RETIREMENT CASE STUDIES 
Facts
Mr. Raghavendra Verma is a software engineer working for an reputed IT firm. He is earning Rs. 29,990 per month as his gross income. He is aged 28 and his marital status is single. His monthly expenditure is presently Rs. 10,500. His net cash surplus, after the tax cutting and PF contribution, stands at Rs. 13,485. He is planning to retire in the year 2034. He wants to have Rs. 20,000 per month as on today after his retirement to cover all his expenditure. He wants to start his retirement planning after two years form now.The present case tries to find out a feasible retirement planning that he needs to do for achieving this goal.
Name of the Client: | Mr. Raghavendra Verma |
Gross Income (including PF): | 29,990 |
Basic: | 9,500 |
PF contribution (pm): | 1,140 |
Expected Expenditure after retirement (pm): | 20,000 |
Number of years to retirement: | 25 |
Monthly Surplus: | 13,485 |
Diagnosis
- The client has a surplus of Rs. 13,485 out of which he should set aside some amount towards his retirement planning.
- The client intends to have 20,000 per month as his expenditure post-retirement.
- The inflated value of his desired expenditure after 25 years stands at 67,727 per month (Assumed inflation = 5%).
- The client is contributing 1,140 per month towards PF.
- The client has a term insurance policy on his name.
- Let us assume that he has a 10% salary hike each year.
The retirement scenario of the client can be summarized as given below :
| RETIREMENT PLANNNIG |
| Inflation assumed = |
5% |
5% |
5% |
| Years left for retirement = |
25 |
25 |
25 |
| Present expenditure |
20,000 |
20,000 |
20,000 |
| Inflated value in 2034 |
67,727.1 |
67,727.1 |
67,727.1 |
| Yearly expenditure |
8,12,725.2 |
8,12,725.2 |
8,12,725.2 |
| Expected annual return at retirement = |
5% |
5% |
5% |
| Total corpus to be accumulated = |
1,62,54,504 |
1,62,54,504 |
1,62,54,504 |
| Balance accumulated by EPF |
70,00,000 |
70,00,000 |
70,00,000 |
| Survival benefits of Insurance plan |
0 |
0 |
0 |
| Amount Yet to be Covered |
92,54,504 |
92,54,504 |
92,54,504 |
| Assumed return= |
15% |
12% |
8% |
| Tenure of investment (yrs) = |
23 |
23 |
23 |
| Annual savings required = |
58,103.42 |
88,472.73 |
1,51,979 |
| Effective rate of interest = |
0.161 |
0.126 |
0.083 |
| Monthly investment required = |
4,031.63 |
6,309.66 |
10,366.19 |
Recommendations
- The client has to invest according to his risk profile in discussion with his financial planner.
- The three possible situations given above give a fair idea of the amount to be invested from now to achieve his retirement goals.
- The client is recommended to invest into mutual funds through the systematic investment plan.
- He can afford to invest into instruments giving around 15% annual return as he is still young.
- If the client is a moderate risk taker, he should opt for a balanced portfolio giving him a return of 12%.
Conclusion
The client should start early so as to reach his retirement goals in a smooth manner. He needs to carefully invest his money after taking the consultation of a financial planner who can gauge the risk and return in a more efficient manner. Finally, retirement planning is a must for everyone so that they do not face any difficulties post-retirement and have a planned future all the way.
|
