Retirement planning is something that is best started early. To zero in on an adequate corpus, consider multiple factors such as inflation, life expectancy, and burgeoning medical expenses. However, many people find it difficult to begin their retirement planning at the start of their career.
Let’s understand how retirement planning can be done at various stages of life. For a better understanding and calculation purposes, three age groups – 30 years, 40 years and 50 years – with a life expectancy of 80 years have been considered.
1. Retirement Planning for a 30-year-old
Let’s assume your current monthly expenses are Rs 30,000. Taking an average expected inflation of 5% per annum, your monthly expenditure will increase to Rs 1.33 lakh in the first month of your retirement phase. As a result, you will need close to Rs 16 lakh to meet your annual expenses in the first year of your retirement. If you add 5% inflation every year until you turn 80, the overall corpus you require would be a whopping Rs 5.3 crore.
Tips for retirement
Given your age, it’s a no-brainer that your exposure to growth-oriented instruments like equity should be higher for your retirement planning. The best option for you is to invest in an equity mutual fund via an SIP, preferably in a diversified equity scheme.
A monthly investment of Rs 2000, with a 10% top-up every year until you retire at 60 years, will be sufficient to take care of your entire retirement period. During these 30 years, you will invest about Rs 40 lakh, while the value of that would be Rs 2.53 crore, with an assumed rate of return of 15%.
Once you retire, stop the SIP and replace it with a Systematic Withdrawal Plan (SWP) in the scheme for 20 years with a withdrawal of Rs 1.33 lakh per month and a yearly top-up of 10%. The sum of Rs 2.53 crore, thus made, would be sufficient to get you the required monthly liquidity with an expected rate of return of 15%. Even when you turn 80, there will still be a balance of over Rs 8 crore.
2. Retirement Planning when you turn 40
The 40s are a very crucial year in a person’s life. However, many people don’t realise the importance of retirement planning till they hit the age of 40 years. Rising familial responsibilities and the beginning of medical issues are two of the many events which force individuals to think about their post-retirement expenses. With an assumption that your current monthly expenses are Rs 40,000, taking inflation into account, you will require nearly Rs 1.1 lakh in the first month of your retirement. Assuming a 5% increase in yearly expenses, you will roughly need Rs 4.3 crore to cover expenses till you turn 80 years of age.
Strategy to Adopt
Since you have fewer years and your risk appetite is moderate, you may have to invest more to have adequate wealth generation. Investment in a Balanced Advantage Fund through an SIP is probably the best option to plan retirement for a 40-year-old. A monthly investment of Rs 12,000 and a 10% top-up will fetch you the desired results with an expected rate of return of 12%. Upon retirement, your total investment of Rs 82.5 lakh would turn into a corpus of Rs 2.24 crore. You may stop your SIP and shift to SWP with a monthly withdrawal request of Rs 1.1 lakh with a 10% annual increase. The accumulated corpus would be able to fulfil your requirement till you turn 80.
3. Retirement Planning for a 50-year-old
Retirement planning, when you are a mere ten years away from retirement, may seem daunting, but it is possible. Given the poor risk-taking ability at this stage and preference for debt assets, only push up the amount you need to invest to reach the desired corpus. Assuming that your monthly expenses are about Rs.50,000, you would need a total of Rs 82,000 in the very first month of retirement. Considering a 5% inflation per annum, the overall requirement for 20 years post-retirement would be Rs 3.2 crore.
What Can You Do?
Balanced Advantage Funds could be a suitable solution for a 50-year-old, given their dynamic nature and ability to switch allocation between debt and equity.
But with a limited number of years available for investments, you may be required to invest nearly Rs 50,000 every month. With an expected return of 12%, your total corpus may be close to Rs 1.64 crore. You could put this amount in a bank fixed deposit which fetches you a 7% return with a monthly interest of nearly Rs 1 lakh. You could also consider an SWP in the existing fund with a 10% top up. The former option of withdrawal may fall short of your requirement after two years. However, the latter will take care of your incremental needs till you turn 80 and still get you a balance of Rs 52 lakh.
Adhil Shetty, CEO, BankBazaar.com, says, “Depending on your expenses, risk appetite, tenure, and age, you can consider investing in other products like PPF, NPS, or Senior Citizen Savings Schemes. However, in that regard, it is important to note that traditional investment avenues may not always be effective in helping you meet your retirement needs.”
Hope these tips will help you plan your retirement early and accumulate an adequate retirement corpus for a comfortable retired life.