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

Ramalingam

Ramalingam Kalirajan  |9712 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 30, 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 09, 2024Hindi
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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
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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Ramalingam

Ramalingam Kalirajan  |9712 Answers  |Ask -

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

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

..Read more

Ramalingam

Ramalingam Kalirajan  |9712 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 30, 2024

Money
Im 55yrs (NRI) and my Portfolio is as: - Rs.5.75/month Tax Free (to be increased to around 6.82 lakhs/pm soon) - Shall be working for another 10yrs atleast - End of Service Benefit Rs.1cr to Rs.1.25cr as minimum - Mutual Funds - Rs.1.5cr - FDs - 25 lakhs - Bajaj Allianz SIP - 17K/pm for 5yrs (just a year left). Maturity after another 5yrs. - ICICI - 2 Lakhs/yr for 7yrs (over). Maturity after another 5yrs - SBI Life - 6 lakhs/yr, for 5yrs (just started). Maturity after 5yrs after payment completed. - Property - Approx 12-15cr (based on real estate and land prices). Including own 2 stiorey, own 6 Bedroom House, 1 Flat, 2 Acres Land, and 700 sq mtrs Real Estate Land, 2 cars. - Gold - 1.5cr Liabalities: 3 Daughters marriage. Expenses around 75 lakhs (25 lakhs each, as all Gold already purchased). How can I retire after 65 with a monthly pension of 1 Lakh/pm
Ans: You are in a strong financial position with a well-diversified portfolio. Your focus on building assets through mutual funds, property, and insurance plans shows long-term planning. As you are 55 and planning to work for another 10 years, this gives you a substantial time frame to further build your retirement corpus. However, to meet your goal of Rs 1 lakh per month post-retirement, strategic adjustments in your financial plan are necessary.

Income and Assets
Current Monthly Tax-Free Income
You currently earn Rs 5.75 lakhs per month, which is tax-free, and this amount is expected to increase to around Rs 6.82 lakhs per month. This provides a healthy surplus for future investments and lifestyle needs.

End-of-Service Benefit (EOSB)
At the end of your employment, you expect a minimum of Rs 1 crore to Rs 1.25 crore as an end-of-service benefit. This lump sum will significantly contribute to your retirement corpus and must be invested wisely to generate income for your post-retirement years.

Mutual Fund Investments
You currently have Rs 1.5 crore invested in mutual funds. This is a good start, but it needs to be structured properly for wealth growth and income generation during your retirement phase.

Fixed Deposits (FDs)
You have Rs 25 lakhs in FDs. While FDs offer safety, their returns are generally lower, especially for NRIs, and may not keep pace with inflation. As you approach retirement, you should evaluate other secure options that can provide better post-tax returns.

Bajaj Allianz SIP and Insurance Plans
Your Bajaj Allianz SIP (Rs 17K/month for 5 years), ICICI plan (Rs 2 lakhs/year for 7 years), and SBI Life plan (Rs 6 lakhs/year for 5 years) are insurance-cum-investment products. These plans will mature in the next few years, adding to your corpus. However, the returns from such plans are generally lower compared to mutual funds. After maturity, you can consider reinvesting these amounts in more productive options.

Property Investments
Your real estate assets, including land, houses, and flats, are valued at approximately Rs 12-15 crores. While this is a significant asset class, liquidity can be an issue. You may not want to rely on these properties for regular income in retirement. Selling some of these assets to invest in more liquid instruments can help meet your retirement income goals.

Gold Holdings
You also have Rs 1.5 crore in gold. Gold is a good hedge against inflation, but it may not provide consistent income for retirement. It can be kept for long-term appreciation or as a safety net for emergencies.

Liabilities
Daughters' Marriage Expenses
Your plan to spend Rs 75 lakhs on your daughters' marriages is already well-funded through gold purchases. This removes a significant liability, allowing you to focus entirely on retirement planning.

Retirement Income Goal
Your goal is to retire at 65 with a pension of Rs 1 lakh per month. To achieve this, you will need to create a retirement corpus that generates a stable monthly income without depleting your principal over time. Assuming a 6-7% withdrawal rate after retirement, a corpus of Rs 2 crore to Rs 2.5 crore may be required to comfortably provide Rs 1 lakh per month for the rest of your life.

Steps to Reach Your Retirement Goal
1. Maximize Mutual Fund Investments
Asset Allocation: You should balance your portfolio between equity and debt. As you are 55, a 60:40 ratio of equity to debt may work best. Equity can help grow your corpus over the next 10 years, while debt will provide stability and reduce volatility as you approach retirement.

Growth-Oriented Funds: Continue investing in actively managed mutual funds, especially in the equity segment, to take advantage of market growth. Actively managed funds, unlike index funds, allow fund managers to select high-potential stocks that can outperform the market.

Debt Funds: Consider investing a portion of your corpus into debt mutual funds. These funds provide better tax efficiency compared to FDs, especially for NRIs, and can offer regular payouts post-retirement.

2. Reinvest Insurance Maturities
The Bajaj Allianz SIP and ICICI and SBI Life plans will mature in the next 5 years. These plans typically offer low returns compared to mutual funds. Once they mature, you can consider moving the maturity proceeds into more efficient options like debt mutual funds or balanced advantage funds, which provide growth with moderate risk.

Do not surrender these policies now, but plan on reinvesting the maturity amounts for long-term income generation.

3. Diversify Beyond Real Estate
Real estate is a significant portion of your assets, but it is not liquid. As you near retirement, having too much in illiquid assets can pose a problem. You could consider selling some real estate assets (like land or a flat) and reinvesting in mutual funds or debt instruments that can generate monthly income.

The property you hold can also be a source of rental income, but ensure it is sufficient and reliable. Rental yields in India are often low, so selling underutilized properties for better financial instruments may be more beneficial.

4. Create a Post-Retirement Withdrawal Strategy
Systematic Withdrawal Plan (SWP): After 65, you can convert a portion of your mutual funds into an SWP. This allows you to withdraw a fixed amount monthly while the rest of your portfolio continues to grow. It’s a tax-efficient way of creating a regular income stream without disturbing your overall corpus.

Balanced Advantage Funds: These funds can shift between equity and debt based on market conditions, providing a steady return. You could use these funds as part of your post-retirement strategy to generate consistent returns.

Debt Instruments for Stability: As you approach retirement, you should gradually increase your exposure to safer debt instruments. Long-term debt funds, corporate bonds, or even government bonds can offer regular income with lower risk.

5. Plan for Inflation
Inflation will erode the value of money over time. Rs 1 lakh per month today may not have the same purchasing power after 10 years. Therefore, your retirement corpus must grow at a rate that beats inflation. Equity investments, even during retirement, will help you keep pace with inflation.

Use part of your existing surplus income to further increase your equity investments over the next 10 years. Focus on large-cap and diversified equity funds, as these tend to perform well over the long term with relatively lower risk.

6. Emergency and Health Fund
Ensure you have an emergency fund in place, with 6-12 months of expenses in liquid instruments like debt mutual funds. This will protect your investments from being liquidated prematurely.

Health is a major concern post-retirement. Ensure you have adequate health insurance coverage for you and your family, especially since healthcare costs are rising. Review your health insurance policies to see if they will cover you after 65.

7. End of Service Benefit Investment
Your end-of-service benefit (Rs 1 crore to Rs 1.25 crore) will be a major component of your retirement corpus. Invest this amount strategically in a mix of equity and debt instruments to ensure long-term growth and regular income.

Consider placing a portion in hybrid or balanced funds that offer both stability and growth. These funds are designed to manage risk while giving you decent returns.

Final Insights
Your current financial standing is strong, but it can be further optimized. By making strategic reallocations in mutual funds and liquidating underperforming or illiquid assets, you can achieve your retirement goal.

Focus on building a diversified retirement corpus through a mix of equity and debt investments. Keep sectoral and thematic fund exposure limited to minimize risk.

Plan for inflation by continuing to invest in growth-oriented funds, and ensure your withdrawal strategy includes tax efficiency and regular income.

Reinvest insurance plan maturities into more productive funds, and sell some real estate if needed to enhance liquidity.

Finally, regularly review your portfolio, especially as you near retirement, to make adjustments according to market conditions.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..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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