How Much Should I Save to Retirement at 65?

At the age of 37 with no savings and a desire to retire at 65, effective financial planning and strategic saving are crucial. This article delves into the necessary steps and considerations for achieving a comfortable retirement.

Understanding Your Current Financial Situation

To begin with, let's understand your current financial situation. If you are currently spending ?1,00,000 (1 lakh) per month and have no savings, it is likely that either your income aligns with this expenditure or you are borrowing to support this living standard. Alternatively, it could be that you have a higher income and are repaying loans while also spending about ?1 lakh per month. In any scenario, having a solid savings and investment plan is essential to ensure a smooth transition into retirement.

Estimating Future Expenditure

Assuming your expenditure could possibly increase due to inflation at 10% per annum, by the time you reach 65, your monthly expenses could rise significantly. To estimate your future expenditure, consider the following step:

Calculate current monthly expenditure: Estimate your current monthly expenditure, including all necessities and discretionary spending. Adjust for inflation: Increase the current expenditure by the projected inflation rate (10%) for each year until you reach 65. Final amount: By 65, assuming no changes in expenditure, your monthly expenditure would likely be around ?1,083,471 (1083471).

Investment and Savings Strategy

To ensure you can sustain this level of expenditure, a standard calculation suggests that you should have invested around 25 times your annual expenses. Given your current expenditure, the amount needed would be approximately ?325,041,475 (325041175).

Given that you have no current savings or investments, you need to adopt a more aggressive strategy. This typically involves:

Evaluate your monthly income: Determine a portion of your monthly income that you can invest aggressively. Aim for at least 40–50% of your income. Reduce expenses where possible: If you are not reaching the desired savings rate, consider reducing your current expenses. Maximize your investment time frame: With about 25 years left until retirement, this provides a substantial time to grow your investments.

Recommended Investment Portfolio

To ensure you meet your financial goals, consider the following investment portfolio:

For Single Individuals

When single, it is recommended to save 60–70% of your income and invest in volatile assets for better returns.

Married Individuals with or without a Spouse Earning

No Spouse Earning: Allocate 35–40% of your income to savings, prioritizing relatively mild volatile assets. Spouse Earning: Save 20–30%, with focus on mild volatile assets. Less than this is not sufficient, regardless of the number of dependents.

Long-Term Goals

For long-term goals such as children's education and retirement planning, consider the following:

Contingency fund: Set aside 1–6 months of salary for emergencies. Investment: Allocate at least 30% of your expenses for long-term goals.

For optimal growth and risk management, consider a mid-cap and small-cap mix in your portfolio:

Small Cap Investments

Highly Aggressive: PGIM Small Cap, Quant Small Cap Moderate Aggressive: Kotak Small Cap, SBI Small Cap Least Aggressive: Axis Small Cap, Canara Robeco Small Cap

Mid Cap Investments

Highly Aggressive: PGIM India Midcap Opportunities, Edelweiss Mid Cap Moderate Aggressive: Kotak Mid Cap, Mirae Asset Mid Cap Least Aggressive: Axis Mid Cap, Invesco Mid Cap

A balanced mix of small and mid-cap funds can help you navigate market fluctuations and achieve better returns. For instance, an equal mix of PGIM India Small Cap, Quant Small Cap, and Kotak Emerging Equity, or a mix of SBI Small Cap, Axis Small Cap, and Quant Midcap/Edelweiss Mid Cap.

Conclusion: To retire at 65 with a comfortable lifestyle, it is crucial to start saving and investing early. Considering your specific financial situation and goals can help you tailor a personalized plan. For more detailed guidance, consult with a financial advisor.