Rakesh Singhal, 25 - Project Manager Bangalore: Q ) Hi, I want to retire by the time I am 45. How much corpus do I need to accumulate? How do I calculate my needs in the future when I’m not earning a salary? What instruments are best for early retirement planning?
To corpus you would require for post-retirement sustenance, is dependent on a number of factors. Some of the factors that you need to consider to calculate the corpus are:-
Your current age and the age at which you want to retire, which is 25 and 45 respectively. The second thing to factor in is the approx life expectancy and how lavish you want your post-retirement lifestyle to be. You also need to consider existing loans and liabilities, medical needs, higher education needs of your children, and whether you are a multi-income household. Additionally, your existing investments and the expected returns from them will also help you decide the retirement corpus desired. You can easily use tools retirement calculators available online to estimate the monthly contribution needed towards your retirement fund.
Now when it comes to instruments that can help you achieve early retirement, mutual funds are right at the top. However, please be mindful that the risk and return will vary according to how fast you want to grow your corpus and your portfolio mix. Since you are starting young and have 20 years till you retire, your ideal portfolio mix would be debt + equity portfolio with equity percentage higher. As you near your investment horizon, you will need to keep rebalancing your portfolio by increasing the debt amount and decreasing equity. So for instance for the few first years, you may have 80% equity and 20% debt, which will ensure the high growth of your investments. Towards the end, this percentage should get reversed to 20% equity and 80% debt. This will sure your risk is minimized by the time you choose to redeem your funds after reaching the desired retirement corpus.
It is a plus if you have already invested in long-term investment schemes like PPF and FD and other tax saver schemes as these will aid you to reach your retirement corpus
The query is responded by Harsh Jain, Co-founder, and COO, Groww