34-year-old NRI seeks retirement advice with monthly income and investments

I am a 34 year old NRI currently working in a GCC country. I have a monthly fixed income of inr 2.5 Lakh. I have started 15000 monthly SIP this year for next 5 years and planning to reinvest the returns again in SIP for another 5 years. I have 2 ancestral properties in India worth 50 lakh and 80 lakh (with home). I also have ICICI Gift plan with a 2.4 lakh p.a for 7 years and guaranteed income of inr 1.4 lakh after 10th year for 15 years and inr 16.8 lakh lump sum payout after 15 years. I also have a term life insurance of Rs. 1.5 crore. I am having 2 children (girls) below 6 years old. I have put inr 5 lakh FD for 10 years for children education purpose. How can I retire at the age of 55 with a stable financial backup post retirement.

Ans: Current Financial Situation
You have a monthly fixed income of Rs 2.5 lakh.

You have started a Rs 15,000 monthly SIP for five years.

You plan to reinvest the returns for another five years.

You have two ancestral properties worth Rs 50 lakh and Rs 80 lakh.

You have an ICICI Gift Plan with a yearly premium of Rs 2.4 lakh for seven years.

You have a guaranteed income of Rs 1.4 lakh after the tenth year for fifteen years.

You will receive a lump sum payout of Rs 16.8 lakh after fifteen years.

You have a term life insurance of Rs 1.5 crore.

You have two daughters below six years old.

You have a Rs 5 lakh FD for ten years for their education.

Investment Strategy
SIP Investments

Continue the Rs 15,000 monthly SIP.
Reinvest the returns for another five years.
Consider diversifying into equity and hybrid funds for better returns.
ICICI Gift Plan

Evaluate the benefits and returns.
Consider the plan’s impact on overall financial goals.
If returns are lower than expected, consider other investment options.
FD for Children's Education

FDs provide safety but lower returns.
Consider shifting part of it to debt or hybrid funds.
This can offer better returns with moderate risk.
Additional Investments
Mutual Funds

Increase SIP amount if possible.
Diversify across large, mid, and small-cap funds.
Add some debt funds for stability.
Children's Education

Consider investing in child-specific mutual funds.
Use SIPs for systematic investments.
Retirement Corpus

Aim to build a retirement corpus by age 55.
Invest in a mix of equity, debt, and hybrid funds.
Regularly review and adjust your portfolio.
Insurance and Safety Nets
Term Life Insurance

Your Rs 1.5 crore term insurance is good.
Ensure it covers your family’s financial needs.
Health Insurance

Get comprehensive health insurance.
Cover your family adequately.
Estate Planning
Ancestral Properties

Evaluate the potential rental income.
Consider the long-term value of these properties.
Actively Managed Funds vs Index Funds
Disadvantages of Index Funds

Passive management limits growth potential.
They may underperform in volatile markets.
Benefits of Actively Managed Funds

Potential for higher returns.
Experienced fund managers adapt to market changes.
Regular Funds vs Direct Funds
Disadvantages of Direct Funds

Lack of professional guidance.
Time-consuming to manage independently.
Benefits of Regular Funds

Professional management by a Certified Financial Planner.
Easier to track and manage investments.
Final Insights
Focus on building a diversified portfolio.
Regularly review and adjust your investments.
Ensure adequate insurance coverage.
Plan for your children’s education systematically.
Stay disciplined and invest with a long-term perspective.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You are 50 years old, with a goal to retire at 56. Your monthly expenditure is Rs 40,000, and you have two daughters currently studying in 10th and 11th standards, who will require financial support for their education.

Your current financial assets include:

Rs 1 crore in Bank FD
Rs 12 lakhs in equity (invested Rs 8 lakhs in 2021)
Rs 25 lakhs accumulated in PF
Rs 15 lakhs in SIPs (since 2011)
Rs 50,000 monthly SIP (started from February 2024)
Rs 12 lakhs invested in hybrid mutual funds recently
Medical insurance costing Rs 54,000 PA for your family
Term insurance with an annual premium of Rs 51,000
House loan already cleared
I appreciate the strong foundation you have built with substantial savings and clear financial goals. Let's explore the way forward to optimise your retirement strategy and secure your financial future.

Step 1: Assessing Your Monthly Needs After Retirement
You need Rs 40,000 per month for your current expenses. However, this amount will likely increase due to inflation over the next six years until retirement. Let’s assume an inflation rate of 6%, which is typical in India. This means your monthly expenditure may rise to around Rs 57,000-60,000 by the time you retire.

Since you aim to retire in 6 years, the goal will be to create a financial plan that allows you to cover these rising expenses comfortably after retirement. We also need to consider the potential education expenses for your daughters in the near future, which will add another layer to your financial planning.

Step 2: Evaluating Your Current Investments
Bank FD (Rs 1 crore): While FDs offer safety, they have low returns. In the long run, they barely beat inflation. You should look at moving part of this into more growth-oriented options, like mutual funds, that can give you inflation-beating returns.

Equity Investments (Rs 12 lakhs): The equity market is an essential part of your portfolio, but given that you have invested Rs 8 lakhs in 2021, the returns may be volatile in the short term. However, staying invested in good-quality actively managed mutual funds can yield higher returns over time. Equity exposure is crucial to grow your wealth, especially given the inflationary pressures.

PF (Rs 25 lakhs): Provident Fund is a long-term wealth-building instrument with the benefit of compounding. It provides a decent rate of return and safety. This will form a significant part of your retirement corpus. You should continue contributing to this.

SIPs (Rs 15 lakhs and Rs 50,000/month): Your SIPs are excellent long-term wealth builders. Since you are already committed to Rs 50,000 monthly SIPs, you are on the right path to generating good returns. SIPs in actively managed equity mutual funds will help you stay ahead of inflation over time.

Hybrid Mutual Fund (Rs 12 lakhs): Hybrid funds offer a balanced mix of equity and debt, providing growth and stability. They can be useful as you approach retirement, but their equity exposure should be closely monitored.

Step 3: Optimising Insurance
Medical Insurance (Rs 54,000/year): You have medical insurance in place, which is essential for covering health-related risks. Ensure that the coverage is sufficient for your entire family. Given the rising healthcare costs, consider reviewing the sum assured and increasing it if needed.

Term Insurance (Rs 51,000/year): Term insurance is a cost-effective way to secure your family in case of unforeseen events. It’s good to have this in place. You may not need it post-retirement, so review it closer to retirement age.

Step 4: Prioritising Your Daughters' Education
Your daughters will soon enter college, and their higher education will be a significant financial commitment. It’s wise to set aside a portion of your investments to meet these expenses. Given their ages (10th and 11th standard), you can expect to incur these costs within the next 1-3 years. Consider earmarking part of your Bank FD or hybrid mutual fund investment for their education.

The Rs 1 crore FD could be partially redirected towards a safer option, like debt mutual funds or hybrid funds, to provide liquidity for education expenses without sacrificing growth entirely.

Step 5: Managing Post-Retirement Income
To ensure a steady flow of income post-retirement, let’s look at how your current portfolio can be structured to meet your monthly needs:

Systematic Withdrawal Plan (SWP): Once you retire, you can set up a Systematic Withdrawal Plan (SWP) from your mutual fund investments to provide a regular income. This way, you can withdraw a fixed amount every month, while the remaining capital stays invested and continues to grow.

Balanced Portfolio: As you approach retirement, you should gradually reduce exposure to high-risk equity and shift to a balanced portfolio. A mix of 40% equity and 60% debt will give you stability and growth, ensuring that you meet your monthly expenses while still preserving your capital.

Continue with PF and SIP Contributions: Your Provident Fund and SIPs should remain untouched until retirement. Both provide long-term growth and tax benefits. Continue your SIPs as planned, and consider increasing the amount when possible to accelerate your retirement corpus.

Step 6: Plan for Rising Medical Costs
As you age, healthcare costs will likely increase. Ensure that your medical insurance coverage is adequate. Review the current policy and look for options to increase the coverage if needed. A good health insurance policy will prevent you from dipping into your retirement savings for medical emergencies.

Step 7: Tax-Efficient Withdrawal Strategy
Capital Gains Tax: When you withdraw from mutual funds, remember that equity mutual funds attract capital gains tax. Long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%. Plan your withdrawals strategically to minimise tax outgo.

Debt Fund Withdrawals: If you hold any debt funds, remember that both LTCG and STCG are taxed according to your income tax slab. Use these funds carefully to manage your tax liabilities post-retirement.

Step 8: Setting Up an Emergency Fund
It’s essential to keep some money aside as an emergency fund. This should cover at least 6-12 months of your monthly expenses. Since you have substantial assets, you can allocate part of your Bank FD towards this. The emergency fund should be liquid and easily accessible in case of unforeseen expenses.

Step 9: Reassess Your Risk Profile
At 50, your risk tolerance may be lower than when you were younger. However, to maintain your lifestyle after retirement, some equity exposure is necessary to beat inflation. Work on balancing your portfolio so that it reflects your need for both growth and stability. Actively managed funds, as opposed to index funds, will give you more flexibility and potentially higher returns.

Final Insights
You have built a strong financial base and are well on your way to a comfortable retirement. However, a few strategic adjustments will help optimise your portfolio and secure your financial future:

Increase your equity exposure slightly while balancing it with debt to ensure growth and stability.

Plan for your daughters’ education by earmarking some of your FD or hybrid fund investments.

Consider SWP for post-retirement income, and set up a tax-efficient withdrawal strategy.

Review your health insurance coverage to ensure it meets your future needs.

Stay disciplined with your SIPs and continue contributing towards your PF to build a robust retirement corpus.

By carefully managing your existing assets and planning ahead for both education and retirement, you can achieve financial independence and enjoy a secure post-retirement life.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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