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Retirement Planning: How Much Should I Invest at 38 with a 38 Lakh Home Loan?

Ramalingam Kalirajan |7911 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 12, 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

Question by Khushal on Aug 06, 2024Hindi

Hello Respected Sir, I am 38 years old. I am working in private IT sector. I am taking 90000rs in hand salary. My home loan is pending 38lakh. I have 4 SIP 1- parag parikh flexi cap fund 2- UTI 50 nifty index fund 3 - Mirae Asset large & midcap fund 4 - Axis small cap fund Total rs. 12500 I am investing in all 4 SIP. 24k yearly investing in sukanya samrudhi yojana. I have 10lakh balance like shares and funds total balance. I have 20000 monthly all expenses. I just want to know how come I need to invest more for retirement

Ans: Your current investments show a strong commitment to securing your financial future. Balancing SIPs, Sukanya Samruddhi Yojana, and maintaining a portfolio of shares and funds is commendable. Let’s now focus on how to optimise your retirement planning further.

Evaluating Your Current Investments
SIP Investments:
You are investing Rs. 12,500 per month across four SIPs. This is a smart move, as mutual funds offer growth potential. However, your portfolio includes an index fund. While index funds provide low-cost exposure to the market, they may not offer the same growth potential as actively managed funds. Actively managed funds allow professional fund managers to select stocks that can outperform the market.

Sukanya Samruddhi Yojana:
Your Rs. 24,000 yearly investment in Sukanya Samruddhi Yojana is a great way to secure your daughter’s future. This scheme offers good returns and tax benefits. Keep contributing as it aligns well with your long-term goals.

Existing Portfolio:
You have a balance of Rs. 10 lakhs in shares and funds. This indicates that you have a solid foundation in equities. Equities offer the potential for high returns over the long term. It’s essential to keep reviewing and balancing this portfolio to ensure it aligns with your risk appetite and financial goals.

Analyzing Your Monthly Expenses
Current Expense Management:
With Rs. 20,000 in monthly expenses and a Rs. 90,000 take-home salary, you are managing your finances effectively. This leaves you with Rs. 70,000 each month, after covering your essential expenses. This surplus provides you with a strong opportunity to invest more for your retirement.
Optimizing for Retirement
Focus on Retirement Corpus:
Considering your age (38 years), you have around 20-25 years until retirement. The earlier you start planning for retirement, the larger your corpus will be. Your current SIPs and investments are good, but increasing your investment amount can significantly boost your retirement corpus.

Increase SIP Contributions:
With a Rs. 70,000 monthly surplus, you can consider increasing your SIP contributions. An additional Rs. 10,000 to Rs. 15,000 per month in SIPs can accelerate your wealth creation. This will help you build a more substantial corpus, ensuring a comfortable retirement.

Prioritizing Debt Repayment:
You have an outstanding home loan of Rs. 38 lakhs. While SIPs are important, reducing your home loan liability is also crucial. You may allocate a portion of your surplus to prepay your home loan. This will reduce your interest burden and free up more funds for future investments.

Avoid Index Funds:
As mentioned earlier, actively managed funds typically outperform index funds in the long run. Consider switching your investment in the index fund to an actively managed mutual fund. This change could enhance your portfolio’s growth potential.

Diversify Further:
Diversification is key to managing risk. While you have a good mix of funds, consider adding balanced or hybrid funds to your portfolio. These funds provide a blend of equity and debt, offering stability and growth. They are particularly beneficial as you move closer to retirement.

Retirement Planning Strategies
Set Clear Retirement Goals:
Calculate your retirement needs based on your desired lifestyle, inflation, and expected life span. This will give you a clear target for your retirement corpus. A Certified Financial Planner (CFP) can help you with this calculation.

Regular Portfolio Review:
Periodically review your investments to ensure they are performing as expected. Rebalancing your portfolio helps in maintaining the right mix of assets aligned with your goals. As you age, gradually shift from high-risk to lower-risk investments to protect your capital.

Emergency Fund Allocation:
Ensure that you maintain an emergency fund equivalent to 6-12 months of expenses. This fund should be easily accessible and not invested in high-risk assets. Having this buffer will prevent you from dipping into your retirement savings in case of unforeseen expenses.

Tax Efficiency:
Maximize tax-saving investments to reduce your tax liability. Investments in schemes like PPF, EPF, and ELSS can help you save tax while building your retirement corpus. Utilize the benefits under Section 80C and other relevant sections of the Income Tax Act.

Health Insurance:
Adequate health insurance is essential to protect your savings. Ensure you and your family are covered by a comprehensive health insurance plan. Medical emergencies can quickly deplete your savings if you’re not adequately insured.

Final Insights
Your financial discipline and current investments are setting a strong foundation for your retirement. To enhance your retirement corpus, consider increasing your SIP contributions, prioritising debt repayment, and diversifying your portfolio further. Switching from index funds to actively managed funds can also improve your returns. Setting clear retirement goals and regularly reviewing your portfolio will help you stay on track. Consulting a Certified Financial Planner (CFP) will provide you with tailored advice to ensure a secure and comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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