Q1. How to plan for retirement?

Let’s assume the case of Mr. Roy. Mr. Roy is aged 45 and currently works with ABC Ltd. as a software developer. He earns Rs. 60,000 per month. He wishes to retire at age 55. His current monthly household expenditure is Rs. 25,000. In addition to this, he requires Rs. 75,000 per year for an annual family vacation and Rs. 25,000 per year for medical expenses.

Assumptions for Mr Roy’s Retirement Plan:

• He wishes to maintain the same lifestyle post his retirement. He has assumed his life expectancy as 85 years.
• His children are already educated, and he has no other goals.
• He is adequately insured and has created a contingency corpus of 12 months’ living expenses, which he maintains in liquid funds and partly in cash at the bank.

As he nears retirement, Mr. Roy is concerned about the amount of corpus he will need and whether he will be able to accumulate this corpus within his remaining 10 working years.

Corpus requirement at Retirement Rs . 4,58,22.785

Now, Mr. Roy knows he needs to accumulate a corpus of Rs. 4.58 crore to maintain his lifestyle in his post-retirement period. The next question in Mr. Roy’s mind is how to achieve this corpus.

He is expecting a gratuity of Rs. 25 lakhs and anticipates his EPF maturity to be Rs. 48 lakhs. In addition to this, keeping retirement in mind, he has invested Rs. 12 lakhs in mutual funds (current value) so far and has allocated his ancestral property of Rs. 50 lakhs (current value) to his retirement goal.

He also has Rs. 35,000 surplus savings per month that can be invested towards his retirement. How much will his total achievable corpus be at retirement?

Therefore, Mr. Roy has a shortfall of approximately Rs. 46 lakhs. Mr. Roy has three options in the above situation:

• To postpone his retirement by some time, i.e., increase his number of earning years
• To reduce his expenditure post-retirement
• To save and invest a higher amount today, and as we advance.

By choosing one or all of the above solution options, Mr. Roy will be able to build the retirement corpus that he needs to live his golden years in financial freedom. The corpus built by his retirement can be invested in fixed-income products and kept away from market risk/volatility. It is important to note, however, that upon the end of his 85th year, the funds will have been entirely utilized. Hence, it is always better to assume a longer life expectancy and plan accordingly, rather than risk outliving your wealth and becoming dependent.

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