I was recently quoted in Economic Times WEALTH (11-17 December 2023) in the Q&A section where a panel of experts answers readers’ questions related to various aspects of their personal finances.
The exact question is given below –
Here is the article page where the query is answered:
Here is the text version of the query and the reply –
Q – I am a 25-year-old unmarried man. I have Rs 8,000 SIP in different mutual funds including index, flexi and smallcaps. The portfolio is worth Rs 2.2 lakh. I also have around Rs 1 lakh in FDs, Rs 60,000 in sovereign gold bonds and Rs 50,000 in stocks. How much more should I invest to retire at the age of 40-45 with enough corpus that I can expect around Rs 1 lakh per month for my monthly expenses.
A – It is great to see that at a young age and near the starting of your career, you are looking at retirement planning as a goal to be pursued from now itself. Coming to the question at hand, you need to assess how much corpus you need to achieve to have the option to retire in 20 years’ time, for a monthly Rs 1 lakh expenses. It is not clear from your question whether Rs 1 lakh expenses you mentioned is in present value or future value. But assuming it is in present value, we will adjust it for inflation over the next 20 years. Based on this, you need to reach a corpus of about Rs 11 crore by the age of 45, to ensure that you can maintain a lifestyle of Rs 1 lakh monthly expenses (in today’s value) till the age of at least 85. For this you need to invest about Rs 74,000 per month and this monthly investment amount needs to be increased by at least 10% every year in line with your salary hikes.
While you are investing Rs 8000 monthly in equity funds, your investments in debt (EPF, PPF, etc.) are not known. So you need to increase your investments accordingly as calculated above if your current income/expense surplus allows for. Also, you can also channelize a major part of your annual incentives towards your portfolio if you don’t need it for other expenses or family requirements.
Considering the time horizon of 20+ years, we shall assume that portfolio average Equity:Debt allocation over this period will be 75:25. The actual allocation will have higher equity component in initial years followed lower equity during last couple of years to de-risk the portfolio as you get closer to goal day. Also, in good years when equity portion grows too much, please rebalance and shift a part of the investments from equity to debt to protect some gains.
Your FD can be set aside as emergency fund and gradually increased further with regular top ups. If you only have your employer provided health insurance, then try and get yourself a health insurance of your own. Also, you can consider getting yourself a term life insurance even if you don’t have any direct dependents currently. Later on it will come in handy once you get married.