Arthgyaan

Supporting everyone's personal finance journey

Late to plan retirement: how much money does this 48 year old investor need to invest per month to retire at 60?

Many investors are late to start retirement planning. This article shows what they should do to catch up.

Late to plan retirement: how much money does this 48 year old investor need to invest per month to retire at 60?


Posted on 01 Oct 2023
Author: Sayan Sircar
12 mins read
📢Join 2800+ readers on WhatsApp and get new post notifications!

Many investors are late to start retirement planning. This article shows what they should do to catch up.

Late to plan retirement: how much money does this 48 year old investor need to invest per month to retire at 60?

📚 Topics covered:

Background of the article

We covered a retirement planning case recently based on a reader query:

My age is 39 and want to retire by 58. My son’s age is 7 and have a home EMI running (just started). Monthly expense is 50,000. Have invested in MF and debt also. Have a corpus of 40 lakh invested. How much money per month needed to be invested for retirement

You can read that article here: How much money does this 39 year old investor need to invest per month to retire at 58?.

After that article, I was curious to crunch the numbers for a hypothetical investor who is 10 years older but does not have a proportionately large amount saved as a retirement corpus. Alternatively, there are many investors who have mostly invested in debt assets like EPF, because it is compulsory, and not much outside such safe options like EPF and FD.

Existing assets and investments

  • Investor’s age is 48, and retirement will start at 60
  • Current assets in EPF and cash: ₹50L
  • Monthly expenses: ₹50,000
  • The investor is expected to increase their investments by at least 6% a year: if they are to invest ₹10 lakhs this year, then next year they must invest at least ₹10.6 lakhs
  • We assume that the investor will live until 90 i.e. they will spend 30 years in retirement

Readers should note that the EPF invests 15% of contributions in the stock market via the SBI Nifty 50 ETF and therefore we have assumed that 10% of the portfolio, i.e. ₹5 lakhs is in equity assets. We will now apply the standard goal-based investing approach to derive the amount that needs to be invested a month for retirement

Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.

Pre-requisites before you start investing

To build a house, you need to first build a strong foundation

Goal-based investing requires completing some steps to ensure that the investment plan is seamlessly executed without breaks due to unforeseen circumstances. We will follow the steps described here: I have heard of goal-based investing. What now?

Risk profiling

Risk profiling is a mandatory step that should be completed before investing in goals. A portfolio created for a goal has one purpose: to meet the goal. Therefore, we need to balance risky assets that generally appreciate fast (like equity) and slow-growing assets that provide stability (like debt). The tool that is used to determine this mix of investments is risk profiling. Risk profiling, if not done, leads to a high chance of missing the goal. Being invested in the wrong asset class in the wrong proportion (either equity or debt) can lead to either high risk or poor returns or worse both.

We have a risk-profiling tool here that investors should use before getting started: Do not invest in mutual funds before doing this

Emergency fund

A minimum of 6 times total monthly expenses, which is ₹50k x 6 = ₹3 lakhs. They should keep ideally this amount in a joint bank account with sweep FD. Both spouses should have debit cards and net banking access to this bank account to get immediate access in terms of need.

As expenses increase or the emergency fund is used up, the current month’s investments should be diverted until the fund is rebuilt.

Term insurance

Given the value of their goals today, they need at least ₹2.5 crores of insurance (the model shows ₹2.3cr) between them. Any existing medical conditions must be declared at the time of taking the policies and there must be a physical medical test.

This step should be taken immediately.

Here is a guide regarding purchasing term insurance policies: Term life insurance: what, why, how much to get and from where?.

Health insurance

There should generally be the following policies that a family should have at a minimum:

  • corporate group insurance for salaried employees covering all family members
  • personal family floater of ₹20 lakhs covering self, spouse and children along with a super top-up plan
  • The family needs to increase their base coverage to ₹20L and take an additional ₹80L-1 crore super-top-up health insurance policy

Here is a guide regarding purchasing health insurance policies: Health insurance: what, why, how much to get and from where?

Personal Accident insurance

The purpose of the personal accident (PA) insurance policy is to provide a replacement for your income if you have an accident and cannot work after that. Unlike term insurance, where claims are paid on death, a PA cover is applicable when one of the following is the result of an accident:

  • accidental death
  • temporary or permanent partial disability
  • temporary or permanent total disability

The family should therefore take a ₹2 crore personal accident insurance cover for the primary earning member.

Pay off high-interest loans

If there are any high-interest loans like credit cards or personal loans, they should be paid off before investing.

Expense structuring

(click to open in a new tab)
Case Study 01 Oct 2023 Expense Calculation

We will use this retirement expense estimation tool to calculate today’s expenses and determine how much to spend in retirement.

To know how much you can invest for goals (the investible surplus), you need to classify and figure out approximately the major monthly expense heads under the three main buckets below:

  • mandatory: rent/EMI, food, school fees, electricity/mobile bills etc.
  • variable/discretionary: entertainment, transport, clothes, anything discretionary
  • save-to-spend: these are used for the sinking fund that is used to pay for hefty annual expenses like insurance premiums, festival gifts and travel by saving for them every month

Model output

We use the Arthgyaan Goal-based investing calculator to formulate the investment model with all the above assumptions and goals. There is a link to download a pre-filled copy of the Google sheet via the button below.

Important: You must be logged into your Google Account on a laptop/desktop (and not on a phone) to access the sheet.

Once you get your sheet, you can get access to video tutorials in the howto tab.

Also read
The unknown risk in NPS that few people talk about

SIP amounts and split between goals

(click to open in a new tab)
Case Study 01 Oct 23 SIP Output

Where to invest?

For most investors, this is the most critical question. It is a variation of finding the ‘best’ of everything: the best mutual fund, PMS service, insurance policy etc. However, suppose you have followed the process until now. In that case, you will realise that coming to this stage, at the very end of the goal-based investing strategy.

We will keep this simple with some typical investments that the family can follow and should be sufficient for their purpose.

Allowed investments

  • Equity asset class: Index mutual funds. Here is an article that talks about this choice: Which index funds to invest in and why?
  • Debt asset class: Apart from the NPS and provident fund investments already in place, the family can explore debt mutual funds: How to choose a debt mutual fund?
  • Cash asset class: For goals within three years and the emergency fund, a savings bank with sweep FD or a regular FD/RD is sufficient. For purposes beyond three years, please use the same debt funds as per the debt allocation above

Disallowed investments

  • NPS: The family should not invest any amount in NPS beyond the minimum needed to get a deduction under Section 80CCD, i.e. ₹50,000/year and any amount under Corporate NPS. The logic here is that NPS locks in your money until 60 and requires that you invest 40% of your NPS corpus in an undesirable taxable annuity
  • Additional investment in Provident fund: Apart from the mandatory investments via EPF, the family should refrain from additional investment in VPF. Given the long time horizon of the goals, a high allocation to equity is critical
  • Insurance mixed with investment: ULIP, endowment and related mixed products should be avoided due to high commissions, opaque structure, low returns and lock-ins
  • Other options: Cryptocurrencies, P2P loans, direct stocks and investment real estate/land (except a primary residence) should be avoided

Portfolio review

As time passes, three things happen:

  • markets move up and down
  • you invest or remove money from the portfolio
  • current prices of goals change, or new goals are added/old goals removed

These factors will require a portfolio review exercise every 6-12 months. Then, the process goes through the above steps: goal setting, capturing current asset values and feeding them into the model to recalculate the numbers. The concept is explained here: Are your investments on track for your goals?

Rebalancing plan

(click to open in a new tab)
Case Study 01 Oct 23 Rebalancing Plan

This section shows the current and target asset allocations for equity, debt and cash. The action on the investor will be to immediately implement the rebalancing plan as shown in the image.

Understanding the results

Investment needed per month vs current expenses

This point is the crux of the article. The amount that needs to be invested is more than double of the expense that they are supposed to support in retirement. If we bring forward the result from the 39-year old investor from this article, we see that with the same asset base of ₹40 lakhs and the same monthly expenses of ₹45-50,000 in retirement

  • the 39-year old needs to invest ₹52,223/month
  • the 48-year old needs to invest ₹111,409/month

This concept is explained in more detail here: What is the danger of starting investments late?.

The investor needs to reach a large corpus in a short period of time

The retirement corpus that needs to be reached is ₹3.75 crores in 12 years. This is a daunting target with a starting base of ₹40 lakhs and therefore the investor should get started immediately.

Can retirement be achieved via safer options like EPF and FD?

(click to open in a new tab)
Case Study 01 Oct 23 Safe Options only

We have covered this topic before as well. If the investor chooses only safer options, their target corpus, which they can cross check by setting the equity return to the same value as the debt return, jumps from ₹3.75cr to ₹6.31cr. Their SIP/month jumps ₹1.11 lakhs from to ₹2.15 lakhs.

Taking extra risk via equity investing does not guarantee higher returns and therefore lower target corpus for retirement. However, if equity markets give even slightly inflation-beating returns, as they have given in the past, then the goal will be met. Choosing conservative options instead guarantees that you need to invest double and chase a much higher corpus.

We have covered this concept in more detail here: Can you retire by keeping money only in FD or pension?

Rebalancing locked in funds in EPF

The model recommends that the portfolio be rebalanced immediately to 55% in equity and 45% in debt. However, given that most of the assets are sitting in EPF, this is difficult to do. Therefore, the next best alternative is to start a SIP only in an equity mutual fund like this: What are the best index funds for new investors in India?.

What's next? You can join the Arthgyaan WhatsApp community

You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

To understand how this article can help you:

If you have a comment or question about this article

The following button will open a form with the link of this page populated for context:

If you liked this article, please leave us a rating

The following button will take you to Trustpilot:

Discover an article from the archives

Previous and next articles:

<p>This article shows you the latest Small Savings scheme rates as a ready reckoner for intvestors looking to invest in such schemes.</p>
Market Data News
What are the latest Small Savings Scheme rates?

This article shows you the latest Small Savings scheme rates as a ready reckoner for intvestors looking to invest in such schemes.

Published: 30 September 2023

4 MIN READ


<p>This article shows you the benefits due to interest saving when you make a part-payment to your home loan. Your loan duration also reduces due to the pre-payment.</p>
Loans House Purchase
What benefit do you get if you make a one-time prepayment to your home loan?

This article shows you the benefits due to interest saving when you make a part-payment to your home loan. Your loan duration also reduces due to the pre-payment.

Published: 4 October 2023

3 MIN READ


Latest articles:

<p>This article discusses the NFO of the Tata Nifty India Tourism Index Fund which is the first fund tracking the Nifty Tourism Index.</p>
Review Mutual Funds
Tata Nifty India Tourism Index Fund NFO: should you invest?

This article discusses the NFO of the Tata Nifty India Tourism Index Fund which is the first fund tracking the Nifty Tourism Index.

Published: 10 July 2024

6 MIN READ


<p>This article introduces the concept of the information ratio, which mutual funds may need to declare daily for their funds.</p>
News Mutual Funds
Why SEBI wants mutual fund investors to learn about information ratio?

This article introduces the concept of the information ratio, which mutual funds may need to declare daily for their funds.

Published: 9 July 2024

4 MIN READ


Topics you will like:

Asset Allocation (21) Basics (8) Behaviour (14) Budgeting (12) Calculator (25) Case Study (6) Children (19) Choosing Investments (38) FAQ (13) FIRE (13) Fixed Deposit (9) Gold (22) Health Insurance (6) House Purchase (34) Insurance (17) International Investing (13) Life Stages (2) Loans (21) Market Data (10) Market Movements (20) Mutual Funds (58) NPS (9) NRI (19) News (23) Pension (8) Portfolio Construction (54) Portfolio Review (27) Reader Questions (8) Real Estate (7) Research (5) Retirement (38) Review (21) Risk (7) Safe Withdrawal Rate (5) Set Goals (28) Step by step (15) Tax (63)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself.

Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.

Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.

More posts...

Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.

This post titled Late to plan retirement: how much money does this 48 year old investor need to invest per month to retire at 60? first appeared on 01 Oct 2023 at https://arthgyaan.com


We are currently at 431 posts and growing fast. Search this site:
Copyright © 2021-2024 Arthgyaan.com. All rights reserved.