Retirement Planning: Age 38 & have monthly expenses of Rs 42,000? Know what should be your retirement corpus and SIP and lump sum investments to achieve that?
Retirement Planning: Some of the important factors for calculating the retirement corpus are your age, retirement age, life expectancy, current expenses, and future expenses. Considering inflation as another key factor, you can calculate your retirement corpus amount.
Retirement Corpus Calculations: Want to retire at 45, 55, or 60? It depends on when you want to achieve financial freedom. It's about the stage of life when you think that you don't need to have an active income, and your passive income can fulfil your requirements. Retirement doesn't mean that you will put a full stop on your hobbies, dreams, or ambition to grow, but it is about how you will create a corpus that can help you achieve those goals. However, for that, one needs to have an adequate retirement corpus. Such a corpus can be created through a genuine assessment of monetary retirement requirements. Know what can be a retirement corpus for a 38-year-old person with Rs 42,000 as monthly expenses. Also know what their lump sum and monthly SIP investments should be to achieve that goal.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Things to remember for retirement planning
Let's break it into two parts. First are the monthly expenses at the retirement age, and second are other goals such as setting up a business, travelling to a place, purchasing a vehicle, creating an emergency fund, or leaving a legacy for your child. You need to know how much you need for all these factors.
How much retirement fund one needs to have
As far as post retirement monthly expenses are concerned, one needs to calculate them based on their current age, retirement age, and the expected age till when they need this money, assuming that their lifestyle will remain the same. As far as other goals such as travelling, creating an emergency fund, or leaving a legacy for their children are concerned, they need to assess at what stage of retirement life they want to accomplish these goals.
How to assess retirement fund
Considering your current age and inflation, you need to assess the amount you need for your post retirement expenses. If the gap between your current age and the retirement age is wide, you can start with a low lump sum or monthly investment. But if the gap is not much, you won't get those many years for compound growth on your investments, and hence, the investment amount should be higher.
Why taxation on retirement corpus matters
When you begin creating a retirement corpus, you can prepare your strategy based on the current taxation system. But taxation on assets you are invested in can change. The government can increase or decrease the tax rate. It can put certain investment types in a high-tax bracket. These changes can affect your end corpus. So, to avoid such a situation, one needs to keep modifying their retirement strategy as per tax-related changes.
What will we calculate?
In our story, we will calculate the required retirement corpus of a 38-year-old person with monthly expenses of Rs 42,000. We are assuming that they will maintain the same lifestyle post retirement till their life expectancy. We will also calculate the estimated lump sum and monthly SIP investment amounts they need to achieve that target.
What will be retirement age and life expectancy?
The retirement age will be 60 years, and the life expectancy will be 80.
How much inflation are we expecting?
We are expecting 6 per cent inflation. It also means that we are expecting the person's post retirement expenses will increase by 6 per cent annually.
What will be pre and post retirement returns?
We are expecting that post-tax annualised return during the pre-retirement stage will be 12 per cent , while it will be 6 per cent during the post retirement stage.
Does the person have any other investment at present?
We are considering that in all forms of market-linked and non-market-linked investment options, the investor has an Rs 5 lakh investment.
What will their monthly expenses be at 60?
The expected monthly expenses at the age of 60 will be Rs 1,51,349, which is equal to Rs 18,16,188, a year.
What will be future value of current investments?
The investments of Rs 5,00,000 will grow to an estimated Rs 60,50,155 at 12 per cent annualised growth rate.
What will be estimated retirement corpus?
The estimated retirement corpus required to meet these expenses will be Rs 3,63,23,760-Rs 60,50,155 (future value of your current investments) = Rs 3,02,73,605.
What will be lump sum investment required to achieve retirement corpus goal?
The estimated lump sum investment amount will be Rs 25,01,887. At a 12 per cent annualised post-tax growth rate, it will grow to an estimated Rs 3,02,73,605 in 22 years.
What will be SIP investment required to achieve retirement corpus goal?
The person needs to make a monthly SIP investment of Rs 23,361 to achieve the retirement corpus goal.