I am 28 years old and planning for my retirement. I have just bought a house. I also started investing in mutual funds for my retirement. Following are my investments and liabilities:
Salary: Rs 14 lakh per annum
Car loan: Rs 13,000 per month (three years left)
Home loan: Rs 40,000 per month (30 years left)
EPF: Rs 5,000 per month (total Rs 3 lakh)
PPF: Rs 5,000 per month (total Rs 1.3 lakh)
Mirae Asset Large Cap Fund: Rs 5,000 pm
One, should I invest more money for a corpus of Rs 1 crore for my retirement?
Two, should I concentrate on repayment of loans early?
Three, what extra investment should I make if I need Rs 2 crore for retirement?
First, do not choose a round figure like Rs 1 crore or Rs 2 crore as your retirement target corpus. With inflation, your expenses would skyrocket in 30 years. For example, a cup of coffee that costs Rs 100 currently would cost a little over Rs 1,000 after 30 years. We have assumed an inflation of 8 per cent for the calculation.
The idea behind creating a retirement corpus is to ensure enough money to maintain your standard of living. You should find out your living expenses and inflate it by 7-8 per cent every year to find out your future living expense after 30 or 32 years. This will help you find out your target corpus and investments needed to reach the target.
However, since you are young, you can start with a small SIP in a mutual fund. But Rs 5,000 is too low. As said before, you should try to have a savings rate of at least 30 per cent. Your investments should go up in line with your salary hikes.
If you invest Rs 5,000 every month and manage to earn around 12 per cent annual returns, you would be able to create a corpus of around Rs 1.76 crore in 30 years. But don’t let that figure offer you any false sense of comfort. As said earlier, your cost of living would go up every year and you need a large corpus to maintain your standard of life.