Indian demographics have shifted drastically. Longevity, which was 42 years in 1960, is 80 years today. Further, rising inflation and expenses are a wake-up call for early retirement planning.
In this context, Cafemutual Confluence Investment Marathon 2021 (CCIM 21) hosted KS Rao, Head Distributor Development and Investor Education, Aditya Birla Sun Life Mutual Fund, who spoken about retirement planning.
- Why start early?
Starting early allows compounding to play out its multiplying effect.
Let’s understand this through a numeric illustration where returns are assumed at 8.5% p.a. and investments are held till 60 years of age.
|
Start Age |
Monthly Amount |
Corpus |
|
25 |
Rs. 5,000 |
Rs. 1.2 crore |
|
30 |
Rs. 6,000 |
Rs. 90.3 lakh |
|
35 |
Rs. 7,500 |
Rs. 73.5 lakh |
|
40 |
Rs. 10,000 |
Rs. 60.3 lakh |
|
45 |
Rs. 15,000 |
Rs. 52.8 lakh |
As observed, despite setting aside a higher amount, a late start results in a lower retirement corpus.
- How to create a sizeable retirement corpus?
There must be adequate savings and appropriate investments to create a sizeable corpus that is sufficient to cover lifestyle expenses, health costs and fulfilment of dreams & aspirations. Additionally, it should also account for leaving a legacy behind.
Stepping up SIPs periodically helps enhance retirement corpus. Here is an example; a 9% return on monthly investment of Rs. 5,000 creates a corpus of Rs. 92.20 lakh after 30 years. However, a 50% step-up every 5 years increases the corpus to Rs. 1.90 crore and with a 10% annual hike, the corpus becomes Rs. 2.70 crore.
Also, on attaining 50 years of age, investors should not avail of debt and shift to less risker assets.
- How should a post-retirement portfolio look like?
He further recommended a three-bucket approach for post-retirement stage. Investors should hold their funds in cash/liquid funds/short term bonds/FDs and create the first bucket to take care of liquidity.
The second bucket should comprise pension/annuities/SWP from hybrid funds for enjoying regular income.
Lastly, the third bucket comprising equity growth portfolios can help in achieving corpus growth.
Watch this video to watch KS Rao speak about saving for happy second innings.
