Investment Plans

Plan Your Retirement with This Income-based Investment Strategy

Plan Your Retirement with This Income-based Investment Strategy

Last Updated : March 30, 2022, 3:05 p.m.

Income is one of the most important aspects that influence your investment strategy for a comfortable retirement. It helps decide how much you can invest and in which financial instruments to ensure enough for retirement. Income, to a larger extent, determines your risk appetite, which is one of the key elements in deciding your asset allocation. Investments come with a fair degree of risks; equities are the riskiest, while others are comparatively less risky.

An individual with a high disposable income can take greater investment risks compared to someone with less income. The former can, therefore, hike their equity allocations more than the latter. Equity allocations, if done more and properly, can help meet your financial goals faster. Low earners can too increase their exposure to equities with the rise in income to accomplish their goals. But, how should your income-based equity investment strategy be at different times? That’s what we look to answer through this post. Stay tuned!

Asset Allocations Through Income-based Investment Strategy

Strategize asset allocations after you’re done with the goal corpus calculation. How much should you accumulate to carry on your life after retirement? Keep adding 5-6% to your expenses every year and do so till the 80th year of your life to be at par with inflation.

Life expectancy can be 20 years more than your assumed retirement age i.e. 60 years. So, calculate this way till that time. See what amount comes and plan accordingly. Suppose you’ve just joined the corporate world and are about 35 years away from your retirement. You should thus build a corpus of INR 2-3 crore through income-based investment strategy. That will most likely take you through to the next 20 years.

Investment Plans with an Opening Monthly Salary of INR 30,000

Financial advisors suggest a minimum savings of 10-15% of the income at all times. With an INR 30,000 income, look to earmark around INR 3,000-4,500 monthly. You could have 90% of the amount in equities and the remaining in bank deposits. Suppose you keep putting INR 4,000 in equities for two years, your overall investments worth INR 96,000 would surge to INR 1.08 lakh.

Monthly Income Rises to INR 40,000 After Two Years – How Much Should I Allocate to Equities Now?

Assuming you are still single, you can allocate around INR 8,000, slightly more than the minimum advised amount of INR 6,000, to equities. Hiking the allocation to INR 10,000 and INR 12,000 monthly for the subsequent years would help generate an overall corpus of around INR 5 lakh.

Wedding Bell Rings at 30 – How to Go About Investing in Equities?

Marriage comes with added responsibilities during and after the event. You may want to arrange some sum too for your marriage even as your family can bear the expenses for the same. In case you withdraw INR 1 lakh out of your generated corpus, you’ll still have another INR 4 lakh to build on. Most likely, your income would rise to at least INR 50,000 at that time. If you can hike equity allocations to INR 15,000 and continue to invest the same for five years, the total corpus will grow to INR 16.37 lakh.

Income-based Investment Strategy to Implement from 35 Till 60

The next 25 years would be critical as you not only have to manage your investments but also meet your family’s needs without any fail. So, you need to keep looking for ways to raise your income to meet both present and future demands. Raising equity allocations by INR 5,000 every three years would help you accumulate around INR 2 crore overall.

Note – The return calculations are made at an assumed annual rate of 12%.

But, How to do Equity Investments?

There are several ways to invest in equities. You can buy stocks directly or through mutual funds/Unit-linked Insurance Plans (ULIPs). Investment planning across stocks needs to be meticulous to achieve the goal corpus. Direct investments in stocks require taking the right steps in view of the market movement. Many get into a panic selling mode when their investments start dropping in value. Staying calm through the market downturn remains tough for many who don’t know how to stay safe and even make gains during such times. So, buying mutual funds and ULIPs, where fund managers choose handpicked stocks based on market trends, makes sense.

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