Smita has monthly expenses of ₹1.25 lakh, excluding home loan, car loan and a small personal loan. The 35-year-old expects to clear all these loans in the next few years, after which her only major financial responsibility will be her regular monthly expenses.
Smita's main concern now is her retirement planning, which includes understanding how much she would need each month after 25 years to maintain a similar lifestyle, and how she should plan her investments today to achieve that goal.
How much does Smita need to maintain a similar lifestyle after retirement?
To understand how much she would need in the future to maintain the same lifestyle she currently manages with Rs1.25 lakh a month, she first needs to calculate the inflation-adjusted value of her expenses.
The inflation-adjusted value of ₹1.25 lakh (at today's purchasing power) would be around ₹5,37 lakh in 25 years, assuming inflation remains at 6%. Accordingly, if she wants to maintain the same lifestyle, her monthly expenses after that period would rise to around ₹5.37 lakh.
How much corpus should we need to have a ₹5,37 lakh monthly pension?
To generate a monthly pension of ₹5.40 lakh , the retirement corpus depends on the withdrawal rate assumed. Let's assume the withdrawal rate is 4%, and then the required corpus = ₹64.8 lakh ÷ 4% = around Rs16.2 crore
How to invest to build a ₹16.2 crore corpus in 25 years? '
If Smita hasn't started investing towards her retirement yet, she is already late. However, starting now can still make a big difference. For long-term wealth creation, mutual funds can be a prudent investment option for building a retirement corpus.
And at 12% interest rate, she would need to invest around ₹67,000 per month, ideally at:
- 60–70% in Large Cap Mutual Funds and Flexi Cap Mutual Funds for stability
- 20–25% in Mid Cap Mutual Funds for growth
- 10–15% in Hybrid Funds for balance
However, if she can increase her SIP by 10–15% each year (step-up SIP), she can significantly reduce the initial SIP burden and reach the target faster.
For example, if she plans to increase her SIP by 10% every year, the starting investment required will be much lower, i.e. around ₹38,000– ₹40,000 per month. This means:
- Year 1: ₹40,000/month
- Year 2: ₹44,000/month
- Year 3: ₹48,400/month
This is far more manageable than investing a flat ₹67,000 every month for 25 years.
