I am central government employee earning Rs 5 lakh annually. Am I svaing enough for my retirement?

In every ET Wealth edition, our panel of experts answers questions related to any aspect of personal finance. If you have a query, mail it to us right away at etwealth@timesgroup.com.

I am a 33-year-old central government employee. My annual income is Rs 5 lakh. I started investing Rs 5,000 per month in bluechip funds in 2019 via SIP. I also have three RDs of Rs 2,000 each in the post office, started in 2018. My PPF account, opened in 2019, has around Rs 40,000 now and recently I started an endowment plan with an annual premium of Rs 13,000 for 15 years in postal life insurance. Apart from this, 10% is deducted from the salary for NPS. Except for the above investment I don’t have any other savings. Is this enough for my retirement and future expenses?

Adhil Shetty, CEO, BankBazaar replies, “Given your annual salary is Rs 5 lakh, you are currently investing approximately 30-35% of it for your future goals. This is a good percentage and ideally, you shouldn’t stretch beyond this. Your investments also appear sound. Bluechip equity funds are a good long-term investment. Your RDs would also give you good returns, but you may want to consider converting some of those to SIPs as well over time, as that may fetch you better returns. I would strongly recommend you relook your endowment plan. Mixing savings and insurance is never a good idea as you miss out on both adequate protection and returns. If you have dependants, consider opting for a vanilla term insurance product that gives you up to 20 times your annual salary, so that your dependants are financially secure in case of anything untoward. Investing in the market is the only way to build an inflation-proof retirement corpus. There is no one particular size the corpus should be, and it remains for you to decide how big you need it to be. One way to calculate this would be to calculate your annual expense considering an annual inflation of 8% and then multiplying this by 25. This would come to roughly Rs 4 crore assuming annual expenses to the tune of Rs 2.5 lakh. Despite the size of the corpus, this is not an unachievable target. All you need to do is be consistent in your investments, step them up regularly – typically by 5% every year, and invest in high-performing mutual funds from a solid fund house for the long term. You should be able to build a corpus comfortably.”

I’m a 47-year-old salaried person. My PPF account will mature in May 2022 and the maturity amount will be around Rs 2 lakh. Where should I invest this amount for the next 10 years to earn better returns?

Prableen Bajpai, Founder FinFix® Research & Analytics replies, “PPF is a fixed income product with clarity on returns, benefit of linear compounding, and no risk. Equity instruments can offer you higher returns. However, they will come with an element of risk. Thus, if you plan to move into equities, do remember that the process of compounding is not linear, and there will be periods of downturns as well during the 10-year journey. An ELSS can be picked for saving tax under Sec 80C. If you already have a mutual fund portfolio, then invest in an ELSS after checking for overlaps with your existing schemes. For example, if you have a large-cap oriented portfolio then your ELSS can have more of mid-cap exposure. STP is a good way to invest but the process can result in upward averaging as well based on market movement. Simply invest in one or two tranches since the investment horizon is long. In 10 years, an investment of Rs 2 lakh can grow to Rs 5.92 lakh assuming a 11% CAGR. If part of your tax planning is taken care of by EPF, then you can choose open-ended equity mutual funds. Since there is no mention of your existing investments, overall asset allocation, risk appetite, goals, and other details, please take the final call after factoring in all these aspects.”

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