I am 32 years old. I want an income of Rs 20,000 per month after retirement. How much should I invest in mutual funds via SIP?

I am 32 years old. I want 20000 per month (present value) at my retirement. I want to retire at 60. How much should I invest in mutual funds via SIP?  

Name Withheld  

Reply by Mayank Bhatnagar, Chief Operating Officer, FinEdge  

First, we would like to congratulate you on your decision to start planning for your retirement at 32! It is a complex goal, and the fact that it is so many years away often blindsides even the most seasoned investors, mistakenly leading them to believe that they have ample time before it gets too late to put together a sizeable corpus.  

Since your target retirement age is 60, let us go with the standard figure of age 60 and plan for a retirement period spanning 20 years (life expectancy age). Since your retirement would be 28 years away, the purchasing power of Rs 20,000 would fall significantly by then. In fact, you would need to spend roughly Rs 78,000 per month in the first year of retirement to achieve the same lifestyle, assuming a 5 per cent inflation rate. Not just that, inflation would keep chipping away at your savings even after you retire, so you would need to adjust your monthly income by 5 per cent a year to keep pace with it.  

Also, remember that you will need to strike a balance between risk-taking and corpus preservation with your retirement fund, as you cannot afford to have large drawdowns on it. An 8 per cent post-tax return is a reasonable return assumption for this corpus. Considering the above stated factors, your retirement corpus target should be roughly Rs 1.43 crore.  

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Do not be daunted by the seemingly large number—with 28 years to go, you are in the driver’s seat with respect to this goal! All you need is a monthly SIP of Rs 4,268, and you can comfortably meet your target, assuming a 13 per cent CAGR from your SIP investments.  

While the monthly SIP amount is not large, the journey will not be easy. On paper, SIP returns have been fantastic for any period exceeding 5-7 years. However, your ability to successfully continue your SIP for nearly 3 decades would require a high degree of investing resilience, which can only come about if you have a clearly defined goal that you are tracking as well as the right expectations when it comes to equity investing. Understanding risk and reward is crucial for SIP investing success, as there will be many times that you will be frustrated with low to negative market returns or be tempted to take profits off the table after markets have gone up. While it is possible to manage this journey by yourself, the support of a qualified investing expert who co-owns this goal with you could prove extremely helpful.  

(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)