6 Steps of doing Retirement Planning by yourself

POSTED BY manish ON July 21, 2009 COMMENTS (119)

In this post I will teach on how to plan for retirement. We will use simple tools like Mutual Funds and PPF for building Retirement Corpus.

We will also see what factors you should take into account when you plan for retirement. There can be other ways of doing this and it can be very complex with very advanced calculation. But in this post we will look at it in a very simple way which a common man can understand.

Retirement Planning

So you are finally deciding to plan for your Retirement. You need to understand following steps:

  • How much is your Current Yearly Expenses
  • How much will be average Inflation figure for the coming years
  • How much would you need at your Retirement
  • Finally coming up with the corpus you would need at the retirement
  • Calculating how much you should save per month
  • Understanding where to invest the money

We will see all the above points in detail and go through some examples side by side to understand the process in well. Let say we are taking an example of Ajay who is married and has 2 kids below the age of 6 yrs. He has a monthly salary of Rs 40,000 per month. His age is 32 yrs and he wants to retire at age 60.

Step 1: Calculating you Current Yearly Expenses

Take a piece of paper (do it now as you read this) and make a note of your expenses, things like Rent, House hold expenses, Children fees etc etc. You should have a rough idea of what is the minimum amount you require per month for living a good life. You should also try to save a part of your salary every month, Ask your selfΒ Can you live with 90% of your Salary ?

Ajay calculates his expenses:

Rent – Rs.10,000
House hold expenses – Rs.11,000
Medical Expenses : Rs.1,000
Entertainment and outing : Rs.3,000

Total Monthly Expenses : Rs.25,000
Yearly living Expenses : Rs.3,00,000 (12 * 25,000)

Other Expenses like Vacations and Surprise Expenses : Rs.50,000

Total Yearly Expenses : Rs.3,50,000

Step 2 : Understanding how much Inflation would be there in coming years

This is the inflation you expect in coming years till your retirement. I calculated the average inflation from last 28 yrs (1990-2008). The CAGR inflation was 7.3% Source.

Considering a better economy in future I expect the inflation over next 20-30 years to be 6-6.5%. Lets take 6.5% for our calculations here. However you can assume your own rate as it depends on your understanding.

Step 3 : How much amount would you require in your Retirement

By this we mean how much money will provide you same standard of living as of today. This will depend on the Current Yearly Expenses, inflation expected over the years and years left for retirement. Just like we require Rs 105 to buy something of cost Rs.100 in 1 yr at 5% inflation. The same way we can cost how much is is needed after X yrs.

So formula would be

Retirement yearly Expenses = Current Yearly Expenses * (1 + inflation)^(number of years left)

Ajay has already calculated his yearly expenses as Rs 3,50,000. He has 28 more years at hand. He calculates his retirement yearly expenses.

Retirement Expenses = 3,50,000 * (1+ .065)^28
= 20,40,000 (20.4 lacs approx)

Now one can tweak this figure depending on whether you want to have higher standard of lifestyle than now (earning years) or more simpler life. You can decrease it or increase it to the quantum of your compromise. You won’t have to compromise on your Retirement if you are a Early Investor.

Step 4 : Finally coming up with the corpus you would need at the retirement

Here you may want to receive the monthly income for whole of your life and preserve the capital for your Children or any nominee. So you need a corpus which if you put in Bank or invest in some “guaranteed return fund”, you should get an amount per year which is equal to your Expected Expenses per year.

So suppose you expect to get a return of 7% per year. Then you need X amount at the end where 7% of X is = your yearly expenses.

Corpus needed = (Monthly Expenses)/(interest expected )

So in the case of Ajay the yearly expenses expected was Rs.20,40,000 and return expected is 7%. So we calculated the amount required for Retirement that is 20,40,000 / .07 = 2,91,00,000 (2.91 crores).

Note:

You can also buy an Annuity for a fixed number of years till when you want to receive the income (which also means you should have an idea of when will you die, which is not easy). So for example if you want to receive the the monthly Income till you are Age 80 (for 20 yrs).

The following formula will be used. See this Video or this article on Net Present Value to understand the calculations and Concept.

PVA = A * [ {(1+r)^n -1} / { r * (1+r)^n } ]

Where

PVA = Present value of Annuity (Amount you need to have at your retirement)
r= Rate of interest you expect to get
n = Number of years you want the Yearly Income .

So at the end of this, you will have the Amount you need for your Retirement.
Do you calculations online just now Here OR download the excel sheet Here.

Watch this video to learn how to do your own retirement planning :

Step 5: Calculating how much you should save per month

Here comes the interesting part, here there are two things

  • How much Return you expect to earn in long term
  • How much you can afford to invest per month

Both are related to each other. If you expect more return, then you need to invest less every month and if you can afford to invest more every month, you need to generate less returns for your investments.

So which is the better way? What should you decide first? The returns expected or monthly contribution you can make? I would recommend the other way, better we first decide how much we can invest per month, because that is what we can control better way. We cant control returns !!

I have this monthly contribution calculator to calculate how much you need to put every month to generate Rs X after Y years if you expect R returns, please feed these inputs there and get your numbers. To understand how its calculated you can see this video which explains some important formula’s in Financial Planning.

So here is the process

  • You figure out how much you can save
  • Then you find out how much return you need to generate
  • Then you decide where to invest to generate that return

You can also go the other way deciding how much return you can generate and based on that how much you need to save. But I prefer the first way because then you control things in your hand but you can go the other way too.

So our friend Ajay has a saving of Rs 15,000 at the moment (40,000 – 25,000) And he thinks that he can easily invest 10,000 per month at least over a long term. So the return he needs to generate per year CAGR for 28 yrs to generate his retirement corpus of 2,91,000,00 comes out to be 12.25%, see the calculator mentioned above.

So now you got to know how much you need to get per year in returns.

Step 6 : Understanding Where to invest it

This is the last step as per our article. So you got the CAGR return number which you need to generate over a long term. This number will decide how much risk can you take and where can you invest depending on your time frame. See below to understand which are the suitable products you can invest to get your returns.

Understand the ground Rules

  • Higher the return expected, higher the risk you need to take
  • More the Tenure, Lower the risk

Above 15% : Direct Stocks, Sectoral Mutual Funds, Equity Diversified Mutual Funds
10-15% : Equity Diversified Mutual funds, Balanced Funds
8-10% : Mix of Balanced Funds Debt Funds
Less than 8% : FDs, PPF, Debt Funds, Balanced Funds [ find out which FD is best ]

However, if the tenure is more than 10 yrs you should always go for Equity Funds. Never go for FDs or Debt funds if your tenure is long enough. Understand the Chemistry of Equity and Debt please.

So in our Example of Ajay, he requires a return of 12.3% CAGR in 28 yrs, so for this, he can invest in Equity Mutual funds through SIP he has different ways to achieve this like Doing a SIP in 3 Equity mutual funds OR combination of PPF (25%) and SIP in mutual funds (75%) OR Direct Equity (5-10%) + PPF + Some Balanced Funds. You got to be creative in this :), there are endless ways of doing it.

Conclusion :

Here you go!!, you just did your Retirement Planning πŸ™‚ . You can do your retirement planning yourself easily. A financial planner will look into more details and will do perfect planning for you which would be best but this is pretty much great way you can adopt your self.

Involve yourself in this journey of Financial planning and you will be amazed to find how much Fun it is.

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119 replies on this article “6 Steps of doing Retirement Planning by yourself”

  1. Sekhar says:

    Dear Manish

    I will be retiring from my current job by end of this year. My current expense will be around 25 thousand per month. I am expecting to get pension of around 15 thousand per month and pf of around 30-32 lakh along with 10 lakh as gratuity. I have a private health insurance of 7lk and employer will have provide of 5lk. Can you please let me know how and where should I invest my pf and gratuity to get a regular income also to take care of inflation.
    Thanks
    Mr Sekhar

    1. YOu can look at mutual funds as the option for that. You can generate regular income through it. There are other traditional investments avenues like Post Office Senior Citizen saving scheme also

  2. GauravNautiyal says:

    Hi Manish,
    I tried to calculate the CAGR but for the example in your blog its coming differently for me at 32.96%(((29100000/10000)^(1/28))-1) which is very high . Also suggest, with my monthly saving of INR 50k what figure I can achieve and with which allocation as my retirement corpus seems to be very high (unless I am doing some blunder in calculation)

    1. GauravNautiyal says:

      Hi Just want to add I am 35 years old and thus max working life is around 25 years.

    2. Please share the exact data and how you calculated it ?

  3. Amit says:

    Hi Manish,

    Thank you for explaining this in such simple way. I have one question if you can help. Suppose I have 30 lacs of amount to be invested then what will be your allocation %age (FD, equity, metal, mutual fund etc) considering the fact that I do not want to invest in real estate as I already have a house. I can hold around 15 lacs for long term(7 yrs).

    1. I would suggest 20 lacs in equity mutual funds, 5 lacs in FD, 0 in direct equity and rest in metal if you wish to else , that too can go in mutual funds

  4. Shivani says:

    Very easy to understand article. Thank You Manish!

    1. Thanks for your comment Shivani

  5. Mahesh says:

    I am retired at the age of 58. On a current monthly expense of Rs.65000 and a life expectancy of say 85 to 90 years(taking a maximum number for age) and assuming I get return of around 10% since I have most of my investments in equity schemes and with the current inflation, what is the corpus that I should be having which is safe enough to take me through my retired life.

    1. Its roughly 20-25 crores !

      1. Mahesh says:

        Confused… I am now 58 and retired 4 months back. What should be the ideal corpus that I should have at this moment to take me through my retired life? The amount of 20 to 25 crores looks very high. Please clarify.

        1. Oopps .. I meant 2-2.5 crores.

          Manish

  6. Suresh says:

    I am first time planning to invest in mutual funds. My goal is long term investment. I am 32 & married. I would like to start with investing Rs 10K per month in SIP mode. On reading couple of articles & some research over internet, I got to know about diversified investment where one should invest 70% in equity related & rest 30% in debt related funds. Moreover, In equity related fund, 65% should be large cap funds while rest 35% should having mid and small cap funds.

    I have narrowed down some schemes for Rs 10K investment given below
    3K in Franklin India Bluechip (Solely Large cap fund)
    1.5K in Canara Robeco Balance(65% equity : majorly in large cap; 35% in debt, tax benefits also)
    1.5K HDFC Mid Cap funds (70% contribution to mid caps)
    2K in Axis long Term Mutual Fund (Multicap fund, tax benefits as well)
    rest 2K in some debt related mutual fund

    I am not an expert in this area, thus seeking inputs from you whether I am going in right way or not? Please give me valuable suggestions.

    1. I think the funds are good. But the number of funds is very high . I would suggest just choose 2-3 funds max. 2 is better. Put 5k in each

  7. CHIDAMBARESWARAN says:

    good article

    1. Glad to know that CHIDAMBARESWARAN ..

  8. Ashish says:

    Hi Manish,

    One small suggestion, In this Calculator we should also have option to Fill in current savings towards Retirements so that it can help us to plan better.
    (As most of ppl have PPF/EPF a/c running and we should be able to take that in or planning)

    Regards,
    Ashish

    1. Yes, I dont have that right now . Will change it

      1. ashish says:

        Manish sir, Calculators should be part of your Android App. I installed it but these are missing.

        1. Will get them there in next update of app

  9. Ashish says:

    I just wanted to say Thank you for your great job.

    1. Welcome Ashish πŸ™‚ Keep reading the blog

      1. ashish says:

        Such a good articles needs options to share on Twitter & Facebook for our friends. Can we have this features please.

        1. If you look on left side, there are options to share it on facebook or twitter

  10. sajan says:

    now my age is 41 ,after 20 years -monthly i need 20000 -whitch is the best pension plan pls tell me

    1. We dont suggest pension plans !

  11. Rohit says:

    Hi Manish,

    My father has retired and we are looking to invest the funds he got after retirement like PF etc.
    Can you please advise where should we invest?

    1. A combination of Mutual funds investment along with FD would work

      1. Rohit says:

        Hi Manish,

        Can you suggest some MF, as we see market is very volatile now a days and it looks risky.

        1. I think you should then stay away from mutual funds

  12. shashi says:

    dear sir
    i am 45 old anď my unsaternity in the job
    on hand rs 20 lakh kkhow to invest to get aprox 30k per moth as a penson

    1. Generating 30k per month from 20 lacs is not possible, unless you want to exhaust it in 10 yrs .

      I suggest make an FD with quarterly interest !

  13. Jayden says:

    Hi Manish

    Thats a wonderful article for investment and retirement. My age is 40 yrs. I already have a savings of 1.5 crores. Planning to retire in 3 years. My current saving potential is 2.3 lakhs every month from my salary. With the current saving potential every month, I will add another 80 lakhs to the existing savings. So at 43 years, I will have savings of 2.3 crores.

    What would be my best option for a good monthly income, when I retire in 3 years? Is fixed deposit the best way.
    Please advise.

  14. Kalyani says:

    I even like this option for a tenure of 20 years
    HDFC Top 200 Fund(G): 8,000.00
    DSPBR Small & Mid Cap Fund-Reg(G): 4,000.00
    IDFC SSIF-MT-Reg(G): 4,000.00
    Reliance Equity Opportunities Fund(G): 4,000.00

  15. Kalyani says:

    Hi,
    Here are some of the funds that I am planning to use for my retirement SIP
    Monthly SIP: 20,000; target: 20 years

    ICICI Pru Focused BlueChip Eq Fund-Reg(G) : 11,250.00
    ICICI Pru Value Discovery Fund-Reg(G): 6,250.00
    Reliance MIP(G) :5,000.00
    Quantum Gold Saving Fund(G): 2,500.00

    Does it make any sense? I am not so much sure whether to invest in Gold Saving Fund scheme though.

    Thanks
    kalyani

    1. These are good enough .. go ahead !

  16. Rajan says:

    Hi Manish,
    I downloaded your monthly contribution calculator.
    Also I downloaded your PPT to understand logic. I cross checked with my calculators and found values are matching and your way is simpler.
    So using your formulae, I further produced inflation calculator and Reverse annuity calculator for yearly contribution (your file has monthly calculation). It means I have understood your concepts clearly (of course credit goes to you because method used for teaching was very simple).

    I still have difference from my requirement from this calculator. Because your calculator gives monthly contribution amount which is fixed throughout period with % being constant.
    Do you have any calculator wherein % remaining constant, if contribution amount is increased at certain % every year, goal amount is derived? or say Goal amount given and assumed % being fixed, I will get monthly contribution different for every year as my contribution will increase at fixed rate every year?

    Reason behind finding such calculator is that, normally contribution should increase with more salary in hand later months of investment life instead it being constant from 1st installment.

    Please help.

    1. Yes, I get your point , but as of now , do not complicate things .. I mean for now just start with some number comfortable and then gradually later. Do not go as per calculations, because then you start trying to find the perfection !

      1. Yashaswini says:

        Hi Manish,
        Thanks for all the help on making the formulas easy. Your calculation helps in determining how much to invest monthly to achieve your retirement corpus. But, you have not considered present savings that we already have . For example, if i already have Rs.100000 in fixed deposit and invest 1000 per month, how will my savings grow assuming a return of 10%. and how to calculate monthly contribution when you have fixed as well periodic savings. Appreciate your guidance here.

        1. Actually I will have to incorporate it, As of now you can use the maths formula to find out the corpus you will have and deduct your number from that .

  17. Anand Mahamuni says:

    One of my “close friend-n-my LIC Agent” has presented me an retirement plan for my wife (age 40): Jeevan Saral – term 22, yearly premium – Rs. 72060/- and paying upto 2033
    He say it has to be started in this month (aug – or latest by Sept 2013) as there would be “service charges added in all the LIC policies starting in Oct 2013” [is that really true]

    Returns:
    1] Retirement monthly Income – would be Rs 25300/- (age 61 – in 2034)
    2] withdrawal available of Rs 42,83,305/- (age 61 – in 2034)

    What do you say on this – from a view of an retirement plan?

  18. Nimesh Shah says:

    Hi Manish,
    In the example given one component is missing. Tax on the income. If Ajay is earning Rs 40,000 per month he has to pay tax and to minimise the tax outgo he has to make investments in various tax saving instruments. So this also adds up in the expenses.

    Thanks,
    Nimesh

    1. Thanks for adding that angle . I didnt think that way !

  19. SAJJAN AGARWALLA says:

    Dear Manish,

    I am very impressed by your valuable advices. Plz let me know which plan is good between lic jeevan saral and max LLPPP plan. I suppose to pay 12000/- per anumm.

    1. I would not suggest anything between them ..

  20. Priya says:

    Hey Manish , Visited your blog after a long time .. and came across this article just about the time when I was looking for Retirement planning. nice insight!

    1. Great to hear that .. do check my second book , retirement planning is discussed in detail there – bit.ly/Financial-planner-book

      1. Priya says:

        Hey , I have just ordered 2 books of yours from FlipKart – “16 Personal Finance Principles Every Investor Should Know” and “How to be Your Own Financial Planner in 10 Steps: Master Your Financial Life 2”

        1. Great to hear that Priya πŸ™‚ .. Let me know your review of those after you complete it

  21. Joy says:

    Hello Manish,
    Great Article, as you know I have been following your blog for sometime now, its very informative. I need couple of suggestions from you.

    My Age 32, my wife’s age – 28, Both of us earn.
    Monthly Expenditure 45K ( considering Kids expenses also )
    So my target retirement corpus will be around 4.5C, I guess?

    Investment what we are doing now

    Myself –
    3k PPF Monthly
    1 LIC policy 13K yearly premium

    My Wife –
    5K Recurring Deposit, just started for 2 yrs
    HDFC SIP just completed for 2 yrs
    3 LIC policies, combined premium 30K yearly

    From your blogs I learnt that I have to immediately take a life term plan with around 1C cover. Apart from that how do you suggest we invest monthly to reach our 4.5C goal? We can save around 17K or more/month, where do we need to put this?

    Thanks a lot in advance πŸ™‚

    1. Yes, you should be investing maximum you can for your retirement from now, get my second book also which talks about retirement planning – bit.ly/Financial-planner-book .

      You should get a term plan for 1 crore as soon as possible . What are you waiting for !

  22. nisha says:

    Dear Manish,

    I have just come across your article and it seems interesting and informative could you guide me with my financial planning.
    Age – 28 years
    Mumbai location.
    No knowledge in share market.

    Monthly can save upto 15000Rs -currently saving in PPF and nothing else.
    requirements – purchase a house in mumbai, retirement benefits and better living.

  23. suman gupta says:

    Manish,

    I am reading your articles since a long time and they are always informative and an eye opener at least for people like me who forget to think on it during a rat race of life. What i would like to ask that on the basis of your calculators, retirement corpus would be Rs 3.5 cr after 30 years (Present Age 30) for me but the point is after every year my salary will also increase as similar to inflation. If we consider this , amount of 1 lac annual investment can be easily increased in future because CAGR comes at 21.67 % on 1 lac annual investment for 30 years to get 3.5 cr as needed. Is there any way to get that sheet where we can increase investment every year by 8 %.

    1. You can do that kind of calculation using these calculators – https://www.jagoinvestor.com/calculators/html/Goal-Planner.html

  24. ANAND says:

    Simple calculation to my personal understanding

    Calculate how much you are spending – Say X

    Simply put the same amount of X every month into the investments which gives just better than inflation. The returns from that corpus should be able to take care of the needs. Caution – depends upon the individual committments, No EMI, No liabilities

    1. thats a great simple way of looking at it πŸ™‚ ..

  25. karanthsp says:

    Nice article.I shall study further & decide.Thanks.

  26. Raj says:

    Hi Manish,

    In one of the reply to a post in this topic, you had mentioned to aovid PPF as the one’s debt part is already covered under the mandatory EPF. Is not it make sense to invest in PPF/VPF too as the debt component, apart from and by forgetting the EPF part?

    Thanks,/-Raj.

    1. Yes , if a person is young , then his EPF part is enough as debt component.

  27. neeraj verma says:

    manish ji,
    i m 38 yr old i can invest 15000 pa. how much pension we get per month if we take retire on 58 and where should we invest pl. suggest.

    1. Better give more details about your case, what is your risk taking ability .

  28. SHYAM says:

    Dear Manish Sir,

    I have read your article for Gold Investment. I want to invest 2 Lac in Gold for long term so pls suggest me that in which fund can i invest.
    1. Physical gold
    2. Gold ETF
    3. Gold MF
    4. E Gold
    I am very confuse.

    Thanks

    Shyam

    1. Shyam

      What is it that you want .. each thing has their own advantage and disadvantage !

  29. Srinivasan says:

    Where nice article, thank you.
    In you retirement claculator, to calculate the need to save monthly, in formula you have divided Return you can generate (ideally take 11-12%) by 1200. Where did this 1200 come from.
    =(B11*(B8/1200))/((1+B8/1200) * (1+B8/1200) ^(12*B4) -1)

    Regards
    Srini

    1. Srinivasan

      Its compounded monthly , thats the reason we are dividing it by 12 and multiypluing the tenure by 12 , as its percentage so we are also divinding by 100 more .. so

      Manish

  30. P R Kumar says:

    Hi Manish

    Can you please review Tata Retirement Savings Fund?

    1. PR

      Thanks for asking the question . For the best answer , I think it would be best if you can ask it on our forum . There are dozens of experts waiting to help you , I will also try to put my answers there , so that others can also benefit from your question. https://www.jagoinvestor.com/forum/

  31. Raju says:

    I am raju 41 yrs old getting income from my salary Rs.50000 pm
    my savings are 1) LIC Rs.31000/- p.a and 2) PPP/SBI Rs.12000/- p.a.
    I can save upto Rs.15000/- to 20000/-p.m
    can you guide me where I have to investment
    my details are: self 41 yrs, Wife 40 yrs Daughters 11 yrs and 4 yrs

    1. Raju

      Seems like you are heavy on Debt products from many years which means you dont have much in your equity portfolio , Its not a great hting . Try to now start investing in equity mutual funds with focus on loong term .

      Manish

  32. jyoti says:

    Hi

    I want to know the where to invest section clearly what is above 15% n all.

    1. your querstion is not clear

  33. Balaji says:

    Hi Manish,

    Thanks very much for the article. It is really a eye-opener.I have planned a retirement corpus of 2.5 cr by the time I retire @ age 60 which is 28 years away.My retirement corpus consists of :

    1. EPF : Rs. 94,25,000 ( EPF of Rs. 24,032 p.a @ 9% returns p.a with my income increasing by 8% annually for 28 yrs )
    2. PPF : Rs.6,16,000 ( Rs, 12,000 p.a for 28 yrs @8% pa )
    3. Mutual funds : Rs 1,50,00,000 ( Rs.5,500 per month via SIP, @12 % returns for 28 yrs )

    I have the following questions:
    1. Do u think the asset allocation mix is right? Or, do i have to invest in Real estate ( right now i am living in chennai, house being jointly owned by 4 of us in the family. I would most probably buy a house in 5 years time in chennai itself )
    2.Do i have to increase the equity allocation?
    3.What is the most appropriate mix of mutual funds ( my risk appetite is moderate )?
    4.Do i have to sell all my mutual funds,close EPF and PPF accounts after 28 years, or, should I sell/close those in a phased manner ?

    Awaiting for your valuable comments..

    Regards
    Balaji

    1. Balaji

      You are investing in the ratio of approx 60:40 in equity : debt . I am not sure of your age , but considering you are around 30 , you should increase your equity to 80% , Dont do PPF investment as your EPF will be compulsory .

      Manish

  34. Sunil says:

    To all,
    When we think about safe investment NSC and PPF comes into picture!!
    But every one forget about Jeevan Saral which claims to be 10% compounded return on every premium, if you stay invested for 12 years minimum. This is what every LIC division suggests agents to propose the same in brochures..
    And of course you get additional benefit of death and accident benefits too..

    The risk is loyalty addition may vary results in 8.5 to 9%( greater than NSC etc) return but based on LIC profit making business, the above return is very much possible.
    Please post your views on these.

    1. Sunil

      No i dont think so Jeevan Saral gives 10% returns , I am trying to do a review soon on this . Its just an illustration that they show on 10% . Try asking this on forum : https://www.jagoinvestor.com/forum/

  35. Praveen Kumar says:

    Dear Mr Manish,

    It is a great pleasure and learning experience that we receive when i go thorugh ur blog. U cannot imagin what great difference ur blog is making to the lives of thousands readers and their generations to come. I am an engineer by profession and was never intrested into personal finances, Hence when i read ur blog i feel i am left way behind in planning my financial requirement. I therefore humbly request u to please guide me in setting up my financial investment for my future.
    Profession Engineer, Private Org, Age 42, Children one boy- 2 yrs old.
    Saving LIC policy-2 nos, One Jeevan shree- 6681- QTY premium,10 yrs old. 25 yrs. other Endowment Policy- 10780 Qty Premium, 6 yr old, 25 yrs.now which i am seriously thinking of surrending after reading ur blog.
    I can save upto 25,000 per month. Goals, son’s education, marriage and my regular income post retirement.

    Pls guide me.

    Thanks a lot.

    1. Praveen

      Thanks for your kind words ,I am glad you are recognising the importance of planning things . However you should understand that financial planning is not limited to 2 line suggestions . Its a combination of too many things, It will take time and effort to understand your requirements , your goals and how to plan for it .
      For basic guidance , you can look at surrending your existing insurance , take proper term insurance , plan for your each goal seperately using the calculators I have provided .

      Manish

  36. Avi says:

    Manish,

    I have recently started visiting your website and I think you are doing an awesome job. Keep up the good work man! I have been learning a lot from your website.

    I do have a couple of questions and I was wondering what yours (and other peoples’) thoughts are on this –

    1. Over a longer period of 15-20+ years (for retirement planning), it is often debated that fund managers would find it difficult to beat ETF/Index funds’ returns. Do you think then it doesn’t make much sense for people to try to figure out which are the good/better/best Equity Diversified funds and instead they should just choose one or two low cost index funds (for nifty and maybe another one for the small/midcap index) and continue investing? Would that portfolio possibly perform better than say a portfolio of HDFC Top 200, DSPBR Top 100 and Sundaram Select Midcap over a period of 20+ years?
    The other way to look at it is, let’s say I begin with the above portfolio and every few years whenever (and if) these funds become laggards, I gradually move onto other top performers and continue following this approach with SIPs till retirement. Will this prove to be better than the index fund portfolio?

    2. Also, in light of your other post related to trail commissions and their impact on mutual fund returns (this should probably be in the comment section of the trail commission post but I thought my questions were related so here it is), are we then saying that it makes all the more sense to go the index fund route especially since equity diversified mutual funds will prove costlier in anycase.
    I am very much interested in knowing how do ULIPs compare to MFs in terms of costs, I believe you are planning on writing up a post on that sometime. Though a part of me says, regardless of the fact that MFs may prove to be costlier in the long run compared to ULIPs, I would still prefer a product that is simple, understandable and can be handled by most lay investors.

    1. Avi

      1) No matter what the major thing which helps you get returns is consistency in investing , your discipline, and your asset allocation + rebalancing ,fund selection comes later, in india active mutual funds will get you more than ETF’s for some more years , unlike US our stock markets are yet to become mature , only then will active managed fund will find it too difficult to beat ETF’s / index funds , till then good active funds like HDFC top 200 should beat index by a good margin .

      you can take any approach , choose good MF and churn the portfolio every 2-3 yrs after a review , or stick to a low cost ETF or index fund .

      2) Index fund can be choosen in which case there will be less work to be done by you , with active funds your work of review and tracking increases , so it depends on what you want to do . I would say stick to MF , if advice from advisor is great , no problem paying him .

      Manish

  37. Arvind says:

    Hi Manish,

    I would like to get a return of 10-12% to build my retirement corpus. Can you share your opinion on the following options for creating my corpus:

    option 1: PPF/govt bonds – One of the posts (https://blog.investraction.com/2009/09/fds-or-government-bonds-better-than.html) outlined the advantages of govt. bonds over a ULIP pension plan

    option 2: ULIP pension Plan

    Option 3: Equity diversified MF

    It would be great if you could tell me the difference between ULIP pension plans and Equity diversified MF, when it comes to RETIREMENT PLANNING.

    Thanks,
    Arvind

    1. Arvind

      Deepak is correct , dont get into retirement plans by insurance companies .. there are better thigns you can do with your money . Buy Term + Equity Funds + ETF’s

      Manish

  38. kevin says:

    Great Post!

    Here is another guide to saving retirement money.
    https://www.myallstatefinancial.com/financial/articles-and-guides/make-retirement-plan-that-works.aspx

    Hope this helps!

    Kevin N
    Allstate Advocate

    1. Kevin

      thanks for the points ..

      Manish

  39. Krishna says:

    Hi,

    I am not clear where to invest the money for retirement I am 31 yr old

    1. manish says:

      Krishna

      If you look back at article , i have discussed that

      Above 15% : Direct Stocks , Sectoral Mutual Funds , Equity Diversified Mutual Funds
      10-15% : Equity Diversified Mutual funds , Balanced Funds
      8-10% : Mix of Balanced Funds Debt Funds
      Less than 8% : FD’s , PPF , Debt Funds , Balanced Funds

      So the thing is that you are young and you have time and risk appetite to invest in equities .. like Direct shares (not recommended for newcomers) , equity mutual funds . ETF , Real estate , Index funds

      Manish

  40. rk says:

    After reading the article, i just cant wait to tella big THANK U to u….
    Thanks man….
    keep posting ….

    1. manish says:

      Thanks Raj

      Keep commenting πŸ™‚ .. Are you going to implement these steps for you or some one else .. Was it easy to understand πŸ™‚

      Manish

  41. Pingback: Investment advice
  42. Manish Chauhan says:

    @Chandu

    Suppose your money is in Debt funds , you can use SWP option and withdraw your money inline with your expenses . There are laddering techniques used with products which can device a strategy which can provide you income by keeping in mind the inflation

    This can get advanced . The main idea is this .. if you have 10 rs and 4 yrs in hand , you can take out 2.5 ,2.5 , 2.5 , 2.5 or

    1,2,3,4

    you can decide if its increaseing or decreasing .

    Manish

  43. Anonymous says:

    pl explain how ? …. chandu

  44. Manish Chauhan says:

    @Brij

    You can take deposit rate at 8% and inflation at 6,5% (average of last 25 yrs)

    @Chandu

    Yes, you are correct .. There monthly income should also expand as per inflation .. At retirement they can structure things in such a way that the income they get also goes up as per the inflation ..

    Manish

  45. Anonymous says:

    Manish ji,
    in your example, u hv calculated corpus needed at the age of 60 i.e. 2.91 cr. U hv assumed rate of return after retirement as 7%. and this 7 % interest will be used for living expences. But after 60 yrs also, there will be inflation (for ex 6.5%), and hence corpus should also grow by at least 6.5 % per year to take care of inflation.. pl guide.. chandu

  46. Brij says:

    In the above comment, i refer to the interest rate on deposit at the time of retirement (i.e. interest rate on retirement corpus generated after 25/30 years)

  47. Brij says:

    Hi Manish…
    Good article.
    But one major doubt / uncertaintly while calculating and that is the assumption of Inflation rate and interest rate (of deposit).
    How to calculate how much the deposit interest rate. Whether it will be at part with inflation of below or above??
    Also one more is what abt inflation after retirement??
    Regards

  48. Manish Chauhan says:

    @Yogi

    yeah ..i had a look at it .. thanks a lot for sharing this .. πŸ™‚

    I will try to write something about this with equities flavor πŸ™‚

    Manish

  49. Yogi says:

    Hi Muhamed/Manish,

    I think you need check this out.

    ====================
    Let us put the Rs.2,000 per month in a bank fixed deposit (FD) at a nominal 8% interest compounded annually. That makes Rs.24,000 annual investment in FD. For the next 30 years, let us assume that the interest rate remains constant at 8%. The Rs.24,000 per annum investment at 8% will accumulate to Rs.29.36 lakhs.
    This amount (Rs.29.36 lakhs) if reinvested again in FD at 8% interest will give annual interest of Rs.2.35 lakhs or a monthly interest of Rs.19,575 for life. Now compare with this the Rs.15,315 per month ICICI's Retirement Plan. The FD comprehensively beats the returns of ICICI by a massive Rs.4,260 per month (21.8% more). And don't forget that the FD return is more or less guaranteed where as ICICI's 10% return in risky and market dependent (it could be less, or more). Also, the accumulated Rs.29.36 lakhs is preserved for passing on to the next generation
    ===========================

    Courtesy:Deepak Shenoy https://blog.investraction.com/2009/09/fds-or-government-bonds-better-than.html

  50. Manish Chauhan says:

    @Mohammad

    thanks for sharing that tool . Its very nice πŸ™‚

    Manish

  51. Mohammad says:

    "Hi,
    Thanks for article about retirement planning this could supposively help people to live their live happily & king size. Here is an online tool which I would also like to recommend you which helps people to plan insurance according to their need & budget especially in retirement plans. It also helps you to calculate pension which you would gets after retirement.
    Please check this out at ;

  52. Manish Chauhan says:

    @Nikhil

    Thanks

    @Devon

    Thanks , Which other articles you are looking forward to ?

    Manish

  53. Davon says:

    Eye opening article about the planning before the retirement
    Look forward more articles from you Manish

  54. Nikhil says:

    u can get it from RBI website or any news website or u can google it.

  55. Manish Chauhan says:

    @Nikhil

    I agree with you , Do you know where can i get the statistical data on CPI ?

    Manish

  56. Nikhil says:

    when one takes inflation into acccount, one shud consider CPI inflation and not WPI.

  57. Manish Chauhan says:

    @Mohan Thanks

    @Nikhil Hmm… Ultimately it would be some kind of logical investing which we talk about here at jagoinvestor , can you share more on this , try to find out more πŸ™‚

    @Yogi I saw the link , and at the end, its nothing but the portfolio rebalancing in one form or the other .

    You can choose any way , choosing something is important πŸ™‚ , not what you choose .

    manish

  58. Yogi says:

    Hi,
    Once again good one.
    I recently read an article on rediff. It 2 plans to help you buy low and sell high
    I tried reading through the article a few times, but I get confused everytime.
    Do you think this can be an effective way to manage investment in equity over a long period of time.

    https://www.rediff.com/cms/print.jsp?docpath=//money/2008/sep/22perfin.htm

    Regards
    Yogesh Tiwari

  59. Nikhil says:

    hey manish nice article.
    lemme share something which i read in EcoTimes Investment Guide(I m telling u vaguely as i remember it vaguely)
    in that they advised to invest d dividends in PPF.. and dividends and PPF interest are tax free so ur investment curve goes up like an exponential function.they calculated therein how dividends of Rs.2 lacs bcom Rs 25lacs in 20 yrs horizon.they said they had uploaded the portfolio on the website. they called it 'hybrid investing'..

  60. Mohan says:

    Hey Manish, nice summary with detailed inputs. I am sure it will help a lot of people out there!

    thanks for this great article again!

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