What kind of investments should you make to ensure a comfortable retirement?

I am a 60-year old doctor with savings of around Rs1 crore. My monthly income is 2 lakh, I might work for another five years. I have no liabilities. What kind of investments should I make to ensure a comfortable retirement?

-Ratnesh Kumar

Savings of Rs1 crore could be insufficient as a retirement corpus. Assuming inflation at 7% per year an 8% annual returns on the current corpus, withdrawals of 50,000 per month, inflation-adjusted, will suffice for only 20 years.

According to an estimate by Fidelity Investments, one should accumulate approximately six times annual income as retirement savings, by the age of 60. Thus, you will require Rs1.5 crore in your bag to support withdrawals of Rs75,000 a month for 20 years. Five years from now, adjusting for inflation @7%, you would need 1.05 lakh per month. Accordingly, target for retirement corpus at 65 years should be 2.2 crore.

For a self-employed professional with no retirement benefits, ensure at least 30% of savings are parked in PPF, NSC other similar tax-advantaged, retirement saving instruments. Furthermore, since you are a senior citizen, interest upto Rs50,000 is exempt from tax under Section 80TTB. You can therefore invest up to 10 lakh (10% of your current corpus) in bank deposits.

Additionally, you can align 40% of your corpus in conservative hybrid funds, as they invest only 20-25% in stocks & the rest is placed in debt funds.

Though equities are risky, you can’t afford to stay away completely. Around 20% of your money should be in equity funds. Invest in large-cap funds or index funds which are less volatile than mid- small-caps.

When you retire at 65, your Rs1 crore corpus will have grown to Rs1.6 crore, assuming a 10% annual average return over the next 5 years. To achieve your target of Rs2.2 crore, immediately start investing 70,000 a month for the next five years. You can invest in a mix of hybrid large-cap funds ie Rs50,000 in a hybrid fund another 20,000 in a large-cap fund or index ETF, on a monthly basis.

(Raj Khosla is Managing Director at MyMoneyMantra.com)

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