Consider higher exposure in equity if the investment horizon is long-term

  • It is important to plan for your financial goals and while all goals have their own importance, it is the retirement goal which needs more attention
  • You can create an asset allocation spread between debt and equity asset class

I am 31 years old and have a monthly expenditure of 50,000. How much money should I have after retirement (29 years from now) to continue with the same lifestyle? How much money should I invest on a monthly basis to reach that goal? I want to buy a house jointly with my husband in 3-4 years. Currently, I have some investments in mutual funds and Public Provident Fund (PPF).

—Sudipta Sen

It is important to plan for your financial goals and while all goals have their own importance, it is the retirement goal which needs more attention. This is because you don’t know for how many years you need the inflows and these are the years when you won’t have any regular income. While planning for it, you also have to factor inflation. Any miscalculation can make the post retirement plan go haywire.

If you need an income of 75,000 per month ( 50, 000 per month as monthly expenditure and 25,000 per month (average of 3 lakh per annum) post your working years, you can save for the next 29 years. Assuming an average income rate of 12% and inflation at 7%, you need to save 43,000 per month for the next 29 years. This will accumulate a principal corpus of 1.50 crore and a resultant corpus of 13 crore approximately. The net corpus looks quite attractive in today’s value but in relative comparison, the monthly retirement withdrawal will be 5.3 lakh inflation-adjusted. And this is only for your retirement planning. The increase in income as well as how much you can save subject to your cash flows is important for financial planning.

As you plan to save on a regular basis, you can start a monthly investment plan, systematic investment plan (SIP) in mutual funds wherein your bank gets debited every month on a fixed date in the schemes of your choice. You can create an asset allocation spread between debt and equity asset class. At the same time, determine your risk appetite. You should be considering higher equity exposure as the investment horizon is long term.

Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com

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