I am 39 male. I have a current corpus as follows. MF 15L, PF 23L, PPF 5L, company share 7L, , 60L stock trading earning 2% per month, loan outstanding 15L, earning 3L per month and putting 50k per month into trading capital. I want to retire at...

I am 39 male. I have a current corpus as follows. MF 15L, PF 23L, PPF 5L, company share 7L, , 60L stock trading earning 2% per month, loan outstanding 15L, earning 3L per month and putting 50k per month into trading capital. I want to retire at 45 and planning to do a MF SWP for 50k per month or 4% per anum of an portfolio size 1.5 Cr. Will that 1.5 crore last till I die?

Ans: Assessing Retirement Planning and Sustainability
Retiring at 45 is an ambitious goal, and ensuring your financial resources last throughout your lifetime requires careful planning. Let's evaluate your current financial situation and retirement plan.

Acknowledging Your Retirement Goals
Genuine Compliments: Your determination to retire early and enjoy financial independence is admirable and reflects your proactive approach to financial planning.

Empathy and Understanding: I understand the importance of ensuring your financial security and peace of mind during retirement, especially with a desire to retire at a relatively young age.

Analyzing Your Current Financial Position
Asset Allocation: Your current portfolio comprises various assets like mutual funds, PF, PPF, company shares, and stock trading earnings.
Liabilities: The outstanding loan amount of 15 lakhs is a financial obligation that needs to be factored into your retirement plan.
Monthly Income and Savings: Your monthly earnings of 3 lakhs and the additional 50,000 per month into trading capital provide a substantial income stream for your retirement years.
Evaluating the SWP Strategy
SWP for Retirement Income: Planning to initiate a Systematic Withdrawal Plan (SWP) from a portfolio of 1.5 crores to generate a monthly income of 50,000 or 4% annually is a prudent strategy.
Sustainability: Whether this income will last until your demise depends on various factors such as investment returns, inflation, and lifestyle expenses during retirement.
Mitigating Risks and Adjustments
Investment Returns: Stock trading earnings of 2% per month may not be sustainable in the long run and could expose you to high risks. Consider diversifying into more stable investments.
Inflation: Ensure your retirement income keeps pace with inflation to maintain your purchasing power over time.
Emergency Fund: Building an emergency fund to cover unexpected expenses during retirement is essential to avoid dipping into your retirement corpus.
Conclusion
While retiring at 45 is an ambitious goal, with proper planning and adjustments, it's achievable. Regularly reassess your financial plan and make necessary adjustments to ensure your retirement years are financially secure and fulfilling.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You've set out a comprehensive plan for your financial future, aiming to invest Rs 2 lakhs per month until you reach 60, followed by withdrawing Rs 8 lakhs per month post-retirement via an SWP (Systematic Withdrawal Plan). You're also projecting an annual return of 12% and estimating a corpus of Rs 150 crores by the age of 77. Let's take a close look at whether this plan is feasible and practical over the long term.

Appreciating Your Commitment and Financial Discipline

Firstly, your decision to work until 60 and invest Rs 2 lakhs monthly for the next 17 years is commendable. This kind of discipline and foresight is rare. You're also considering a systematic approach to withdrawing funds post-retirement, which reflects sound financial planning. Now, let's evaluate some key aspects to ensure your expectations are aligned with practical outcomes.

Evaluating Long-Term Projections: Reality vs Assumptions

It’s important to address the assumption of earning a consistent 12% annual return over 17 years. While equity markets have delivered such returns in the past, they are not guaranteed, especially over such a long period. The market's ups and downs could lower or even boost the returns, depending on how your investments are distributed among asset classes.

Historically, equity mutual funds have performed well over long periods, often giving returns between 10% and 15%. However, assuming a consistent 12% return for 17 years without any hiccups is optimistic.

Market fluctuations could reduce returns, especially if a recession or downturn hits close to your withdrawal phase. You need to stress-test your projections by considering both optimistic and conservative scenarios.

It's important to invest in a diversified portfolio, including large-cap, mid-cap, small-cap, and debt funds, to mitigate risks over a longer horizon.

Are Investment Calculators Reliable?

Investment calculators are useful tools for giving a ballpark figure, but they come with limitations. They often make simplified assumptions, such as constant returns and no market volatility.

Investment calculators don’t account for real-world market variability, inflation rates, or shifts in economic policy.

They also don’t include the impact of tax on withdrawals post-retirement, especially with SWP, where taxation could reduce your actual monthly income.

Instead of relying solely on calculators, it's better to consult with a Certified Financial Planner for projections that consider inflation, taxes, and changes in the market environment.

Reviewing SWP Plans and Their Practicality

Switching to an SWP at 60 and withdrawing Rs 8 lakhs monthly for 17 years sounds ambitious. An SWP can be a good strategy, but several factors need to be considered:

Market Volatility: During the withdrawal phase, market downturns can impact the corpus, leading to a faster depletion than expected. This is especially true in the initial years of retirement, known as sequence-of-return risk.

Inflation: While Rs 8 lakhs a month might sound adequate today, the impact of inflation over 17 years could significantly erode your purchasing power. It’s important to consider the inflation-adjusted value of your withdrawals.

Tax Implications: Withdrawals from SWP schemes are taxed based on capital gains. Over 17 years, these tax liabilities could accumulate, reducing your monthly income. Keep this in mind when planning your SWP amounts.

Managing Expectations: Rs 150 Crores Corpus

Accumulating Rs 150 crores by the age of 77 might be an over-optimistic projection. Although consistent investments over time can indeed generate substantial wealth, there are a few challenges to this goal:

Compounding Returns: While compounding is powerful, market volatility and inflation can curb its potential. A 12% annual return might not be consistently achievable for 34 years (17 years of investing + 17 years of withdrawing).

Post-Retirement Income: Rs 8 lakhs per month during retirement translates to Rs 96 lakhs annually. Over 17 years, this withdrawal would amount to Rs 16.32 crores. If your corpus doesn’t grow as expected, or if returns fall short of 12%, there could be a risk of the corpus depleting too quickly.

Realistic Projections: You may want to factor in more conservative return rates, such as 8% to 10%, to get a more practical estimate of your final corpus. Even with these conservative rates, you should still be able to accumulate a significant sum to support a comfortable retirement.

Active Fund Management vs Passive Investments

Since your plan involves long-term investments, it’s essential to evaluate the type of funds you're using. Actively managed funds typically offer the opportunity for higher returns than passive investments like index funds.

Disadvantages of Index Funds: Index funds, while low-cost, merely track the market, making them more suitable for short to medium-term goals. Over long periods, their returns could be lower than actively managed funds, which have the flexibility to adjust to market conditions.

Advantages of Actively Managed Funds: With actively managed funds, professional fund managers can shift your investments based on market dynamics, which is important for a long-term investor like yourself. This could help achieve your expected returns of 12% annually or close to it, especially if combined with a balanced asset allocation strategy.

The Importance of Regular Monitoring and Adjustments

Your goal of investing Rs 2 lakhs per month until 60 and then withdrawing Rs 8 lakhs per month sounds like a well-thought-out strategy. However, it's critical to review your plan regularly, especially as you near retirement. Regular monitoring and adjustments can help you stay on track.

Annual Reviews: Review your portfolio performance annually with your Certified Financial Planner. This will help ensure that you're still on track for your desired corpus and that your funds are performing as expected.

Adjusting for Life Changes: Consider any life changes such as health issues, job changes, or family commitments. These could impact your ability to save or the amount you need post-retirement.

Rebalancing: As you approach 60, you should gradually reduce your exposure to equity and shift towards debt funds to secure your corpus. This will minimize the risk of a significant loss just before retirement.

Final Insights

Your current plan to invest Rs 2 lakhs per month until 60 and switch to an SWP is well-structured but requires some fine-tuning.

Be cautious about assuming a consistent 12% return over 17 years. While it’s achievable in some market conditions, it’s better to plan with more conservative estimates.

Investment calculators can give a rough idea, but they often don’t account for inflation, market volatility, and taxes, which could significantly alter your final corpus.

An SWP can work, but you must consider the risks of market downturns, inflation, and taxation during the withdrawal phase. It’s wise to build a conservative withdrawal strategy.

Avoid relying too much on index funds or ETFs for long-term wealth accumulation. Actively managed funds will give you more flexibility to adjust to market conditions, offering potentially higher returns.

Finally, regular reviews and portfolio rebalancing will be crucial as you approach retirement. This ensures your strategy remains aligned with your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in