4% withdrawal rule: Meeting post-retirement wishes is something that depends much upon one’s financial planning. According to tax and investment experts, one needs to plan for one’s retirement at the beginning of one’s career or say from at least 30 years of age. In that case, the investor will have a long 30 years for investing. They said that long term investment helps an investor to start with smallest possible monthly investment if he or she don’t have an upfront amount for one time investing.
Investment goal to meet post-retirement wishes
Speaking on minimum monthly expense one would need after 30 years, SEBI registered tax and investment expert Jitendra Solanki said, “Today a lower middle class and middle middle class person need at least ₹50,000 per month to meet one’s minimum basic needs post-retirement. Keeping 6 per cent average inflation in mind, this ₹50,000 per month would go up to around ₹2.90 lakh per month after 30 years. So, one should start investing with an investment goal that can help him or her get ₹2.90 lakh per month after retirement.”
4% withdrawal rule explained
On how much retirement fund one would require after retirement to meet one’s post-retirement wishes, Pankaj Mathpal, MD & CEO at Optima Money Managers said, “4% withdrawal rule to meet one’s post-retirement requirements, one would require around ₹6.75 crore after retirement. To pare the inflation increase post-retirement, one is advised to keep this money in SWP (Systematic Withdrawal Plan) by investing in conservative and balanced hybrid funds. These funds give around 7-8 per cent return per annum that will help the investor to pare the annual increase in inflation post-retirement.” He said that SBI Conservative Hybrid Fund, ICICI Prudential Equity And Debt Fund and Kotak Debt Hybrid Fund are some of the hybrid fund options that one can look at for SWP, if the person has retired recently and mulling to invest the retirement fund in SWP.
Mutual fund calculator
On how to accumulate ₹6.75 crore in next 30 years, Kartik Jhaveri, Director — Wealth at Transcend Capital said, “Equity mutual funds are the best option as they give around 15 per cent return in such a long term perspective. He said that 15 x 15 x 15 rule of mutual funds suggest that if a person invests in mutual funds in SIP mode for 15 years, he or she would get around 15 per cent return on one’s money. As the investment is for 30 years, one can expect to get around 15 per cent return on one’s money. However, my suggestion is to use 15 per cent annual step up to keep the monthly SIP at lowest possible level and increase the monthly SIP amount with increase in one’s annual income.”
Assuming 15 per cent annual return on one’s money in 30 years time using 15 per cent annual step up, SIP calculator suggests that one will have to start with monthly SIP of around ₹30,000. This will enable the investor to accumulate ₹6.75 crore in 30 years.
So, one would need to start with ₹30,000 monthly SIP to meet one’s post-retirement wishes keeping ₹6.75 crore investment goal in mind.