Achieving the target retirement corpus!

Well in the previous blog, we talked about how to calculate the required retirement corpus. Now we shall look at some tips and tricks in achieving the target retirement corpus. They key is to understand the asset allocation which would help us in achieving the target retirement corpus. The following important points have to be considered while choosing to create the retirement corpus –

Wealth accumulation time period

The time period you have in the wealth accumulation phase is crucial to the plan. As you know from our earlier blogs – the longer the time period, the bigger the risk you can assume for this goal, the better the expected returns. The earlier you start your wealth accumulation phase, the lesser you need to contribute towards the goal.

Status of other life goals

We all have different life goals to achieve before we can actually retire. So ideally when we retire, most of our life goals are close to being achieved. You dont want to retire, when you have a kid who is still going to school, correct? When there are other life goals, your ability to assume risk in investments is also lower.

Asset allocation

There are a bunch of normal investment avenues we as a retail investor have for retirement planning. Real Estate, Equity (Stocks, Mutual funds), Fixed Income securities (Bonds and Deposits), Commodities (Gold, Silver) and Crypto (Not a strong advocate of this form at this moment). The question that arises is that what percentage of each should be allocated to each of these assets. The answer to this lies in three aspects:

1. Comfort level of an individual with each of these asset classes
2. Expected return from this investment
3. Risks which can be taken by the investor

For example, let us assume that I am investing 20% in Real Estate + 65% in Equity + 10% in Deposits + 5% in Gold/Silver.

Expected return from the portfolio = 20% * 3 + 65% * 12 + 10% * 7 + 5% * 4 = 9.3%

Emergency fund

Remember to read this blog about emergency fund before creating this plan. Health insurance and an emergency fund provision in place are pre-requisites to our retirement planning.

Final calculation

Now we know the retirement corpus to achieve, we also have a fair idea about how we are going to achieve it. So now, let us calculate the monthly investment required to achieve the target.

Time period of investment = 10 years (120 months)

Rate of return from investment = 9.3% pa (0.775% per month)

Final corpus required = 3,00,00,000 INR

Assumption, present investment value = 75,00,000 INR

Note – We are using the PMT function on excel for this calculation, just copy paste this formulae in excel and you can calculate your own magic number.

Monthly investment required = PMT(rate, period, PV of investment, – Final Corpus)
                = PMT ( 0.775%, 120, 7500000, -30000000) ~ 56K INR per month

So while the 3Cr looks incredibly difficult to achieve, 56K per month investment for 10 years with the asset allocation (which is a sample based on thumb rules), seems to be achievable (again assuming you have a starting sum of 75 Lakhs INR with you).