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Can I retire at 55 with 3.6 crores and a newborn baby?

Ramalingam Kalirajan |10893 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Oct 22, 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 - Oct 22, 2024Hindi

Hi i am 47 yrs old have an corpus of 1.6 cr invested in various bank FDs at avg int rate of 7.6% now, also 2cr invested in Equity (1.8) and MF [0.2). I have a new born baby son justbsix month old and i have invested 50 lacs in his name in PMS. I have mediclaim of 25 lacs which cover my family. Kindly advice if i can retire by 55 yrs.and if anything else.need to be done for my young son who is just 6 month.

Ans: At 47, you are in a strong financial position with a significant corpus. You have Rs. 1.6 crore invested in bank FDs at an average interest rate of 7.6%, Rs. 2 crore in equity and mutual funds (Rs. 1.8 crore in equity, Rs. 20 lakhs in mutual funds), and Rs. 50 lakhs invested in PMS for your 6-month-old son. Additionally, you have a health insurance cover of Rs. 25 lakhs for your family.

This solid foundation puts you in a good position to consider early retirement at 55, but there are some key factors to evaluate.

Evaluating Your Retirement Goal
You are planning to retire in 8 years, by the age of 55. While this is feasible, several factors must be considered:

Inflation Impact: Post-retirement expenses will increase due to inflation. Even with a large corpus, inflation could erode the value of your savings. Planning for inflation is crucial, especially for healthcare, education, and lifestyle costs.

Life Expectancy: With retirement at 55, you may need funds for the next 30-35 years. A sustainable strategy is necessary to avoid outliving your savings.

Investment Strategy Post-Retirement: A significant portion of your corpus (Rs. 1.6 crore) is in bank FDs, which provide guaranteed returns but may not keep pace with inflation over the long term. Equity investments can offer higher growth potential but come with market volatility.

You need to balance stability and growth to ensure that your corpus lasts throughout your retirement years.

Building a Financial Cushion for Your Young Son
Your baby son is only six months old, and providing for his future is paramount. You've already invested Rs. 50 lakhs in PMS for him, which is an excellent start. However, his future financial needs will include:

Education Costs: Education inflation is typically higher than general inflation, often around 8-10% annually. You should plan for his higher education, which could be 18-20 years away.

Medical and Other Expenses: As a young parent, consider increasing your health insurance cover for your family to avoid out-of-pocket medical expenses.

Child-Specific Investments: Consider setting up a systematic investment plan (SIP) in child-focused mutual funds, which can align with his education timeline. A well-planned SIP can help you accumulate funds systematically without major upfront investments.

Diversifying and Optimising Your Investments
Your current portfolio is diversified across FDs, equity, mutual funds, and PMS. However, there is room for optimisation:

Equity Exposure: Equity investments have the potential to generate higher returns, especially over the long term. With Rs. 1.8 crore invested in equity, you are in a good position. However, you must periodically review your equity portfolio to ensure that it aligns with your risk profile and financial goals.

Bank FDs: While FDs provide stability, they offer limited growth potential. The current 7.6% interest rate is attractive, but over time, it might not outpace inflation, especially post-retirement. You could consider shifting a portion of your FD investments into debt mutual funds, which can offer better post-tax returns.

Mutual Funds: Your Rs. 20 lakh investment in mutual funds should be reviewed for performance. Actively managed funds, when chosen through a certified financial planner, can outperform passive funds like index funds, particularly in India’s growing market. Regular funds offer professional advice, portfolio management, and the benefit of a trusted intermediary, which can be valuable in volatile times.

Future-Proofing Your Health Insurance
Your Rs. 25 lakh mediclaim coverage is good for now, but with the rising cost of healthcare, it may be inadequate in the future.

Increase Health Cover: Consider increasing your health insurance cover, especially given your retirement timeline and the potential for higher medical expenses as you age.

Top-Up Plans: You could opt for a top-up or super top-up plan, which is cost-effective and provides additional coverage beyond your base mediclaim.

Action Plan for Early Retirement at 55
To ensure that you can retire comfortably at 55 and secure your son’s future, here are some key steps:

Reallocate Bank FD Corpus: Shift a portion of your Rs. 1.6 crore in FDs to a mix of equity and debt mutual funds. This will offer better returns while maintaining a balanced risk profile.

Continue PMS Investments for Son: The Rs. 50 lakh investment in PMS for your son is a good long-term strategy. Continue monitoring its performance regularly and adjust as needed.

Start Child Education SIPs: Begin a dedicated SIP towards your son’s higher education to ensure a systematic and stress-free accumulation of funds over the next 18-20 years.

Increase Health Insurance Cover: Enhance your mediclaim cover to at least Rs. 50 lakh or consider top-up plans.

Revisit Equity Allocation: Regularly review your equity portfolio to ensure it aligns with your goals. Make sure you are invested in actively managed funds through a trusted CFP, as they typically outperform index funds over the long term.

Tax Implications to Consider
With investments in equity and mutual funds, you must keep in mind the new tax rules:

Equity Mutual Funds: Long-term capital gains (LTCG) above Rs. 1.25 lakh are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%.

Debt Mutual Funds: Both long-term and short-term capital gains from debt funds are taxed as per your income tax slab.

Make sure your investment decisions are tax-efficient to maximise your net returns.

Building a Contingency Fund
While your current investments are strong, it’s crucial to maintain a contingency fund, especially as you approach retirement. Aim to keep 6-12 months’ worth of expenses in a liquid or ultra-short-term debt fund, so you’re prepared for any unforeseen events without disturbing your long-term investments.

Final Insights
Retiring by 55 is feasible given your strong financial base, but optimising your investment strategy is essential. Shifting a portion of your FD corpus to higher-yield instruments, increasing your health insurance cover, and securing your son’s future education through SIPs are important steps.

By regularly reviewing and adjusting your portfolio with the guidance of a certified financial planner, you can create a robust retirement plan while ensuring your family’s financial security.

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

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