Your retirement portfolio should be able to provide freedom from financial worries in your post-retirement life.Building such a portfolio requires a careful study of your present circumstances and future expenses.The key lies in developing a successful investment strategy at the earliest.
In this issue, we have restructured this section of ‘My Portfolio’. Instead of carrying a case study in discussion mode, we will simulate a live case on retirement planning. Some assumptions are being made at the beginning of the case. We have considered the inflation rate as 6% against the present inflation rate of 3% after deciding couple of economic factors. The case is broadly divided into 8 sections as follows:
I. Cost of living per month- Present
II. Cost of living per month- at the age of 58
III. 22 years after retirement
IV. Mismatch
V. Post retirement earnings
VI. Important figures we have calculated so far
VII. Missed Chance
VIII. Solution
Assumptions:
You are a 35-year old executive working in an Indian firm. Your spouse is a housewife
and you have two school-going children- one daughter and one son. You are affluent and
stay in your ancestral house. You have your own car. You do not have any plan to look for
your own house or apartment in your lifetime. Neither, you plan to go for a new car. You
have primarily 3 objectives in your life now:
1. You want to give best education to your two children(one son and one daughter)
2. You want to save some amount for your daughter’s marriage and then for your
son’s marriage.
3. You want to live a good post-retirement life. You do not have any PPF account and you
have not done any major investment so far.
Supportive Assumptions for the
case :
Case Starts From Here
I. Cost of living per month- Present:
II. Cost of living per month- at the
age of 58 :
After 23 years (Inflation: 6%): Rs.63,025.86 per month at the age of 58.
(Explanation of arriving at Rs.63,025.86: Components of
future cost of living per month will exclude "Expenses for children" item and
therefore, the future value of money for Rs.16,500 (Rs.18,000 – Rs.1, 500) will be
Rs.63,025.86 per month at the age of 58).
III. 22 years after retirement:
As life expectancy is considered to be 80 years, therefore, you will live 22 years
more after retirement, where, in the first year (at the age of 58), the yearly expenditure
will be Rs.7,56,310.32 (from II, we get Rs.63,025.86 * 12). This expenditure will increase
by 6% every year due to inflation for the next 22 years (post-retirement). Hence,
for those 22 years, you roughly require, total of Rs.3,47,87,119.16 This is the cost of
your post-retirement life.
IV. Mismatch:
Present monthly savings of Rs.3,000 (x th item of I. Cost of living per month- Present)
will be exhausted before retirement only for children’s education or for their
marriage. Also, you need to spend your insurance maturity value to support their marriage
expenses and higher education.
Contd : " Scene-1 "