How should you plan your investments to generate a good monthly income after retirement? Amit Kukreja answers

"There are 6 or 7 fundamental assumptions that we will have to keep in mind. One, we are assuming that the expectancy of a life of the individual is going to be 85 years. So if he is 25 and if he is retiring at 60 then we get 35 years of investing horizon for that person to accumulate retirement corpus," says Amit Kukreja, Founder, Amit Kukreja Advisory.

Let us start with the 25 year old. It is early if you are starting your investment and in fact the right age when you should be investing and considering this particular goal where you want to generate monthly income from your investments.
There are 6 or 7 fundamental assumptions that we will have to keep in mind. One, we are assuming that the expectancy of a life of the individual is going to be 85 years. So if he is 25 and if he is retiring at 60 then we get 35 years of investing horizon for that person to accumulate retirement corpus.

Now if the person's cost of living today is 1 lakh rupees a month, we want to ensure that his lifestyle is not getting impacted during his retirement years. So at 60 his inflation adjusted cost which is 1 lakh in today's term needs to be adjusted for the inflation at the age of 60 and we have to ensure that the lifestyle remains the same.


So what is that cost that needs to be calculated? We are also assuming 6% of inflation is going to go on through his entire lifespan. We are also assuming that during his retirement phase he is having a post-tax interest or income from his portfolio of 8%.

So a tax-efficient 8% return. So let us do the simple math. For anybody who is 25 years of age, his current cost of living is 1 lakh rupees today. If the inflation adjusted to his age of 60 which is when he retires, that is 35 years later, 1 lakh rupee will get adjusted to 7,68,000 as his cost of living. So we need to account for the current lifestyle to be maintained which requires him to accumulate 18 crores in 35 years maintaining his current cost of living and accumulating 18 crores at different rates of return is not a massive job.

If you are starting to invest at 25 you just need an SIP of 26,000 rupees if your portfolio is growing at 13% per annum or 42,000 rupees per month if your portfolio is growing at 11% per annum or 68,000 rupees per month if your portfolio is growing at 9% per annum.

I have assumed three different risk profiles. Conservative is 25% equity, 75% fixed income balanced is 50-50 and aggressive is 75% equity and 25% fixed income. I will repeat the numbers. 68,000 if you are conservative is your monthly SIP requirement growing at 9%, 42000 if it is a balanced risk profile growing at 11% per annum and 26,000 is the monthly SIP requirement. If it is an aggressive risk profile growing at 13% per annum, you should be able to sustain your cost of living and should have a very good retirement phase.

I want to go deeper into the age group wise planning because the earlier you start the smaller will be your investment amount but then as compared to a 25 year old, if a 45 year old starts investing to achieve a target of 1 lakh at the age of 60 and that is the amount that he is going to be using for the rest of the time he is alive. What kind of an investment amount is needed for a 25 year old, 35 and a 45 roughly?
We covered 25. Let me quickly cover 35 year old. A 35 year old will get 25 years to invest for before he achieves his retirement assuming again at 60 is what he is retiring at and if his life expectancy is 85 years, then his current cost of living which is 1 lakh rupees needs to be inflation adjusted to 4,29,000 and he would need a portfolio of about 10 crore 28 lakhs.

If he is a conservative investor, he needs an SIP of 96,000 rupees if the portfolio is growing at 9%, if he is a balanced risk investor, he needs a monthly SIP of 70,700 rupees growing at 11% per annum and if he is an aggressive risk profile, he just needs an SIP of 51,000 where the portfolio is going at 13%.

Now, if I tweak the number and I say, let us say the individual is planning to retire at 45, which means he gets only 15 years of investing horizon before he retires.

So his current cost of living, which is 1 lakh rupees a month will get inflation adjusted to 239000 and his required portfolio will be 5 crore 74 lakhs to sustain his cost of living for till his age of 85.

In that case, his SIP shoots up significantly. If he is waking up at 45 to plan for his retirement at conservative investor growing at 9%, he would need an SIP of 155,000 at a balance this profile of 11% he would need an SIP of 131,000 and at a aggressive risk profile of 13% per annum he would need a monthly SIP of 110,000. So see how for aggressive investor the SIP of 26,000 changes to 110,000 because he is starting to invest 20 years later and for a conservative it becomes even tougher because he is saving 68,000 and now he is required to save and invest about 155,000 because he is starting 20 years later.

So the power of compounding investing starting early to invest and planning for your goals very early in the life pays off significantly and just be mindful and be more focused on what is your cost of living and what would you like it to be when you retire.