Q. I am 35 and earn about ₹9 lakhs per annum. My child is 7. In order to support my retirement and my child’s education, what percentage of my total income should I invest? Where?
When you save and invest, you must look at your goals in totality and not in isolation. Start by evaluating:
- Assets you have accumulated
- Your monthly surplus
- Timeframe for your goals
- Your appetite for taking risks
- Amount required for each goal as on date
- Future value of each goal after accounting for inflation.
For your retirement
Retirement is a crucial phase in life. The earlier you start saving for this goal, the better.
These are some of the factors you must consider before you start investing to fund your life after retirement:
- At what age would you like to retire?
- What are your current living expenses?
- What is the kind of lifestyle you live and want to maintain?
- Who all are directly dependent on your income?
- Do you have any passive source of income which will provide for your expenses post retirement?
- Life expectancy is not easy to predict but, for the sake of assessing funds requirement, for how many years after you retire do you expect to need support?
Once you have the answers to these questions you can arrive at a corpus which will help you cover your inflation-adjusted expenses after retirement. As of now what you have and earn is likely to fall short of what you need. This deficit can be the basis for arriving at your required returns from your planned investments.
For child’s education
Again, start with a few questions to assess funds needed for your child’s education.
- In today’s terms, how much would you want to spend on your child’s graduation?
- When are you likely to need the funds for this goal?
- What is the future value of this goal after adjusting for inflation and currency fluctuations (assuming you plan to educate the child abroad)?
Once you have the answers, arrive at the required savings for graduation after accounting for accumulated assets and your appetite for taking risks.
Prepare for emergencies
In addition to saving for your retirement and your child's education, it's important to have an emergency fund. An emergency fund is a cash reserve that you can use to cover your living expenses for at least 3 to 6 months in case of unexpected events such as job loss, health emergencies, or unforeseen expenses.
Having such a fund will ensure that you do not have to compromise your preparation for both your retirement and your child’s education, on account of an emergency.
Remember that all investments must be made according to your goals and your capacity to take risks. Considering both your current goals are long term in nature, you may want to consider long-term debt mutual funds, equity mutual funds, NPS and PPF.
A financial advisor can help you create an investment plan tailored to your goals and risk appetite, and guide you through the process.
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