Sir. I am 45 currently with gross income of Rs 2.5 lakhs and take home.salary of rs 1.70 lakhs. I want to retire at 60 with monthly income of rs 2.5 lakhs. Kindly advice how much and where to invest to achieve my goals
Ans: Evaluating Your Retirement Goal
Your goal to retire at 60 with a monthly income of Rs 2.5 lakhs is ambitious and achievable with proper planning. Let's break down the steps to achieve this goal.
Current Financial Position
Gross Income: Rs 2.5 lakhs per month.
Take Home Salary: Rs 1.70 lakhs per month.
You have 15 years until retirement. Time is your biggest asset in building a substantial retirement corpus.
Estimating Retirement Corpus
Desired Monthly Income Post-Retirement: Rs 2.5 lakhs.
Annual Requirement: Rs 2.5 lakhs * 12 = Rs 30 lakhs.
Inflation Adjustment: Assuming an average inflation rate of 6%, the future value of Rs 30 lakhs in 15 years would be approximately Rs 72 lakhs annually.
Retirement Corpus Calculation: To generate Rs 72 lakhs annually, assuming a safe withdrawal rate of 4%, you will need a corpus of approximately Rs 18 crores.
Investment Strategy
1. Determine Monthly Savings:
Based on your current income and expenses, determine how much you can save and invest each month. Ideally, aim to save and invest at least 30-40% of your take-home salary.
2. Diversified Portfolio:
Invest in a diversified portfolio of mutual funds, stocks, and fixed income instruments. This balances risk and growth.
Investment Options and Allocation
Equity Mutual Funds:
Growth Potential: High returns over the long term.
Risk: High volatility, but suitable for a 15-year horizon.
Allocation: Allocate around 60-70% of your savings here.
Debt Mutual Funds:
Stability: Lower risk and stable returns.
Purpose: Balances the portfolio and provides safety.
Allocation: Allocate around 20-30% here.
Public Provident Fund (PPF):
Safety: Government-backed and risk-free.
Tax Benefits: Offers tax-free returns.
Allocation: Consider contributing up to the maximum limit.
Systematic Investment Plan (SIP):
Regular Investment: Invest a fixed amount monthly in mutual funds.
Rupee Cost Averaging: Reduces the impact of market volatility.
Calculating Monthly Investment
Future Value Calculation:
To reach Rs 18 crores in 15 years, calculate the monthly investment required. Assuming an average annual return of 12% from your investments:
FV = Future Value (Rs 18 crores)
PV = Present Value (monthly investment)
r = monthly return (1% for 12% annual)
n = number of months (180 months for 15 years)
Using financial formulas or a retirement calculator can provide precise figures. However, a rough estimate suggests investing approximately Rs 1 lakh per month.
Steps to Implement the Plan
1. Automate Savings:
Set up automatic transfers to your investment accounts. This ensures disciplined saving and investing.
2. Regular Review:
Review and adjust your investment portfolio annually. Ensure it aligns with your goals and risk tolerance.
3. Emergency Fund:
Maintain an emergency fund covering at least 6-12 months of expenses. This ensures you don't dip into your retirement savings for emergencies.
4. Health Insurance:
Ensure adequate health insurance coverage. Medical expenses can be a significant burden in retirement.
Benefits of Investing through MFD
Professional Guidance:
Certified financial planners and MFDs provide expert advice on fund selection and investment strategies.
Regular Monitoring:
MFDs regularly monitor and review your portfolio, ensuring it remains aligned with your goals.
Tax Efficiency:
Professionals help in structuring your investments to maximize tax benefits.
Conclusion
With a disciplined investment strategy and regular review, achieving your retirement goal is feasible.
Invest in a diversified portfolio, automate savings, and consult with a certified financial planner for personalized advice.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
Asked on - Jun 17, 2024 | Answered on Jun 17, 2024
ListenThanks a lot sir for your critical inputs. It wil be v useful for future planning. However I have some liabilities in form of loans. Just wanted to understand statistically and taking into account inflation how much portion of salary should one invest monthly to take care of retirement goals.
Ans: Considering your liabilities and inflation, it's crucial to prioritize savings for retirement. Aim to invest 30-40% of your take-home salary monthly. Given your goal of Rs 2.5 lakhs per month post-retirement, consistent and disciplined investing in a diversified portfolio is essential. This includes equity mutual funds for growth and debt instruments for stability. Regularly review and adjust your investment strategy to stay aligned with your retirement goals.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in