Planning whiz


When you start your career, retirement may seem a distant thing to worry about. But, if you want to lead a comfortable and financially secure retired life- be it a relaxed time at home, or one of adventure and travel, it will need money. Hence, planning for your retirement early in life is necessary. Geojit’s Investment Analyst, Gibin John helps a 50-year-old with his retirement planning.

I am 50-year-old working in a private company. My salary is ₹ 1,20,000. My wife is not working now. We have a daughter and she got married two years back. I am planning to retire at the age of 55. I don’t have many investments. We are staying in own flat. I have bank fixed deposit of ₹ 20 lakh. At the time of retirement, I will get around ₹ 16 lakh from PF and gratuity. Our living expense is around ₹ 45,000 per month and can save balance amount. Now I want to know how much amount is required to meet my expenses after the retirement and where can I invest to create the retirement corpus.

Gibin John, a certified financial planner replies:
I am assuming that you have achieved almost all financial goals. Now you are planning to create a corpus for post-retirement expenses. Here our task is to find out how much corpus you would require for meeting the living expenses during your retirement and how long you can continue to spend your accumulated corpus with given monthly expense amount.
Your current living expense is ₹ 45,000. After considering inflation rate of 6% the cost of living at the time of retirement will be ₹ 60,220. For getting inflation adjusted living expense till you are 80 years old, you will need to have a corpus of ₹ 1.81 crore on the day you retire.

Here we assume that the average return of 6% during post retirement period. Your existing fixed deposit will become ₹ 26 lakh in five years, and you will get gratuity amount of ₹ 16 lakh at the time of retirement. Therefore you can expect a total amount of ₹ 42 lakh at the age of 55. For the balance ₹ 1.39 crores, you need to start fresh investments. There are only five years for retirement, so allocation into equity-oriented investment is not advisable. It is better to invest in debt-oriented funds or fixed return investments. Assuming the investment fetches 5.5% return, you need to invest ₹ 2,00,000 per month to create a corpus of ₹ 1.39 crore. The maximum amount you can save from your income is ₹ 75,000. If you invest the entire amount, you can create ₹ 51 lakh in 5 years. Thus, the maximum amount you could create for retirement is ₹ 93 lakhs. From this corpus, you can withdraw ₹ 31,000 per month in the initial year and there will be a 6% increase on the monthly withdrawal amount every year till your age of 80. This amount is equal to the today’s living expense of ₹23000.
If you have any other investment, gold or property which you have not mentioned in the letter, you can utilize that amount for retirement. We have not considered payment towards any insurance coverage. Health insurance also should be a part of your insurance expenditure. We hope you can assimilate enough funds for your retirement, since there is no option to take a loan to meet retirement expenses. As a final resort, you could also look at the option of reverse mortgage using the house you own. It is not a preferred mode of income by majority of Indians, still it is one of the options you might have to consider due to your unique circumstance.

This is a classic example where one has failed to plan for one’s retirement early in life. By planning early, one could have created a large corpus with minimal monthly investment. We never know how much we would require and end up accumulating very less corpus at the time of retirement. Most of us give priority only to family oriented goals and spend all the savings towards other goals, and plan for retirement only when it is closer to retirement.
Keeping in mind this true life incident, I urge youngsters to start investing the day they start earning. We all need an eye on retirement balance while spending on trivial or avoidable expenses. This will go a long way in securing your retired life.


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