To meet short fall invest in mutual fund
I am 48 and will retire at 60. My wife too is employed and earns ?35,000. I don’t wish to factor in her income for our retirement. We have no dependents. My salary will grow at 2.5 per cent every year.
My employer does not provide any pension benefits. How much do we need to accumulate to meet our expenses, post-retirement?
Should I increase contribution to my provident fund or invest in mutual funds? I will be more comfortable with VPF.
Kumar RK
If you continue to work till 60, you can accumulate enough for your retirement. Since your retirement is a while away, you must consider investing in mutual funds.
You can spread your retirement life into four parts and invest accordingly. Immediately after retirement, for two five-year periods, you can withdraw from your debt investments. For the subsequent two blocks, you can utilise the portion comprising debt and equity. With such a strategy, you can earn higher returns with equity investments, which may even allow you to increase your standard of living.
The gratuity and leave encashment will be the buffer for the emergency funding. If the inflation rate is 7 per cent, at retirement, you will need ?58,500 every month.
To receive such an income at retirement you should have a corpus of ?1.74 crore and it should earn more than the inflation rate.
If your present EPF balance, along with future contributions continue to earn an interest of 8.5 per cent, at retirement, your EPF corpus will be ?1.18 crore. If you add the maturity proceeds of ?18 lakh from your life insurance policy, your total short fall will be ?37.8 lakh.
To bridge this, save ?13,600 every month. The portfolio should earn 10 per cent returns. With your current surplus you can reach the target with ease. Continue maintaining the current level of health cover.Repay your home loan by using a portion of your EPF proceeds.
The writer is a financial planner and founder myassetsconsolidation.com