As a Certified Financial Planner (CFP®), I frequently encounter questions about retirement planning. This blog post tackles a common query that can help you strategise and kickstart your own retirement planning journey.
Client Query: A married couple in their 25s wants to know about a suitable investment strategy for their retirement goal 25 years from now. Their combined monthly expenses are ₹70,000, and they can currently invest ₹25,000 per month towards retirement. Their target retirement age is 50, and they anticipate living until 80.
Risk Tolerance: The investor has a moderate risk appetite and is comfortable investing in equity mutual funds.
Recommendation :
To determine the required retirement corpus, we first need to estimate the couple's household expenses in 25 years. Considering a 6% annual inflation rate, their current ₹70,000 monthly expenses will inflate to approximately ₹3 lakhs per month in 25 years. They'll also need to plan for a 30-year retirement period (from age 50 to 80) without relying on income from a job.
Calculating the Retirement Corpus:
Real Return: We'll use a 4.8% real return, which factors in a 5% inflation rate (post retirement) and a balanced portfolio return of 10%.
Required Corpus: Based on these factors, the couple will need a corpus of approximately ₹5.84 crore by their retirement age of 50.
Investment Strategy:
To reach a corpus of ₹5.84 crore by 50, the couple needs to invest approximately ₹25,000 per month in a diversified equity mutual fund portfolio with an assumed annual return of 14%.
Maximising Returns:
Regular Reviews: Conducting annual portfolio reviews ensures the investments remain aligned with their evolving goals and risk tolerance.
Consistent Investment: Sticking to a Systematic Investment Plan (SIP) for at least the first 10 years leverages the power of compounding to maximise their returns over the long term.
Current Monthly Household Expenses | ₹ 70,000 |
Current Age | 25 |
Retirement Age | 50 |
Life Expectancy | 80 |
Inflation from age 25 to 50 | 6% |
Inflation from age 50 to 80 | 5% |
Return from investment from age 25 to 50 | 14% |
Return from investment from age 50 to 80 | 10% |
Real Rate of Return from 50 to 80 | 4.8% |
Monthly Household expenses at the age of 50 | ₹ 3,00,431 |
Retirement Corpus required at the age 50 | ₹ 5,84,15,453 |
Monthly SIP required for next 25 years | ₹ 24,914 |
Remember, this is a simplified example. Consulting a CFP® or Investment Advisor can help you create a personalised retirement plan tailored to your specific financial goals and risk tolerance. Contact Sampann for a free 30 minute consultation with advisor, contact : +91 8951362209
Comments