How SIPs can help with financial planning in your 40s?

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How SIPs can help with financial planning in your 40s dekstop

15 SEPTEMBER, 2024

SIPs (Systematic investment plans) help you achieve your life goals including retirement and children's education

"I am 40, have a wife and two kids. I also have aged parents who require constant medical attention. I am the only earning member in my family. I made a lot of investing mistakes while I was younger. I invested in speculative stocks and lost a lot of money. I want to start saving money but I am wary of the equity market. Will debt instruments and deposits and bonds give me a comfortable retired life?”

We got this query from a customer at the bank a couple of weeks back.
It's an increasingly common question that people near the age of 40 ask themselves. They are doing well in their careers but they are also starting to grapple with a lot of financial responsibilities. How are they supposed to manage them? There are four major areas of concern for a 40-year old:

Medical expenses for parents
Children's education and marriage
Home loan
Retirement corpus

Let's get to all the concerns one at a time. The first one is medical expenses for parents. One has to put away cash for his parents' medical expenses. If the monthly medical expense for parents is Rs. 10,000/-, there should be at least Rs. 1.2 lakh that is put away in FDs that can be accessed during times of emergency. If they are below the age of 75, he should get them health insurance policies.

Child's Education and Marriage: Many parents start freaking out about children's education and marriage. Relax, there is no need to worry so much. When you are 40, your child is around 10-12 years old. You still have 7-10 years to plan for your child's higher education. That gives you a good window of opportunity to grow your wealth. Marriage is another 5 years away. You have between 12-15 years to get the funds necessary for this.

Home loan: This is probably the easiest to solve. You have to make sure that there is enough money in your account every month to pay the monthly EMI (Equated Monthly Instalment).

Retirement corpus: Let's assume one spends Rs. 80,000 every month after accounting for their home loan. If he/she wants to maintain the same standard of living when they retire at 60 and we assume that he will live until 85, he/she will need a corpus of Rs. 4.97 crore to retire accounting for inflation at 6%.

Putting all his/her money into fixed tenure instruments doesn't make sense. Over 20 years, they will give him/her negative returns if the inflation is higher than interest rates prevailing in the market. Make no mistake, debt instruments are great financial tools to store cash that you need for the next 2-3 years but they are not good for 20 years.

The best option for you to hit your retirement corpus, give a good education to your children and have tasteful weddings is SIPs in mutual funds. Take a look at the tables below:

Marriage Calculator

Marriage Corpus	Time	Rate of Return	Monthly SIP
Rs. 11.5 Lakhs	10 Years	12 %	Rs. 5,000
Rs. 25.3 Lakhs	10 Years	12 %	Rs. 10,000
Rs. 34.5 Lakhs	10 Years	12 %	Rs. 15,000

Education Calculator

Education Corpus	Time	Rate of Return	Monthly SIP
Rs. 25 Lakhs	15 Years	12 %	Rs. 5,000
Rs. 50 Lakhs	15 Years	12 %	Rs. 10,000
Rs. 75 Lakhs	15 Years	12 %	Rs. 15,000

Retirement Calculator

Current Expenses (Monthly)	Corpus	Time	Rate of Return	Monthly SIP
Rs. 25,000	Rs. 1 Crore	20 Years	12 %	Rs. 10,000
Rs. 50,000	Rs. 2.5 Crores	20 Years	12 %	Rs. 25,000
Rs. 80,000	Rs. 5 Crores	20 Years	12 %	Rs. 50,000

The one point everyone has to keep in mind while investing in SIPs is that they should withdraw the money that needs out of the Mutual funds two to three years before they need it. For example, when one is 58 years old, they should withdraw the money they needs from age 60-65 and put it into a fixed deposit (FD). This will protect them from volatility in the equity markets and they can rest assured knowing that he will be able to continue the same standard of life.

Click here to start your investment journey today.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

How SIPs can help with financial planning in your 40s?

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