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Ramalingam Kalirajan |8083 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jan 28, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Jan 27, 2025Hindi

Sir, I'm 44 years old and have a corpus of 2 cr out of which 1.5 cr is in debt instruments and 50 lakhs in equity mutual funds. I am living in my own house and have no liabilities. I have a son who's 14 years old and my wife earns 60k per month. I have a decent life insurance and a monthly expense of 1 lakh. I wanted to know whether I can retire now with this corpus and also park some money for my son's higher studies. Expecting your valuable response on this topic. It would be really great if I can get a year-on-year break up

Ans: At 44 years of age, your financial situation is quite strong. Here’s a summary of your current position:

Corpus: Rs 2 crore (Rs 1.5 crore in debt instruments and Rs 50 lakh in equity mutual funds).
House: Living in your own house, which eliminates rental or housing liabilities.
Monthly Expenses: Rs 1 lakh, which is your current family expenditure.
Wife’s Income: Rs 60,000 per month, which contributes to the household budget.
Life Insurance: Adequate life insurance coverage is in place.
Son’s Education: Preparing for higher education expenses in a few years.
Your key concerns are early retirement and saving for your son’s higher education. Let us analyse and provide a 360-degree solution.

Can You Retire Now?
Retirement at 44 is possible, but there are some critical factors to consider:

Corpus Sustainability: A Rs 2 crore corpus must generate sufficient income to meet monthly expenses of Rs 1 lakh.
Inflation Impact: At 6% inflation, your Rs 1 lakh expense will double in 12 years.
Longer Retirement Horizon: Retiring at 44 means planning for at least 40–45 years without active income.
Your current corpus may not be sufficient to retire unless you adopt a disciplined withdrawal strategy and make adjustments.

Funding Your Son’s Higher Education
Your son’s higher education expenses will arise in the next 3–4 years.

Estimate Education Costs: Assume an expense of Rs 30–50 lakh for higher education in India or abroad.
Set Aside a Dedicated Corpus: Park Rs 50 lakh in debt mutual funds or conservative hybrid funds for his education. This ensures safety and availability when needed.
Avoid Using Equity Corpus: Equity investments are volatile and should not be used for short-term goals like education.
Recommended Strategy for Retirement and Education
1. Structure Your Retirement Corpus
Divide your Rs 2 crore corpus into distinct categories for better management:

Emergency Fund: Set aside Rs 10–15 lakh in a liquid fund or fixed deposit for emergencies. This provides immediate liquidity.

Income-Generating Portfolio: Allocate Rs 1.3 crore to a mix of debt mutual funds, conservative hybrid funds, and monthly income plans. This portfolio can generate Rs 70,000–80,000 per month with stability.

Growth-Oriented Investments: Retain Rs 50 lakh in equity mutual funds for long-term growth. This combats inflation and increases the corpus.

2. Leverage Your Wife’s Income
Your wife’s monthly income of Rs 60,000 is a significant advantage.

Utilise for Daily Expenses: Use her income for regular household expenses, reducing the burden on your retirement corpus.

Invest Surplus: Invest any surplus from her income into equity or debt funds for additional wealth creation.

3. Adopt a Disciplined Withdrawal Strategy
A structured withdrawal strategy is essential for corpus sustainability.

Systematic Withdrawal Plan (SWP): Use SWPs from your income-generating portfolio to cover monthly expenses. Withdraw Rs 70,000–80,000 monthly and adjust for inflation periodically.

Limit Withdrawals: Withdraw only the amount needed, leaving the remaining corpus to grow.

4. Inflation-Proof Your Retirement
Your monthly expenses of Rs 1 lakh will rise over time due to inflation.

Equity for Long-Term Growth: Retain Rs 50 lakh in equity mutual funds for inflation-beating returns. Rebalance the portfolio periodically.

Increase Corpus Withdrawals Gradually: Adjust your SWP withdrawals every 3–5 years to match rising expenses.

5. Tax Efficiency in Withdrawals
Optimise withdrawals to minimise tax liability.

Debt Mutual Funds Taxation: Gains from debt mutual funds are taxed as per your income slab. Plan redemptions to reduce taxable income.

Equity Mutual Funds Taxation: Long-term capital gains above Rs 1.25 lakh are taxed at 12.5%. Manage equity redemptions to stay within this limit.

6. Ensure Adequate Insurance Coverage
Having adequate insurance is crucial for risk management.

Health Insurance: Ensure comprehensive health insurance for yourself, your wife, and your son. This prevents medical emergencies from affecting your finances.

Term Insurance: Maintain sufficient term insurance to secure your family’s financial future. A sum assured of Rs 2–3 crore is advisable.

7. Estate Planning
Plan your estate to secure your family’s financial future.

Will Preparation: Draft a will to distribute your assets as per your wishes.
Nomination Updates: Ensure all investments have correct nominations to avoid disputes.
Year-on-Year Breakup
Here’s how your plan can work year by year:

Year 1–3: Immediate Focus
Allocate Rs 50 lakh for your son’s education in debt mutual funds.
Maintain Rs 10–15 lakh as an emergency fund.
Start SWPs from Rs 1.3 crore for monthly income.
Retain Rs 50 lakh in equity for long-term growth.
Year 4–10: Post-Education Phase
Withdraw from the education corpus to fund your son’s studies.
Continue SWPs from the income-generating portfolio, adjusting for inflation.
Monitor and rebalance the equity portfolio for growth.
Year 11 and Beyond: Long-Term Stability
Rely on the equity corpus to meet increasing expenses due to inflation.
Maintain a balanced portfolio for income and growth.
Finally
Retiring at 44 is possible with disciplined planning and efficient use of your resources. Focus on balancing income, growth, and safety to ensure financial independence.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.