significant surplus of Rs 1.35 lakhs to Rs 1.40 lakhs per month. You also have a solid savings base, with Rs 80 lakhs in FDs and Rs 25 lakhs in gold ornaments. Your goal is to retire in 10 years with a corpus of Rs 10 crores.

Let's explore a step-by-step plan to help you achieve this goal.

Savings Allocation

Your current savings are mainly in FDs and gold. FDs are safe, but they may not give you the growth needed to reach your Rs 10 crore target. Gold is a good hedge against inflation but may not be sufficient for wealth creation. You need to diversify your portfolio by introducing equity exposure.

Equity Exposure

Equity investments are crucial for long-term growth. They typically offer higher returns compared to FDs or gold over a long period. However, they come with higher risk. But, since your investment horizon is 10 years, equity can help you achieve significant growth. Begin with an allocation of around 50-60% of your monthly savings to equity mutual funds.

Actively Managed Mutual Funds

It’s important to invest in actively managed funds instead of index funds. Actively managed funds, overseen by experienced fund managers, aim to outperform the market. This can potentially lead to better returns compared to index funds, which merely mimic the market’s performance. Consider starting with large-cap and multi-cap funds for stability and growth.

Systematic Investment Plan (SIP)

To manage market volatility and discipline your investments, SIP is the way to go. Start SIPs in equity mutual funds with a significant portion of your monthly savings. This will allow you to invest regularly, spread your risk, and benefit from rupee cost averaging.

Debt Investments

While equity exposure is important, you should also balance it with debt investments. Debt funds or high-yield bonds can offer stability and lower risk. This will safeguard a part of your corpus against market fluctuations. Allocate around 20-30% of your savings to debt funds.

Rebalancing Your Portfolio

Over time, your portfolio will need adjustments. As you approach retirement, gradually reduce your equity exposure and increase your debt allocation. This will protect your accumulated wealth from market downturns as you near your goal. Rebalance your portfolio annually or as needed.

Emergency Fund

Even with your high income and savings, having an emergency fund is crucial. This should cover at least 6 months of your living expenses. Keep this fund in a liquid instrument like a savings account or a liquid fund. This ensures easy access in case of unforeseen circumstances.

Insurance Planning

Review your insurance needs to ensure your family is financially secure. Health insurance is vital to cover medical emergencies. Since you have no existing equity exposure, you may not have a term life insurance policy. A term plan is essential as it offers high coverage at a low premium, ensuring financial security for your family in case of an unfortunate event. Avoid investment-cum-insurance policies like ULIPs, as they generally provide lower returns compared to mutual funds.

Tax Planning

Effective tax planning can increase your investable surplus. Use tax-saving instruments like ELSS funds, which not only save taxes but also offer equity exposure. This way, you can save tax under Section 80C and simultaneously grow your wealth.

Retirement Corpus Estimation

To achieve Rs 10 crores in 10 years, you need a strategic plan. Given your current savings and monthly surplus, you can systematically invest in a mix of equity and debt to reach your target. Equity mutual funds, with their potential for higher returns, will play a key role in this. However, regular monitoring and rebalancing of your portfolio will be essential.

Avoiding Common Pitfalls

Avoid concentrating your investments in one asset class. Relying solely on FDs or gold may not yield the growth needed for your retirement corpus. Also, steer clear of financial products that promise guaranteed returns but offer low growth, as they may not align with your goal of Rs 10 crores.

Wealth Protection

As your wealth grows, protecting it becomes essential. Regularly review your insurance coverage to ensure it’s adequate. Consider adding critical illness cover or personal accident cover to your health insurance. This will provide financial protection in case of serious illness or disability.

Estate Planning

While building wealth is important, planning for its distribution is equally crucial. Ensure that you have a valid will in place. This will help in the smooth transfer of your assets to your heirs without legal complications. Also, consider setting up a trust if you have significant assets, as it can provide better control over the distribution of your wealth.

Financial Goals and Milestones

Break down your retirement goal into smaller, more manageable milestones. For instance, aim to reach Rs 5 crores in 5 years. Regularly review your progress and adjust your plan as needed. This will keep you on track and motivated towards achieving your final goal.

Regular Financial Reviews

It’s important to regularly review your financial plan. Track your investment performance, review your savings rate, and make adjustments based on market conditions and your financial situation. Consulting a Certified Financial Planner at regular intervals can provide valuable insights and help you stay on course.

Final Insights

You have a strong financial foundation, with a substantial savings base and a high income. By strategically diversifying your investments, focusing on equity for growth, and maintaining a disciplined savings approach, you can achieve your goal of retiring with a Rs 10 crore corpus. Remember, consistent investment, regular monitoring, and periodic rebalancing of your portfolio are key to reaching your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.