Need Expert Advice?Our Gurus Can Help

Melvick, 44, wants to retire in 16 years - How much savings is needed?

Ramalingam Kalirajan |7204 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 27, 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 Melvick on Jul 22, 2024Hindi

Hi I am Melvick current Age 44 and have savings of 1.5 Cr, my current monthly expense is Rs 50000, How much retirement amount will i require at Age of 60 to sustain good financial retired life till say max 90, i assume i will require Rs 2lac per month as expense from age of 60 which will increase as per inflation.

Ans: Melvick, planning for a comfortable retirement requires careful consideration. You want to retire at 60 and expect to live until 90. Here's a breakdown of how you can achieve your goal of Rs. 2 lakhs per month in retirement, adjusted for inflation.

Inflation and Future Expenses
Inflation significantly impacts long-term financial planning. Assuming an inflation rate of 6% per annum, let's estimate your future expenses:

Current Monthly Expense: Rs. 50,000
Monthly Expense at Retirement (Age 60): Rs. 2,00,000
Future Value of Monthly Expenses
To calculate how much Rs. 2 lakhs per month at age 60 will be worth, we need to consider inflation:

Inflation Rate: 6%
Number of Years Until Retirement: 16 years
Required Retirement Corpus
To sustain Rs. 2 lakhs per month from age 60 to 90, we need to consider the future value of money, inflation, and returns on investments.

Estimating Total Corpus
Monthly Expense at Retirement: Rs. 2,00,000
Annual Expense at Retirement: Rs. 24,00,000
Assuming a post-retirement return rate of 8% and adjusting for 6% inflation, the required corpus can be substantial. Here's an estimation:

Corpus Required at Age 60: This calculation involves complex financial modeling. Generally, financial planners use the rule of thumb that you need approximately 25-30 times your annual expenses as a retirement corpus.
So, you would need approximately:

Rs. 24,00,000 x 30 = Rs. 7.2 Crores at age 60
Current Savings and Investments
Current Savings: Rs. 1.5 Crores
Current Monthly Expense: Rs. 50,000
Investment Strategy
To achieve your goal, you need a well-diversified investment portfolio. Here's a suggested approach:

Equity Investments
Equity Mutual Funds: Invest in a mix of large-cap, mid-cap, and small-cap funds to balance risk and growth. Consider actively managed funds for better returns compared to index funds.
Debt Investments
Debt Mutual Funds: Include a mix of short-term and long-term debt funds for stability.
Public Provident Fund (PPF): Continue investing in PPF for tax benefits and stable returns.
SIP Strategy
Systematic Investment Plan (SIP): Increase your SIPs gradually to leverage the power of compounding. Aim to invest a significant portion of your income in SIPs.
Other Investments
National Pension System (NPS): Consider investing in NPS for additional retirement benefits and tax savings.
Gold Bonds: Allocate a small portion to Sovereign Gold Bonds for diversification.
Adjustments and Additional Strategies
Regular Review: Regularly review and adjust your portfolio to stay on track with your goals.
Increase Investments: As your income increases, increase your investment amount proportionally.
Emergency Fund: Maintain an emergency fund to cover at least 6-12 months of expenses.
Final Insights
Planning for retirement is a dynamic process. Regularly reassess your goals and investment strategies. Ensure your investments are diversified and aligned with your risk tolerance.

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.