HI
I am 47 years old with Monthly expenses of Rs 40000 , i would like to know how much retirement corpus would i require at age of 60 so that it lasts till age 85 also the opening Retirement corpus at 60 and closing Corpus at 85 should almost be same , as i would like to transfer it yo me daughter, i would like to know should i factor 8% food inflation as that will be major expense factor also factor 6% intrest on investment.
Whats is the inflation rate should i assume , in which mutual fund should i invest for Rs 50000 monthly investment.
How much money should i park for medical expenses or emergency
Ans: You have started this planning at a good age. With 13 years left, you have useful time to build the corpus.
» Your retirement target
– You are currently 47 years old.
– Your present monthly expense is Rs.40,000.
– You plan to retire at age 60.
– You want the corpus to support you until age 85.
– You also want the corpus to remain almost intact.
– This is a higher target than normal retirement planning.
– Your aim is also to pass the corpus to your daughter.
» Inflation assumption
– I would not use 8% food inflation for the entire retirement budget.
– Food is only one part of your total expenses.
– Medical, housing, travel and other costs behave differently.
– For long-term planning, 6% overall inflation is a reasonable assumption.
– However, medical inflation can be higher than general inflation.
– So, keep a separate medical reserve.
» Your expense at age 60
– Your present Rs.40,000 monthly expense will rise substantially by age 60.
– At 6% inflation, it can become roughly Rs.85,000 monthly.
– This should be your starting retirement expense.
– You should review this estimate again around age 58.
» Retirement corpus required
– You have given an important condition.
– You want the corpus at 85 to remain almost equal.
– Therefore, a normal retirement corpus calculation is not enough.
– Assuming only 6% investment return creates a difficult situation.
– Your withdrawal also rises with inflation.
– If return and inflation are both around 6%, preservation becomes difficult.
– Under those assumptions, I would target around Rs.3.15 crore at age 60.
– This is an approximate planning figure.
– It is not a guaranteed required amount.
– A higher return assumption can reduce the required starting corpus.
– But I would not depend on high returns for retirement planning.
» Why Rs.3.15 crore is a safer target
– Your first retirement-year expense could be around Rs.85,000 monthly.
– Expenses would then rise every year.
– You also want money remaining at age 85.
– Therefore, the corpus must support withdrawals and continue growing.
– Rs.3.15 crore gives you a better starting target.
– Still, market returns will not come evenly every year.
– Hence, actual results can differ materially.
» Your Rs.50,000 monthly investment
– Rs.50,000 monthly is a good starting contribution.
– However, it may not be enough by itself for Rs.3.15 crore.
– You have 13 years before retirement.
– Therefore, annual increases in your investment are very important.
– Try increasing the monthly investment whenever your income rises.
– Even a gradual increase can make a major difference.
– Existing savings, PF, gratuity and other retirement benefits can also help.
» Mutual fund strategy
– Do not put the entire Rs.50,000 into one mutual fund.
– At your age, you still have a long investment period.
– A diversified actively managed equity portfolio can be considered.
– You can use large-cap oriented funds for the core portion.
– A flexi-cap oriented fund can provide wider diversification.
– A limited mid-cap allocation can add growth potential.
– Avoid excessive small-cap exposure for retirement money.
– Your portfolio should gradually become safer after age 55.
» Suggested structure for Rs.50,000 monthly
– Rs.20,000 in a diversified flexi-cap oriented fund.
– Rs.15,000 in a large-cap oriented actively managed fund.
– Rs.10,000 in a mid-cap oriented fund.
– Rs.5,000 in a balanced or equity-oriented hybrid fund.
– This is only a starting structure.
– Your existing investments should be checked before finalising this allocation.
» Why actively managed funds can help
– Active fund managers can change portfolios based on market conditions.
– They can reduce exposure to weaker companies.
– They can also identify changing business opportunities.
– This flexibility can be useful over a 13-year period.
– However, fund selection and monitoring remain important.
– Past performance alone should never decide fund selection.
» Emergency fund
– Keep at least 9 to 12 months of household expenses separately.
– For you, I would initially target around Rs.5 lakh.
– Keep this money in highly liquid and low-risk avenues.
– Do not count your equity mutual funds as emergency money.
– This reserve should not be used for routine investing.
» Medical reserve
– Medical expenses need separate planning.
– Do not depend only on your normal retirement corpus.
– Build a dedicated medical reserve before retirement.
– I would initially target Rs.10-15 lakh as a separate reserve.
– This should be reviewed closer to age 60.
– Your health insurance coverage should also be reviewed regularly.
– Medical inflation can be much higher than normal inflation.
» Protecting the corpus after age 60
– This is perhaps the most important part of your plan.
– Do not keep the entire retirement corpus in equity.
– Keep several years of expenses in safer investments.
– Keep the remaining portion invested for long-term growth.
– This can reduce the need to sell equity during market falls.
– Rebalance the portfolio periodically.
» Your daughter and inheritance goal
– Your objective is very clear.
– You want to enjoy retirement and still leave money behind.
– This requires controlled withdrawals.
– Avoid treating the entire corpus as spending money.
– Maintain a separate inheritance mindset.
– Estate planning should also be completed before retirement.
– Nominees should be updated across investments and accounts.
– A proper Will can make the transfer much easier.
» One important improvement
– Do not wait until age 60 to reach the target.
– Start building the retirement corpus aggressively now.
– Increase your Rs.50,000 SIP every year.
– Any bonus or additional income can partly go towards retirement.
– At around age 55, reassess the entire retirement plan.
– At age 58, prepare the final retirement-income strategy.
» Final Insights
– Your Rs.3.15 crore target at age 60 is a useful planning benchmark.
– This assumes around 6% return and 6% inflation.
– It also considers your wish to retain the corpus at 85.
– I would not use 8% food inflation for all expenses.
– Use 6% general inflation for initial planning.
– Keep medical expenses separately because they can rise faster.
– Rs.50,000 monthly investing is a good beginning.
– Increasing this SIP every year is more important.
– Your investment strategy should become safer near retirement.
– The goal is not just Rs.3.15 crore.
– The real goal is sustainable income plus a meaningful inheritance.
Best Regards,
K. Ramalingam, MBA, CFP,
AMFI-Registered MFD – ARN 4188
www.holisticinvestment.in
https://www.linkedin.com/in/ramalingamcfp/
Question by Akriti on Oct 09, 2024Hindi
