Mr. Z, aged 52 years, is working in a leading company. His net savings are Rs. 50,000 p.m.
Based on salary growth and other factors, he expects this to rise by 20% p.a. till his
retirement at age 60. This does not include monthly contributions of Rs. 9,000 (Rs.4000
own contribution; Rs.5000 employer contribution) to various funds towards retirement
corpus.
These are expected to grow by 20% p.a. till retirement. The retirement corpus by
the end of the year will be Rs. 12 lakhs, entirely in debt, which will yield 8 % p.a. on
average. Besides his own residential house and the retirement corpus, his savings and
investments will amount to Rs.50 lakhs by the end of the year, 30% of which will be in
equity.
He has a practice of investing, at the end of each year, his disposable savings into
debt and equity in the ratio of 80:20. In the long run, he expects equity to yield 15% and
debt to yield 8.5%
.
At the end of age 55, he expects an outflow of funds amounting to
Rs5lakhs, which he hopes to meet out of annual savings.
He expects inflation of 10% and post-retirement investment return on his portfolio at 11%.
His current expenses are Rs40,000 per month.
Assume zero date as the end of age 52. Calculations are to be done on annual basis.
Ignore taxation and interest income on savings and contributions during the year. On retirement, how much will Mr. Z have in his retirement corpus?
