Retirement planning: Where should I invest to create a retirement corpus of Rs 10 crore in seven years?
Prableen Bajpai, Founder, FinFix Research and Analytics: Your current investment allocations are expected to accumulate approximately Rs 8 crore in a six-year time frame. This is based on assumptions of a 12% return on equity and 6% return on the fixed income portfolio. There will be a shortfall even if higher returns on equity are assumed. While the projected corpus is below your target amount, it exceeds the sum required to manage inflation-adjusted monthly expenses during retirement, with surplus money to spare for your daughter’s wedding and other miscellaneous expenses. Within the current fixed income structure, while the division among post office, PPF and fixed deposits is not mentioned, there seems to be scope for better allocation of funds. If your risk appetite allows, consider hybrid funds, such as equity saving schemes, balanced advantage and multi-asset funds, which come with different equity-debt combinations. This should be in lieu of fixed deposits and post office schemes (after keeping aside your contingency fund) to enable better post-tax returns at moderate risk. These hybrid funds will be useful for managing your monthly expenses in the initial phase of retirement via systematic withdrawal plans (SWP), allowing pure equity products time to grow in tandem. With retired life running into decades, allocation to equity during this period is crucial to combat inflation. Split your corpus at the time of retirement into different buckets, with allocations based on your time horizon. Also ensure that you maintain an adequate contingency fund for unforeseen expenses and medical emergencies.
I’m 56 years old and want to retire by 62. I have a monthly salary of Rs 1.5 lakh and my expenses are Rs 60,000. I have Rs 8 lakh in FDs and Rs 44 lakh in equities and mutual funds. My monthly SIP is Rs 60,000. I also put in Rs 40,000 in the PPF and NPS every month. I have a health cover of Rs 10 lakh. I have a house worth Rs 1 crore, as well as shops and land worth Rs 1 crore.
Adhil Shetty, CEO, BankBazaar: Assuming 12% return from equities, SIPs and mutual funds, 8% from NPS/PPF, 7% from FDs and 6% inflation rate, the future value of your investments will be Rs 2.02 crore. The savings would be higher if we add the NPS and PPF holdings. Your expenses inflate to Rs 86,000 by 62. If we consider 300 times this number as retirement corpus thumb rule, you need Rs 2.57 crore at retirement. Considering the above numbers along with your real estate portfolio, you should be able to retire comfortably. However, if your investments underperform, you’ll need income support in retirement, and rent from commercial properties may help. You’ll need to rebalance your holdings for liquidity and growth, and remain at a sustainable annual withdrawal rate (5-6%) while allowing the remainder to grow at 8-10%.
I am 34 years old, with a monthly in-hand salary of Rs 80,000. My only saving is an LIC cover of Rs 5 lakh. I am keen to invest so that I can retire with a big corpus. I don’t have a house. I have a car loan of Rs 8 lakh. How should I start to create personal wealth?
Vidya Bala, Co-Founder, PrimeInvestor.in: To begin with, purchase term insurance with adequate life coverage that replaces your annual income for the family for at least 8-10 years in the event of any untoward incident. The Rs 5 lakh LIC policy is most likely a hybrid product. Once you buy a term plan, verify if there is merit in contnuing with the LIC policy. Start investing in more liquid and transparent products like equity index mutual funds. Consider SIPs in funds with underlying index as Nifty 50, Nifty 500 and Nifty Midcap 150 and use fixed income products such as PPF/EPF and some short duration mutual funds for debt. Make sure you have an asset allocated portfolio instead of going overboard on equities.
I am 44 years old and my current corpus is worth Rs 4.7 crore. This includes Rs 3.75 crore of equity and mutual funds, Rs 30 lakh in the NPS, a flat worth Rs 25 lakh, and Rs 40 lakh of bank account savings and FDs. My monthly expense is Rs 1.7 lakh and I have my own house. I want to quit my job by 2025. I expect my portfolio to reach Rs 6 crore by then. I intend to split my portfolio in 70:30 equity-debt ratio. I expect a weighted average return of 14% (16% equity, 8% debt) that provides about Rs 84 lakh a year, which, after expenses (Rs 20 lakh), will provide a surplus of around Rs 64 lakh. Is this a safe way of quitting?
Dev Ashish, Founder, StableInvestor, and Sebi-registered investment adviser: While your total asset base is about Rs 4.7 crore, `30 lakh in the NPS will not be available till you are 55-60. Also, your flat of Rs 25 lakh isn’t liquid, unless it is generating rent. So, the net current asset base available for income generation is slightly lower at Rs 4.15 crore, spread across mutual funds, stocks, bank accounts and fixed deposits. By 2025, you expect to have about Rs 6 crore, including future investments. This seems to be based on the assumption that the market will go up over the next year and, hence, your existing Rs 3.75 crore in equity instruments will ride the wave. While this is possible, it’s not guaranteed. Markets can fall as well in the short term. Your return expectation of 14% is also overly optimistic. I don’t know the kind of portfolio rolling returns you have achieved over extended periods and across market cycles. More importantly, it is not clear how much of this can be attributed to market run-ups and to individual skill. There is a need to readjust your average return expectations to a lower value. While you may earn returns that are higher than 16% in some years, one should not rely on high market returns while making financial planning assumptions. Try to keep only 1-2% real rate of return (portfolio returns versus effective inflation) while planning for income generation from a given corpus. I strongly recommend that you engage with an investment adviser for detailed financial calculations. This is not to say that your Rs 4-5-crore portfolio isn’t enough for your Rs 20 lakh starting annual expenses, but this will help stress test your financial situation so that you can make the decision to quit with a greater peace of mind. Importantly, if you have any dependants, buy pure protection life insurance (term plan) and have adequate health insurance. This is because without a job, you will not have any corporate health insurance to cover your medical risks.
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