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L.Srikumar Pai
B.Sc( Engg.), MIE, MIWWA, MICI
Civil Engineer & CAD Specialist
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Retirement : What kind of life do you want to live
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Imagine your perfect life. How does your day get spent?

Would you have a job to go to? Or would you not need / want to work? Would you have a hobby? Would you do social work? Would you spend time traveling to new places with your family?

life do you want to

Specifically, how is your perfect life different from the life you lead today?

Your perfect life is what your Retirement should be like. This is your chance to relax after you have worked for so many years.

Just remember, things cost money. Maintaining your current lifestyle will cost more tomorrow than it costs today. And not only that, but today you spend a large part of your day at the office. When you retire, you will have much more free time.

You want to live a retired life where you have self respect, where you are financially independent and hopefully, very healthy. This will not happen on its own. You need to plan to achieve this.

Let's see a Retirement Planning Case Study.

Mr. Shah is 40 years old, and he spends approximately Rs. 50,000 monthly on household expenditure on his wife, his two kids and himself.
The family's current annual healthcare expenses are approximately Rs. 2,50,000.
They take an annual vacation within India, which costs Rs. 2,00,000 totally.

Facts of the case:

  • Mr. Shah wants to retire at the age of 60, and maintain his current lifestyle.
  • When he retires, his children will be financially independent, so his annual healthcare expenditure will reduce by 40% to become Rs. 1,50,000, in today's terms.
  • Household expenditure on his children (40% of his total household expenditure today) will also reduce because in 20 years they will be independent and settled. But, he will spend that additional amount on himself and his wife once he retires. So when he retires, there will be no reduction in the household expenditure.
  • Also, he wants to start taking foreign vacations with his wife post his retirement. Instead of taking domestic vacations, once in 3 years, they want to visit a new country.
    They will spend, in today's terms, approximately Rs. 5 lakhs for this foreign vacation, every 3 years.
  • Also, Mr. Shah knows that during his retirement years, his wife's and his medical expenses can increase. Mr. and Mrs. Shah both have mediclaim, but want to build a medical contingency of Rs. 10 lakhs in today's terms, available to them in the year 2030, when Mr. Shah turns 60.

    Given the time horizon of his goals, and his risk profile, Mr. Shah is a long term investor and can take advantage of equity.

    To sum, he has 3 goals:

  • Retirement Planning
  • Medical Contingency Planning
  • Vacation Planning

So, how much money does Mr. Shah require for his 3 goals?

We can move forward goal by goal.

  • Retirement Planning
    Let us see how much Mr. Shah requires to maintain his current lifestyle.

    Household Expense Inflation p.a. 7%
    Healthcare Expense Inflation p.a. 10%
    Household Expense p.a. today (Rs.) 600,000
    Healthcare Expense p.a. today (Rs.) 150,000
    Household expense p.a. at time of retirement (Rs.) 2,423,243
    Healthcare expense p.a. at time of retirement (Rs.) (1,009,125

  • To maintain his current lifestyle, Mr. Shah requires approximately Rs. 12,00,00,000.

    That is, he needs Rs. 12 crore.
    To accumulate Rs. 12 crore within 20 years, Mr. Shah needs to invest Rs.1,27,000 per month into a well performing diversified equity fund portfolio. Assuming 15% return on equity, the corpus will be built by 2027. For the last 3 years before retirement, the corpus should not be exposed to any risks. So when the corpus is ready, by 2027, it should be redeemed from equity and invested into safe fixed income instruments to protect it.
  • Medical Contingency Fund Planning
    For their increased medical expenses during retirement years, Mr. and Mrs. Shah want to have a ready corpus of Rs. 10 lakhs in today's terms, by the time Mr. Shah turns 60. Assuming medical expense inflation at 10% p.a., this means they need approximately Rs. 67.27 lakhs ready corpus, available in 2030.

    To build this corpus, Mr. Shah needs to invest the relatively easy amount of Rs. 7,200 per month into a good equity mutual fund portfolio. Assuming 15% return on equity, the medical corpus will be built by the year 2027. Mr. Shah can then redeem the equity corpus and invest it into a safe fixed income instrument so that when he retires, his medical corpus is not exposed to the volatility of the equity markets.
  • Vacation Planning
    A foreign vacation worth Rs. 5 lakhs today is going to cost Rs. 33.60 lakhs in 20 years, at Mr. Shah's age of 60.

    The vacation he wants to take at age 63 will cost him Rs. 45 lakhs.

    At age 66, it will cost Rs. 60 lakhs and at age 79 it will cost almost Rs. 80 lakhs. To take these vacations every 3 years starting at the age of 60 going on till the age of 70, Mr. Shah needs to build a corpus of Rs. 1.70 crore by the age of 60. This corpus can be held in debt instruments, and utilized for vacations every 3 years. To build this corpus, Mr. Shah needs to invest Rs. 18,000 per month into a good equity mutual fund portfolio. This will build the corpus by his age of 57, and the corpus can be invested into debt for the remaining 3 years.


    To meet the above stated goals of Retirement Planning, Vacation Planning and Medical Contingency Planning, Mr. Shah needs to start investing Rs. (1,27,000 + 7,200 + 18,000) per month i.e. Rs. 1,52,200 per month from today. So, he needs an investible surplus of at least this amount every month.

    If this amount is not available monthly, Mr. Shah will either need to forego a lower priority goal, or reduce overall goal requirement. This is where Mr. Shah's personal indication comes in. He can reduce his expected retirement expenses, and keep track of his expenses when he retires. If not the retirement goal, his other choice is to plan for a lower medical contingency. However, the conservative way of doing things would be to consider reduction in vacation expenses. Instead of every 3 years, planning for foreign vacations every 4 or 5 years


    After going through the above process, Mr. Shah has benefited in the following ways:

    • He knows his goal requirements
    • He knows how much to invest, how to invest (de-risking his corpus) and where to invest for his goals.
    • Most importantly, he has awareness, and with awareness he will have peace of mind.

    Mr. Shah has taken control of his financial goals by planning for the kind of life he wants to live.

    Have you planned for the kind of life you want to live?

  • Courtesy:

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