Question: At age 35, my monthly income is Rs. 80,000. My monthly expenses are Rs. 40,000. How do I build a retirement corpus of Rs. 5-8 crore & also buy a health insurance plan for me & my wife?
Answer: To create wealth for a long period is important. Apart from that, you also need to plan your retirement as well as other financial goals for the coming years. Long-term planning requires regular savings, which then results in compounding. The process of compounding begins when the interest starts earning interest. Its effectiveness increases with the length of the investment period.
For example, a person saving Rs. 40,000 per month for 20 years will earn a principal saving of Rs. 96 lakh. If we assume an average return of 10%, the corpus may become Rs. 3.06 crore during the same period. The corpus will reach Rs. 4 crore if we assume the average return to be 12% and will touch Rs. 6.06 crore at an average return of 15%. All these figures are obtained without considering any increment in savings. If you assume a savings rate of 5% per year or increase the savings in the same proportion as the hike in your salary, the corpus will cross Rs. 4 crore, assuming an interest rate of 10%.
This sounds easy but the reality is different. You may earn the targeted interest rate over a long period. However, in between, there would be periods when the earning rate is below the inflation rate, managing which are hard.
The allocation of assets should be done as per the targeted earning as it is higher than the inflation. Select from the asset classes that outperform inflation over a long duration. You can opt for Mutual Funds for long-term investments, but they being a volatile asset class need to be held for a long time. The best way to bring discipline and consistency in regular savings is to choose Systematic Investment Plans (SIPs).
Ensure to have adequate life insurances in order. The insurance amount should be 7-8 times of the annual income of the earning members of the family and this needs to be periodically reviewed. The next in the line is medical insurance. Check all details related to the services covered, immediate coverage, waiting period, network hospitals, sub-limits, co-payment, pre- and post-hospitalisation expenses, no claim discounts, cover ceasing age, and option to upgrade the sum insured before you choose the insurance company.
Answer: To create wealth for a long period is important. Apart from that, you also need to plan your retirement as well as other financial goals for the coming years. Long-term planning requires regular savings, which then results in compounding. The process of compounding begins when the interest starts earning interest. Its effectiveness increases with the length of the investment period.
For example, a person saving Rs. 40,000 per month for 20 years will earn a principal saving of Rs. 96 lakh. If we assume an average return of 10%, the corpus may become Rs. 3.06 crore during the same period. The corpus will reach Rs. 4 crore if we assume the average return to be 12% and will touch Rs. 6.06 crore at an average return of 15%. All these figures are obtained without considering any increment in savings. If you assume a savings rate of 5% per year or increase the savings in the same proportion as the hike in your salary, the corpus will cross Rs. 4 crore, assuming an interest rate of 10%.
This sounds easy but the reality is different. You may earn the targeted interest rate over a long period. However, in between, there would be periods when the earning rate is below the inflation rate, managing which are hard.
The allocation of assets should be done as per the targeted earning as it is higher than the inflation. Select from the asset classes that outperform inflation over a long duration. You can opt for Mutual Funds for long-term investments, but they being a volatile asset class need to be held for a long time. The best way to bring discipline and consistency in regular savings is to choose Systematic Investment Plans (SIPs).
Ensure to have adequate life insurances in order. The insurance amount should be 7-8 times of the annual income of the earning members of the family and this needs to be periodically reviewed. The next in the line is medical insurance. Check all details related to the services covered, immediate coverage, waiting period, network hospitals, sub-limits, co-payment, pre- and post-hospitalisation expenses, no claim discounts, cover ceasing age, and option to upgrade the sum insured before you choose the insurance company.
0 comments: