Retirement Planning: Am I on Track for a 20 Crore Corpus at 60?

Ans: Current Financial Snapshot

Age: 42 years
Monthly Income: Rs 1.7 lakh (in hand)
Monthly EMI: Rs 17,000 (net expense Rs 7,000 after rent)
Mutual Fund Investment: Rs 80,000 per month
NPS: Rs 50,000 annually
PPF: Rs 1.5 lakh annually
Term Insurance: Rs 2 crore
Fixed Deposits: Rs 70 lakh
Monthly Expenses: Rs 35,000
Wife's Income: Covers monthly expenses and 80C investments
Own House: Living in
Financial Goals

Retirement Corpus: Secure enough funds for retirement.
Investment Strategy: Optimize current investments for growth.
Step-by-Step Plan

1. Emergency Fund

Maintain at least 6 months of expenses in an easily accessible account.
Target: Rs 2.1 lakh (6 x Rs 35,000)
Ensure liquidity for unexpected needs.
2. Calculate Retirement Corpus

Expenses Estimation: Current monthly expenses of Rs 35,000.
Inflation Adjustment: Assuming 6% inflation rate for future expenses.
Retirement Period: Assume 25 years post-retirement.
Use an online retirement corpus calculator to get a precise figure. However, a rough estimate for a moderate lifestyle might be around Rs 3-4 crore.

3. Investment Strategy

Mutual Funds

Continue investing Rs 80,000 per month in mutual funds.
Diversify across large-cap, mid-cap, and multi-cap funds.
Review and rebalance your portfolio annually.
Public Provident Fund (PPF)

Continue the annual investment of Rs 1.5 lakh in PPF.
This ensures safe, tax-free returns.
National Pension System (NPS)

Contribute Rs 50,000 annually to NPS.
Choose an aggressive mix of equity and debt for higher returns.
Fixed Deposits

Consider moving some FDs to mutual funds for higher growth.
Keep some FDs for short-term goals and liquidity.
4. Avoid Real Estate Investments

Real estate can be illiquid and may not provide consistent returns.
Focus on increasing investments in mutual funds for better growth and liquidity.
5. Insurance

Ensure you have adequate health insurance coverage for the family.
Review your term insurance periodically to cover any gaps.
6. Retirement Planning Steps

Increase SIPs: Gradually increase your SIPs in mutual funds as your income grows.
Diversification: Maintain a diversified portfolio to spread risk.
Review Regularly: Check your investment portfolio annually and make necessary adjustments.
Tax Planning: Optimize investments to maximize tax benefits under sections like 80C, 80D, and 80CCD.
Example Monthly Allocation:

Mutual Funds: Rs 80,000
PPF: Rs 12,500 (monthly equivalent of Rs 1.5 lakh annually)
NPS: Rs 4,167 (monthly equivalent of Rs 50,000 annually)
Emergency Fund: Rs 5,000 (if not fully funded yet)
Final Insights

Building a robust retirement corpus requires disciplined investing and smart financial planning. Focus on maximizing your mutual fund investments, utilizing tax-saving options, and maintaining adequate insurance coverage. Regularly review your financial plan to stay on track and adjust as needed.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hello;

Your current monthly income need of 2.4 L will grow up to 12.27 L after 28 years (At your retirement age of 60) considering 6% inflation.

Assuming your expenses at retirement will reduce so you may need 75% of this income to cover your expenses at that time therefore you may need a monthly income of 9.2 L.

To generate this income you may need a corpus of 27 Cr(Min.) at the age 60 that may generate post-tax monthly income of around 9.2 L.

Your investments will grow as follows,

1. PPF: 1.5 L per person per year for 35 years will grow into a corpus of around 4.32 Cr. (6.9% return assumed)

2. LIC: policy maturity proceeds will provide 2 Cr at age 60.

3. NPS: 1 L per person per year may grow into a sum of 2.5 Cr at 60.(8% return considered)

4. MF sip of 10 K may grow into a sum of 2.05 Cr at 60. (10% return considered)

5. FD of 36 L will grow into a sum of 2.1 Cr if held till 60. (6.5% return assumed)

6. Gold in form of bonds if reinvested into gold mutual funds and held till 60 may yield a corpus of around 1.1 Cr. (7% return assumed)

7. Inherited funds if held in FD till the age of 60 may yield a corpus of 9.9 Cr.
(6.5% return considered)

8. EPF is expected to grow into a sum of around 1.8 Cr at the age of 60.(7% return considered)

A summation of investment values at 60 indicates a sum of around 25.77 Cr thereby hinting at a gap of around 1.23 Cr.

You may begin another monthly sip of 7 K now which may grow into a sum of around 1.3 Cr by 60 age.(10% return assumed)

If the mediclaim policy is from employer, do buy a personal health care cover after 50-55 for your family for post retirement needs.

I presume you both have adequate term life insurance cover apart from LIC policy.

The financial goal for your kid's education and family expansion, if any, is not factored here. You may need to plan for it suitably.

Also it appears that your allocation to equity is quite low, may be due to limited risk appetite but you have time on your side and although short to medium term(5-7 yr) equity asset class may be impacted due to volatility but over a long-term(10 yr+) they have demonstrated good inflation adjusted returns so may be you may consider to increase allocation through hybrid funds suiting your risk appetite.

Happy Investing;
X: @mars_invest

Ans: Planning for Rs 20 crore retirement corpus is ambitious yet realistic for your profile.

It’s essential to evaluate your goals, current assets, and future savings growth.

Below is a detailed breakdown to assess your situation and strategy:

Estimating Future Requirements
At 32, you have 28 years to retire.

Current expenses are Rs 40,000 monthly, translating to Rs 4.8 lakh annually.

Considering inflation at 6%, annual expenses will multiply significantly by 60 years.

By retirement, your monthly expense may be Rs 3 lakh (adjusted for inflation).

To sustain expenses for 30 years post-retirement, Rs 20 crore is a reasonable goal.

Existing Investments and Their Growth Potential
1. PPF Contributions
Current contribution: Rs 1.5 lakh each per year.

With consistent contributions till 60, expect substantial compounded growth.

PPF is secure but offers moderate returns, around 7%-8%.

2. LIC Plan
LIC will provide Rs 2 crore at age 60.

Consider this a fixed component of your retirement corpus.

3. NPS Contributions
Current combined contribution: Rs 1 lakh annually.

NPS can generate higher returns (8%-10%) with exposure to equity and debt.

This will supplement your retirement corpus significantly.

4. Mutual Fund SIPs
SIPs of Rs 10,000 per month for 28 years can grow substantially.

Equity mutual funds are ideal for long-term growth.

Ensure the funds are actively managed for higher returns.

5. Fixed Deposits
Rs 36 lakh and Rs 1.6 crore in inherited FDs offer stability.

FD returns are lower and taxable.

Consider allocating some FD amounts into equity funds for better growth.

6. Gold Bonds
Rs 15 lakh in gold is a valuable inflation hedge.

Hold it as part of your diversified portfolio.

7. APY Pension
APY will provide Rs 5,000 monthly from age 60.

This is supplementary income for basic needs.

8. Provident Fund (PF) and Gratuity
Current PF corpus is Rs 8 lakh.

PF and gratuity will grow significantly by 60.

Consider this part of your core retirement corpus.

Investment Adjustments for Better Growth
1. Increase SIP Contributions
Increase your mutual fund SIPs from Rs 10,000 to Rs 50,000 gradually.

Equity funds provide better inflation-beating returns than other options.

2. Diversify Across Mutual Fund Categories
Invest in large-cap, mid-cap, and flexi-cap funds for a balanced portfolio.

Avoid relying heavily on debt-oriented funds due to inflation risks.

3. Review FD Allocation
Reallocate a portion of inherited and personal FDs to higher-growth assets.

Keep only the amount needed for short-term emergencies in FDs.

4. Monitor NPS Allocation
Choose a higher equity exposure (up to 75%) within NPS for growth.

Shift to safer funds five years before retirement.

5. Set Up Emergency Fund
Retain at least 6-12 months of expenses in liquid assets.

This protects against unforeseen expenses without disrupting long-term investments.

Strategies for Your Child’s Future
Start a separate SIP for your 1-year-old child’s education and future needs.

A Rs 10,000 monthly SIP in equity funds can build a strong education corpus.

Consider child-specific plans for goal-oriented investments.

Tax Efficiency in Investments
1. Tax on FDs
FD interest is taxable as per your income tax slab.

This reduces net returns.

2. NPS Tax Benefits
NPS contributions provide tax deductions under Section 80CCD.

Withdrawals have partial tax-free benefits.

3. Mutual Funds Taxation
Equity mutual funds attract LTCG above Rs 1.25 lakh at 12.5%.

Short-term gains are taxed at 20%.

Maintain a balance to minimise tax liabilities.

Health and Life Insurance
Rs 40 lakh mediclaim is good coverage for now.

Consider increasing it to Rs 1 crore for rising medical costs.

Review your LIC coverage to ensure it complements your investments.

Final Insights
Your current plan is on track for a Rs 20 crore retirement corpus.

Optimise by increasing SIPs, reducing FDs, and reviewing asset allocation.

Focus on equity-driven investments for long-term growth.

Regularly monitor and adjust your portfolio to stay aligned with your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Hello;

Hope you have adequate term life insurance for yourself.

You may start a monthly sip of 90 K in a combination of pure equity mutual funds.

After 10 years your sip and lumpsum investment will grow into sums of 2.09 and 1.24 Cr respectively.

This adds upto 3.33 Cr. If you add your ppf and EPF corpus then this should add upto a sum of around 4 Cr.

If you invest this corpus in a conservative hybrid debt fund and do a SWP at the rate of 3.5%, you may expect a post tax monthly income of
1 L+.

As you get married your expenses will rise as also the need to plan for various other goals.

Therefore the decision to retire from regular 9-6 job should be backed up with alternate business plan or such other plan to monetize your hobbies that may yield income over atleast next 10-15 years.

Best wishes;