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45 y.o. earning 2.5L/month wants to retire at 50 with 5CR+ corpus - how?

Ramalingam

Ramalingam Kalirajan  |6501 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 31, 2024

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 - Jul 30, 2024Hindi
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I'm 45, earning 2.5L per month, debt free,married 2 kids, son studying 11standard and daughter 7th standard. My monthly expenses comes to 65000 per month currently, rest all saved and invested. I own 2C worth villa in city, a sedan, no credit card debt. I have 60L savings in account, 2.6L in LIC annuity life long giving Rs.1400 interest/month, 12L in PPF, 6L in Postoffice Savings SST, 1L in NPS, 11L ICICI signature plan need to pay 5L every year for next 5 years(18% returns), 1L PRAN, 5L worth gold-silver coins, 45L in fixed deposits in mom and wife names in many different small finance banks earning monthly interest(8.5-9%), 46L in my EPF. I want to plan to retire by 50 with life span of 75 with with 80L for 2 kids higher studies with atleast 5CR+ total corpus as goal. Kindly advice and guide me how to achieve it with moderate risk apetite..

Ans: Current Financial Situation
Age: 45 years
Monthly Income: Rs. 2.5 lakhs
Monthly Expenses: Rs. 65,000
Family: Married with 2 kids (son in 11th standard, daughter in 7th standard)
Assets: 2 crore worth villa, a sedan, no credit card debt
Savings and Investments:
Rs. 60 lakhs in savings account
Rs. 2.6 lakhs in LIC annuity giving Rs. 1400 interest/month
Rs. 12 lakhs in PPF
Rs. 6 lakhs in Post Office Savings SST
Rs. 1 lakh in NPS
Rs. 11 lakhs in ICICI Signature Plan (need to pay Rs. 5 lakhs every year for next 5 years)
Rs. 1 lakh in PRAN
Rs. 5 lakhs worth of gold-silver coins
Rs. 45 lakhs in fixed deposits in mom and wife’s names
Rs. 46 lakhs in EPF
Retirement Goals
Retirement Age: 50 years
Life Expectancy: 75 years
Kids' Higher Education: Rs. 80 lakhs
Total Corpus Goal: Rs. 5+ crores
Investment Strategy
Evaluate Current Investments
1. Savings Account and Fixed Deposits

Observation: Low returns (3-4% in savings, 8.5-9% in FDs).
Action: Consider shifting some funds to higher-yield investments.
2. LIC Annuity and ICICI Signature Plan

Observation: LIC annuity provides minimal returns. ICICI Signature Plan promises 18% but verify actual returns.
Action: Assess ICICI plan's performance. Shift LIC annuity to higher-yield funds if possible.
3. PPF, NPS, and Post Office Savings

Observation: Safe investments but with moderate returns.
Action: Continue PPF and NPS contributions for tax benefits and retirement corpus.
Optimize Investments
1. Increase SIP in Mutual Funds

Strategy: Diversify across large, mid, and small-cap funds. Aim for balanced risk and growth.
Monthly SIP: Consider increasing to Rs. 1 lakh or more for the next 5 years.
2. Diversify Portfolio

Strategy: Include equity mutual funds, balanced funds, and debt funds.
Moderate Risk: Balance between growth and safety.
3. Invest in Children's Education Funds

Action: Allocate Rs. 80 lakhs in equity mutual funds or balanced funds.
Goal: Ensure sufficient funds for kids' higher education.
Retirement Corpus Planning
1. Projected Returns

Strategy: Aim for a mix of equity and debt for optimal returns.
Projection: Assume 10-12% average returns over 5 years.
2. Systematic Withdrawal Plan (SWP)

Action: Post-retirement, use SWP for monthly expenses.
Goal: Ensure regular income without depleting corpus rapidly.
Tax Planning
1. Maximize Deductions

Section 80C: Utilize Rs. 1.5 lakhs limit through PPF, ELSS, and other investments.
Section 80CCD(1B): Additional Rs. 50,000 through NPS.
2. Optimize Tax-Efficient Investments

Tax-Free Returns: Focus on PPF, NPS, and long-term capital gains on equity funds.
Tax-Efficient Withdrawals: Plan withdrawals to minimize tax impact.
Insurance Coverage
1. Adequate Life Insurance

Action: Ensure adequate life cover for family’s security.
Consider: Term insurance for high coverage at low cost.
2. Health Insurance

Action: Comprehensive health coverage for family.
Goal: Avoid financial strain due to medical emergencies.
Regular Monitoring and Review
1. Annual Review

Action: Review investments annually.
Goal: Adjust based on performance and goals.
2. Financial Advisor Consultation

Certified Financial Planner: Seek periodic advice for professional guidance.
Final Insights
With careful planning, achieving a corpus of Rs. 5 crores by 50 is feasible. Prioritize investments in equity mutual funds for growth, while balancing with safe instruments like PPF and NPS. Regularly review and adjust your portfolio. Ensure adequate insurance coverage for risk management.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
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.
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Hello Mr. Ramalingam Good morning. I'm 47 years old, my wife is at 40 and one daughter studying in 8th std. I have an investement in MF worth of 1.8 cr, ULIP of 20 lakhs, Direct equity of 5 lakhs, 1 cr term insurance, 5 lakhs LIC, 30 lakhs FD. Monthly SIP of 65 k in different MF's, accumulated EPF of 40 lakhs, 10 lakhs super annuatation fund. Invested in plot worth of 1 cr and farm land worth of 1.5 cr. No house and no loan. Would like retire by 55 years with monthly income of 2 lakhs / month from investment. Kindly suggest how I can make my finanical plan. Thanks
Ans: Based on your current financial situation and your goal of retiring at 55 with a monthly income of Rs. 2 lakhs, we need to assess your existing investments, future requirements, and how to bridge any gaps in your retirement plan.

Assets You Already Have
You have built a solid foundation of investments, which is impressive. Let’s break down your current assets:

Mutual Fund portfolio: Rs. 1.8 crore
ULIP: Rs. 20 lakhs
Direct equity: Rs. 5 lakhs
Term Insurance: Rs. 1 crore (sufficient for family protection)
LIC: Rs. 5 lakhs (Could be better allocated elsewhere)
Fixed Deposit: Rs. 30 lakhs
EPF: Rs. 40 lakhs
Superannuation Fund: Rs. 10 lakhs
Real Estate Investments: Plot (Rs. 1 crore) and farmland (Rs. 1.5 crore)
Your current SIP of Rs. 65,000 monthly in mutual funds is a good strategy for wealth accumulation.

Assessing Your Retirement Goal
You wish to have Rs. 2 lakhs per month as retirement income starting at 55. Considering inflation, your future expenses will likely be higher than Rs. 2 lakhs, which we must account for in your financial plan. Assuming you retire at 55 and live till 85, your investments need to generate returns for 30 years.

Evaluating Existing Investments
1. Mutual Funds:
Your current MF portfolio of Rs. 1.8 crore is a major asset. Continue with your SIPs to grow this corpus.
You might consider reviewing your fund allocations to ensure diversification across large-cap, mid-cap, and debt funds for stability and growth. Ensure these are actively managed funds, as they typically perform better than index funds over time.
2. ULIP:
ULIPs often have high charges and offer lower returns compared to mutual funds. It would be wise to surrender this policy and reinvest the Rs. 20 lakhs into mutual funds. This will offer better long-term growth for retirement.
3. Direct Equity:
Direct equity investments, while rewarding, are risky, especially as you approach retirement. It’s advisable to either reduce exposure to individual stocks or move to safer large-cap funds or balanced funds to ensure stability.
4. Fixed Deposit:
Rs. 30 lakhs in FD is a safe bet, but it yields lower returns. Consider using a portion of this for debt mutual funds, which offer slightly better returns and are tax-efficient.
5. LIC:
The Rs. 5 lakhs in LIC should be reconsidered, as insurance-based investment products are typically low-yielding. It’s better to surrender and reinvest this in mutual funds or safer investment options that offer higher returns.
6. Real Estate:
Your plot and farmland, though valuable, are illiquid assets. Real estate cannot generate a regular retirement income unless sold or rented out. Ideally, you should not rely on these for monthly income during retirement. Focus on liquid investments that can generate steady cash flow.
Plan for Retirement Income
Here’s how you can plan to generate Rs. 2 lakhs per month during retirement:

1. Continue Your SIPs:
Your monthly SIP of Rs. 65,000 is a good practice. If you can increase this slightly over the next few years, it will help you build a larger corpus for retirement. Aim to have at least Rs. 5-6 crore in liquid assets by the time you retire.
2. Shift to More Conservative Funds Closer to Retirement:
As you approach retirement, gradually move some of your equity-heavy investments into safer debt funds or balanced funds to preserve capital and reduce market risk.
3. Utilize the EPF and Superannuation Fund:
Your Rs. 40 lakhs in EPF and Rs. 10 lakhs in superannuation fund will continue to grow. Do not withdraw this early; allow it to accumulate till your retirement for a sizeable corpus that can act as a fixed-income generator.
4. Create an Income Stream with SWP:
Systematic Withdrawal Plan (SWP) from mutual funds will help you generate a monthly income after retirement. This is tax-efficient and can provide you with the Rs. 2 lakhs you desire. You can gradually withdraw from your mutual fund corpus post-retirement, ensuring your capital lasts for 30 years.
5. Review and Increase Insurance:
Your current term insurance of Rs. 1 crore is adequate for now. Ensure you have it in place till your retirement to protect your family in case of any unforeseen events. No need for further investment in insurance-based products like ULIPs or LIC.
Things to Keep in Mind
Inflation Protection: Rs. 2 lakhs per month today will not hold the same value in the future due to inflation. Plan to increase your SIP amounts and grow your corpus to account for this.

Healthcare Costs: As you age, healthcare expenses might rise. Ensure that your health insurance coverage is sufficient, or consider top-up plans to enhance your coverage.

Reassess Regularly: Financial planning is not a one-time activity. Review your portfolio annually to ensure you are on track and make adjustments based on changing market conditions or personal goals.

Final Insights
You are in a strong financial position and well on your way to a comfortable retirement. However, small changes like surrendering low-return policies and enhancing your mutual fund portfolio can make a significant difference. Focus on building a larger liquid corpus by continuing your SIPs and shifting towards income-generating assets as you near retirement.

Stay disciplined with your investments, and you will likely achieve your retirement goal of Rs. 2 lakhs monthly without financial stress.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6501 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 09, 2024

Asked by Anonymous - Sep 07, 2024Hindi
Money
Namaste Sir, I am 42 year old with family of 5 .including my mother, 2 kids and wife Monthly Income is 1.75Lakhs Regular expenses are roughly 50K per month 2 Home loan Emis are 45 & 20k per month I have a corpus of about 30lakh in PF and ,5 lakh in mutual funds and would be availing a education loan . Please suggest how can I plan to have a retirement income of 80k to 1 lakh by age 55 I want to
Ans: You are 42 years old, and your family consists of five members: your mother, wife, and two kids. Your current monthly income is Rs. 1.75 lakh, and your regular expenses are Rs. 50,000 per month. You are paying two home loan EMIs: one of Rs. 45,000 and another of Rs. 20,000, totaling Rs. 65,000 per month.

You have a provident fund (PF) corpus of Rs. 30 lakh and Rs. 5 lakh invested in mutual funds. You are also considering taking an education loan for your children's future.

You aim to retire by age 55 and desire a monthly retirement income of Rs. 80,000 to Rs. 1 lakh. This is a realistic goal, but it will require disciplined planning and strategic investment.

Let’s break down each area for a comprehensive financial plan to help you achieve your retirement goal.

Home Loan Repayment Strategy
You currently have two home loan EMIs, which amount to Rs. 65,000 per month. Clearing these loans will significantly reduce your financial burden and free up cash flow for further investments.

Prioritise Loan Repayment: Since you have two home loans, focus on paying off the one with the higher interest rate first. If both rates are similar, start by repaying the smaller loan to reduce your monthly EMI burden faster.

Lump Sum Repayments: Whenever possible, make lump sum repayments toward the principal of your home loans. This will help you save on interest and clear the loans sooner.

Loan-Free Retirement: Aim to clear your home loans before retirement. Being debt-free will ensure that your retirement income is not affected by large EMIs.

Investment Growth for Retirement
You currently have Rs. 5 lakh in mutual funds and Rs. 30 lakh in your provident fund. To meet your goal of Rs. 80,000 to Rs. 1 lakh in monthly retirement income, you will need to significantly grow your investments over the next 13 years.

Increase Monthly SIPs: With Rs. 1.75 lakh in monthly income and Rs. 50,000 in expenses, you have a healthy surplus. After accounting for your home loan EMIs, you still have Rs. 60,000 per month available. Consider investing at least Rs. 40,000 to Rs. 50,000 in Systematic Investment Plans (SIPs) every month. This disciplined approach will help you accumulate a sizable corpus over time.

Focus on Actively Managed Funds: Actively managed mutual funds offer the benefit of expert management, aiming to outperform the market. While index funds might seem attractive due to their low costs, they are not flexible enough to adapt to market changes. An actively managed fund, through a Certified Financial Planner (CFP), can help you achieve higher returns over the long term, especially given your 13-year horizon.

Avoid Direct Funds: While direct funds might have a lower expense ratio, they don’t come with professional guidance. Investing through a CFP and a trusted Mutual Fund Distributor (MFD) ensures that your portfolio is regularly reviewed and optimised. This professional support is crucial as you approach retirement, where every investment decision counts.

Provident Fund and Asset Allocation
Your Rs. 30 lakh in the provident fund is a great start toward building a retirement corpus. However, provident fund returns alone may not be sufficient to meet your goal of Rs. 80,000 to Rs. 1 lakh monthly income.

Diversification Is Key: While the provident fund provides safety and stable returns, it’s essential to diversify your portfolio. A higher allocation to equity through mutual funds can help you grow your corpus faster. Keep in mind that equity investments come with higher risks, but over a long-term period like 13 years, they also offer higher returns.

Rebalancing Your Portfolio: As you near retirement, you will need to gradually shift some of your equity investments to more stable debt funds. This will help protect your corpus from market volatility while still offering decent returns.

Planning for Your Children’s Education
You are planning to avail an education loan for your children’s higher studies, which is a sound strategy to manage immediate expenses without dipping into your retirement savings.

Education Loan as Leverage: Availing an education loan allows you to fund your children's education without using up your retirement savings. This ensures that your retirement planning stays on track while your children receive the education they need.

Continue SIPs: Even with an education loan, continue your SIP contributions. This will allow you to maintain a growing corpus while meeting education expenses through loan repayments.

Emergency Fund: Make sure to set aside an emergency fund that covers at least 6 months of living expenses. This will act as a financial cushion in case of unforeseen events, allowing you to meet both education loan EMIs and regular expenses without disrupting your long-term goals.

Retirement Income Planning
Your goal is to have a monthly retirement income of Rs. 80,000 to Rs. 1 lakh. Let’s assess how to achieve this target with a well-structured retirement corpus.

Systematic Withdrawal Plan (SWP): Post-retirement, you can use a Systematic Withdrawal Plan (SWP) from your mutual fund corpus. This allows you to withdraw a fixed amount regularly while your remaining investments continue to grow. An SWP can be tailored to meet your monthly income needs while ensuring that your principal is not depleted quickly.

Pension-Like Income: With the right combination of debt and equity funds, your retirement corpus can generate a stable monthly income that acts like a pension. This will complement any other pension schemes or provident fund withdrawals.

Target Corpus: Given your desired retirement income, aim to build a retirement corpus that is large enough to generate Rs. 80,000 to Rs. 1 lakh per month. This can be achieved through consistent SIP contributions, provident fund growth, and strategic withdrawals post-retirement.

Health Insurance and Risk Management
With a family of five, including your mother and two children, adequate health insurance is essential to protect your finances from medical emergencies.

Adequate Health Insurance: Ensure that you have comprehensive health insurance that covers all family members. Medical costs are rising, and having a strong health insurance policy will prevent any major financial strain due to hospitalisation or treatment costs.

Life Insurance: It is also important to have adequate life insurance coverage, especially since you have ongoing liabilities like home loans. A term insurance plan with sufficient coverage will ensure that your family is financially secure in case of any unforeseen events.

Avoid Investment-Linked Insurance: If you hold any insurance policies that are linked to investments, such as endowment or ULIP policies, consider surrendering them. These plans generally offer lower returns compared to mutual funds. It’s better to reinvest the proceeds from these policies into your SIPs for better growth.

Emergency Fund and Contingency Planning
Having an emergency fund is crucial to safeguard your financial goals in case of unexpected expenses.

Building an Emergency Fund: Set aside an amount equivalent to at least 6 months of your regular expenses in a liquid fund or savings account. This fund should be easily accessible and used only for true emergencies, such as medical expenses or temporary income loss.

Avoid Over-Investing: While it is important to invest aggressively for your retirement, don’t neglect liquidity. Keeping a portion of your savings in easily accessible accounts ensures that you don’t have to redeem your mutual fund investments at a loss in case of emergencies.

Tax Efficiency in Investments
Maximising tax savings can help you increase your overall returns and protect more of your wealth.

Tax-Saving Mutual Funds: Consider investing in tax-saving mutual funds (ELSS) to reduce your tax liability. ELSS funds offer tax benefits under Section 80C of the Income Tax Act, along with the potential for higher returns compared to other tax-saving instruments.

Long-Term Capital Gains Management: Be mindful of the tax implications when redeeming your mutual fund investments. Long-term capital gains (LTCG) from equity mutual funds are taxable beyond a certain threshold, so it’s important to plan withdrawals strategically.

Estate Planning and Will
To ensure that your assets are passed on to your family without legal complications, it is important to have a clear estate plan in place.

Drafting a Will: Drafting a will is essential to specify how your assets will be distributed among your family members. Ensure that all your assets, including your house, provident fund, and mutual fund investments, are accounted for in your will.

Updating Nominations: Make sure that the nominations on your provident fund, mutual funds, and insurance policies are updated to reflect your wishes. This will ensure a smooth transfer of assets to your beneficiaries.

Final Insights
You are on the right track with your financial planning. With disciplined savings and strategic investments, you can achieve your retirement goal of Rs. 80,000 to Rs. 1 lakh monthly income.

Focus on repaying your home loans, increasing your SIP contributions, and diversifying your investments between equity and debt. Health insurance and a proper estate plan will further secure your financial future.

By following this well-rounded approach, you can look forward to a comfortable and financially secure retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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