Hi, I am 45 years old single and no dependent and own home. I have invested 50 lakh in the market (low risk like MF, large cap stocks) and 1 cr in other non risk instruments like FD. I would lile to retire. My monthly need is around 75000 Rs to...

Hi, I am 45 years old single and no dependent and own home. I have invested 50 lakh in the market (low risk like MF, large cap stocks) and 1 cr in other non risk instruments like FD. I would lile to retire. My monthly need is around 75000 Rs to maintain current lifestyle. I intend to invest 25 lakh more into riskier stocks in future. What would be your suggestion for early retirement at 45? I have a medical insurance too for 5 lakhs. Thanks!!

Ans: To achieve early retirement at 45 with a monthly requirement of 75,000 Rs, you need to ensure that your investments generate sufficient passive income to cover your expenses. Given your current investments and additional 25 lakh planned for riskier stocks, here are some suggestions:

Asset Allocation: Maintain a balanced asset allocation between low-risk (like FDs, large-cap MFs) and higher-risk investments (like stocks) to optimize returns while managing risk.
Investment Strategy: Consider investing in a diversified portfolio of equity, debt, and hybrid funds to generate steady income and potential capital appreciation. Aim for an annual return of at least 8-10% to meet your income requirement.
Regular Income: Utilize Systematic Withdrawal Plans (SWP) from mutual funds or dividend income from stocks to generate regular income. Rebalance your portfolio periodically to maintain the desired asset allocation.
Emergency Fund: Maintain an emergency fund equivalent to 6-12 months of expenses in liquid assets like FDs or savings accounts to cover unforeseen expenses.
Medical Insurance: Continue with your medical insurance and consider increasing the coverage or adding a top-up plan to protect against rising healthcare costs.
Financial Planning: Consult a Certified Financial Planner to develop a personalized retirement plan tailored to your needs, objectives, and risk tolerance. They can help optimize your investment strategy, manage risks, and monitor your progress towards early retirement.
Tax Planning: Efficient tax planning can help maximize your after-tax returns and minimize tax liability. Utilize tax-saving investment options like ELSS mutual funds, PPF, or NPS to optimize your tax efficiency.
Achieving early retirement requires careful planning, disciplined saving, and strategic investing. With proper planning and professional guidance, you can work towards achieving your goal of early retirement and maintaining your desired lifestyle.

Ans: Overview of Your Current Financial Situation
You are 44 years old, owning two flats valued at Rs. 2.5 crore. One flat yields a rental income of Rs. 22,000 per month.
You have a pension plan, expected to provide around Rs. 40,000 per month after the age of 67.
Your other investments include shares worth Rs. 10 lakh.
Due to personal situations, you have had to restart your savings journey and have now invested 80% in high-risk equity mutual funds and 20% in debt funds.
You are currently investing 30% of your take-home salary, which amounts to approximately Rs. 70,000 per month.
Given these factors, you are seeking advice on a strategy for a very comfortable retirement, with a goal of potentially retiring early at the age of 55.

Let’s break down your current strategy and provide an actionable plan.

Real Estate and Rental Income Considerations
Your real estate assets are a great foundation for your wealth-building journey. Owning two debt-free flats worth Rs. 2.5 crore gives you significant security.

The rental income of Rs. 22,000 per month adds a passive income stream, although it may not be enough to support early retirement on its own. However, this amount will likely increase over time due to rental inflation.

As your flats are paid off, you won’t face any loan repayment stress, which is a significant advantage in maintaining liquidity.

Suggestion: Avoid relying solely on real estate for wealth generation, as rental yields are typically lower compared to returns from mutual funds or other financial instruments. Continue diversifying your investments to grow your retirement corpus.

Pension Pot and Post-Retirement Planning
Your pension plan is a guaranteed income source for post-retirement, providing you Rs. 40,000 per month after age 67. This is a good safety net but may not be sufficient to cover all post-retirement expenses.

Suggestion: You should focus on creating an additional income source or corpus that can support your lifestyle post-retirement alongside this pension.

Current SIP Strategy: Equity vs. Debt Allocation
You are currently investing 80% of your monthly investment in high-risk equity mutual funds and 20% in debt funds. This aggressive approach is suitable for wealth-building, especially since you are still in your 40s.

Equity investments provide high potential returns but also come with volatility. However, since you are investing 30% of your income, it is important to balance this risk.

Suggestion: Consider increasing your allocation to debt funds or hybrid funds as you get closer to your retirement goal. This will help reduce risk and protect your capital from market fluctuations as you approach the early retirement age of 55.

Future Strategy for a Comfortable and Early Retirement
Step 1: Increase Your SIP Gradually
You are currently investing a good portion of your income in SIPs. However, to ensure that you build a substantial corpus by the age of 55, it is essential to increase your SIP contribution regularly.

Suggestion: Increase your SIP investments by 10-15% annually. As your income grows, direct a larger portion towards investments to compound your returns and meet your retirement goal.

Step 2: Adjust Asset Allocation for Age
At 44, you can continue to allocate a majority (around 70%) of your investments towards equity mutual funds for growth. However, as you approach your 50s, you should gradually shift towards a more balanced allocation.

Suggestion: By the age of 50, aim to have a 60% equity and 40% debt allocation. By 55, a 50-50 split would ensure a smoother transition into early retirement without taking on excessive risk.

Step 3: Focus on Actively Managed Mutual Funds
Continue your focus on high-risk equity mutual funds but ensure that these are actively managed funds. Active fund managers can navigate market conditions better and help you outperform passive index funds.

Suggestion: Avoid index funds and ETFs, as they tend to track the market and may not provide enough return to meet early retirement goals. Actively managed funds have the potential to beat the market and give better returns.

Step 4: Diversify Beyond Equity and Debt
Diversification is key to protecting your investments from market volatility. Since you have a good equity base, explore some other options that can bring balance to your portfolio.

Suggestion: Consider adding hybrid funds or balanced funds to your portfolio. These funds provide exposure to both equity and debt and can provide steady returns with lower risk.

You can also explore the option of international mutual funds. They offer exposure to global markets and diversify away from the risk tied to Indian market conditions.

Emergency Fund and Health Coverage
You haven’t mentioned an emergency fund or health insurance. Both are crucial to ensuring financial stability, especially as you move towards early retirement.

Suggestion: Maintain an emergency fund that covers at least 6-12 months of living expenses. This will provide a buffer against any unforeseen financial needs.

Health insurance is equally important to avoid dipping into your retirement savings in case of medical emergencies. Ensure you have adequate health insurance coverage for yourself and your family.

Planning for Early Retirement at Age 55
To retire by 55, you will need a well-planned corpus. Estimate your monthly expenses post-retirement and multiply that by at least 25-30 years of post-retirement life expectancy.

Suggestion: Based on inflation, assume that your current monthly expense of Rs. 70,000 may increase by around 6-7% per annum. Use this estimate to calculate your retirement corpus.

Aim to build a retirement corpus that provides enough returns to cover your monthly expenses without eroding the principal.

You can also consider Systematic Withdrawal Plans (SWPs) from mutual funds after retirement to generate regular income. However, this should only be done once your corpus is sufficient to meet your monthly expenses.

Tax Planning for Your Investments
As you accumulate wealth, tax planning will become an essential part of your strategy, especially since long-term capital gains (LTCG) from equity funds are taxed at 12.5% after Rs. 1.25 lakh.

Suggestion: Work with a Certified Financial Planner to optimise your tax liabilities. Efficient tax planning can help you maximise your returns and reduce your overall tax burden.

Consider making tax-saving investments under Section 80C, such as Public Provident Fund (PPF) and Equity Linked Saving Schemes (ELSS), to reduce your taxable income and enhance your overall portfolio returns.

Final Insights
You are on the right track by restarting your investment journey and allocating a significant portion of your income to SIPs.

A mix of equity and debt investments will help you achieve the growth needed for a comfortable retirement. However, make sure to gradually increase your SIP and rebalance your portfolio as you approach retirement.

Avoid over-reliance on real estate and continue focusing on liquid investments like mutual funds, which can be easily accessed when needed.

Regularly assess your retirement goals and adjust your asset allocation to reduce risk as you near your retirement age of 55.

Lastly, don’t forget the importance of having a robust emergency fund, adequate health insurance, and proper tax planning to protect and grow your wealth over time.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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