I was recently quoted in Economic Times WEALTH (8-14 July 2024) in the Q&A section where a panel of experts answers readers’ questions related to various aspects of their personal finances.
The exact question and the answer –
Here is the text version of the query and the reply –
Q – I am 40 years old and single, earning ₹8 lakhs per annum. I pay ₹23,625 per month in rent and have other monthly expenses of ₹15,000. I have a current SIP of ₹17,500 and the following existing investments: Mutual funds: ₹6,15,000; Fixed deposit: ₹10,50,000; PPF: ₹1,50,000; NPS: ₹1,00,000. I also have health insurance coverage of ₹25,00,000. Please advise on future retirement planning.
A – At an income of Rs 8 lakh per annum, you are doing a SIP of Rs 17,500 monthly or Rs 2.10 lakh yearly. And after expenses (including rent) of Rs 38,625 monthly, you still have some surplus left to the tune of about Rs 10,000 per month.
But looking at your other savings in FD/PPF/NPS and insurances, my guess is that this calculated monthly surplus would be used up in that. In case these assumptions aren’t correct, then you still have some surplus left over which can be used for saving more for retirement.
So at present (and assuming there is no monthly EPF contribution as you haven’t provided any data for that), you are doing a Rs 17,500 monthly investment towards retirement. Assuming an Equity:Debt 70:30 for the next 20 years, and considering existing asset base of Rs 6.15 lakh in equity funds and Rs 2.5 lakh in PPF+NPS, plus ongoing monthly investments of Rs 17,500 in equity funds (assumed to increase by at least 6% each year like income growth/inflation), you would reach a retirement corpus size of about Rs 2.5-3.5 Cr based on different return-range scenarios. Therefore you should continue your investments in equity funds and also periodically add a small amount (based on the suggested allocation) to your debt portfolio of PPF. Also, keep your NPS allocation inclined more towards Scheme E.
You have not provided details of which fund/schemes you are investing a total of Rs 17,500 monthly via SIP or in existing Rs 6.15 lakh MFs. But there may not be a need for more than 2-3 funds. Having schemes from Largecap Index funds, Flexicap/Large&Midcap funds and Aggressive Hybrid funds would be sufficient if you have a moderately aggressive risk appetite.
The actual allocation will have a higher equity component in the initial years followed by lower equity during the last couple of years to de-risk the portfolio as you get closer to goal day.
To further accelerate the savings for the goal or to reach a higher corpus, you can consider channelizing a major part of your annual bonus/incentives/other incomes (if any) towards your portfolio if you don’t need it for other expenses or family requirements.
Your Rs 10 lakh bank FD is sufficiently large to act as a combined buffer for an Emergency Fund, a Medical Contingency Fund and a Liquidity reserve.
Your Rs 25 lakh health insurance cover, while this should be sufficient for base case scenarios, you can consider super-top-ups for low-probability-high-impact larger bills in years to come. And since you are currently single (and assuming you don’t have any dependents), there might not be a need for life insurance cover.