If you are 40 years old and have not saved even a single rupee for retirement, then there is no need to panic. You have 20 years to prepare a retirement fund. However, due to late start, the investment amount will have to be kept slightly higher every month. How does the math work for retirement planning, how much fund is required and how to use EPF, PPF and NPS? Read in this special QA report… Question 1. Will it be considered too late to start saving at the age of 40? answer. No, it is not too late to start at 40, but it does prove to be a bit costly. You have full 20 years to retire at the age of 60. At this stage, the size of the retirement fund mainly depends on three things: Question 2. How many crores of rupees is a total fund required for retirement? answer. The thumb rule of financial planning says that at the time of retirement you should have 25 to 30 times your annual expenses. Let us understand this with an example… Suppose today your monthly household expenditure is ₹ 30,000. If inflation rate is considered to be 6% per annum, then at the age of 60 this monthly expenditure will increase to approximately ₹ 96,000. The annual expenditure will be around ₹11.5 lakh. You will need 25 times this i.e. a retirement corpus of approximately ₹2.9 crore. Question 3. How much fund can be generated from a monthly SIP of ₹ 15,000? answer. If you do SIP of ₹ 15,000 every month for 20 years, then there will be an investment of ₹ 36 lakh. Question 4. What needs to be done to meet the target of ₹2.9 crore? answer. There are two ways to reach the target of ₹2.9 crore: Question 5. What should be the asset allocation of the portfolio at the age of 40? answer. Since you have a time horizon of 20 years, most of the money should be invested in diversified equity funds like index funds or flexi cap funds through SIP. As you approach retirement age, you should gradually shift money to hybrid funds. This can avoid huge losses if the market falls just before retirement. Question 6. What can be the biggest mistakes on the way to retirement and how to avoid them? answer. It is very important to keep three main things in mind: Before investing money in long-term investments, have an emergency fund and health insurance for at least 3 months’ expenses. One hospital bill can wipe out years of savings. Children’s higher education and marriage are big expenses, but invest separately for them. Don’t withdraw your retirement corpus for this. Eliminate expensive debts like credit card dues and personal loans first. Add the free EMI amount to your retirement SIP. Question 7. What should be done if the target is not achieved in 20 years? answer. In this situation, you can increase your retirement age from 60 to 62 or 63 years. This gives you one or two more years of compounding returns on investment.
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Retirement planning at the age of 40 with zero savings: Formula to create a fund of Rs 2.9 crore in 20 years; How to start with SIP of ₹15,000
