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Can I retire at 50? I have 2 lacs monthly income, 2.75 Cr in real estate and 1.35 Cr in investments.

Ramalingam

Ramalingam Kalirajan  |7201 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 11, 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 - Nov 11, 2024Hindi
Money

Hi, I am 50 years old. Is my financial position sufficient enough to retire immediately? Myself and my wife's combined salary is 2 lacs (tax free) per month. We have a 24 year old daughter pursuing masters in Canada and she does not require any funds for completing her studies or living expenses as it is fully funded by the university. As for her marriage in future, we want to keep it simple and no plan to waste money like typical traditional ways. As regards to financial position, I am debt free, FD 27 lacs, Bonds 80 lacs. Both investments gives me avg. 85000 interest (taxable) per month. Apart from this, I have emergency bank balance 9 lacs, equity investment 8 lacs, PF 22 lacs. My real estate investments are 2.75 Cr. of which 1.75 Cr. worth property is ready for sale and intend to invest the proceeds in Bonds for passive income. Remaining 1 Cr. worth property we will keep it for living. As for insurance, there is a term insurance of 1.2 Cr. and family Health insurance 25 lacs that will be gradually topped up to 40 lacs in 3 years. Our current expenses are 65000 per month and expect a life expectancy of 85 years. Please advise.

Ans: Assessing your financial readiness for retirement involves carefully reviewing your income streams, investments, assets, and lifestyle needs. You are in a commendable position financially, especially as you are debt-free and have diversified assets. Here’s a comprehensive breakdown to ensure a comfortable retirement based on your current status and goals:

Monthly Income Requirements vs. Available Passive Income
Current Monthly Expenses: Your monthly expenses stand at Rs 65,000, which is sustainable given your asset base. Considering inflation over the next 35 years (assuming a life expectancy of 85), you may see these expenses grow. Having passive income sources that outpace inflation will be key.

Passive Income: You currently receive an average of Rs 85,000 per month from Fixed Deposits (FDs) and Bonds. This is more than adequate to cover your existing monthly expenses, leaving a surplus for reinvestment or discretionary spending.

Investment Proceeds from Real Estate Sale: With your plan to sell a Rs 1.75 crore property and reinvest the proceeds in Bonds, you can create an additional passive income stream. This will further enhance your monthly cash flow, adding stability to your retirement income.

Asset Evaluation and Diversification
Your assets are diversified across multiple categories, which is beneficial for managing risk. Here’s an assessment of each category:

Fixed Deposits (FDs) and Bonds: Your Rs 80 lakh in Bonds and Rs 27 lakh in FDs provide consistent income but are taxable. Bonds offer stable returns and are ideal for passive income generation in retirement. Consider diversifying into tax-efficient, debt-focused mutual funds with a Certified Financial Planner (CFP) to optimize returns after taxation.

Emergency Funds: The Rs 9 lakh emergency fund is sufficient. It provides a six-month cushion against unexpected expenses, which is an essential component of financial security in retirement.

Equity Investments: You hold Rs 8 lakh in equity, which is a modest amount relative to your portfolio. Equities can be volatile, but they are necessary to outpace inflation over the long term. It may be beneficial to gradually increase this allocation. A CFP can help structure a tailored equity mutual fund portfolio, favoring actively managed funds for professional oversight, especially since these offer potentially higher returns and ongoing management benefits.

Provident Fund (PF): Your Rs 22 lakh PF corpus is a valuable asset. Though it offers tax-free returns, it might not provide liquidity until maturity. It can serve as a reliable reserve for long-term needs.

Real Estate Assessment and Strategy
Primary Residence: Retaining Rs 1 crore worth of property as a primary residence offers stability and security, ensuring a comfortable living environment.

Sale of Additional Property: Selling the Rs 1.75 crore property is a prudent decision if reinvested wisely. Bonds are a stable option for passive income, but consider consulting a CFP to explore other options for optimal tax efficiency and returns.

Insurance Coverage Adequacy
Your insurance coverage is crucial for safeguarding your retirement plan. Here’s a review of your current policies:

Term Insurance: A Rs 1.2 crore term insurance cover is a valuable safety net. You may consider reviewing its adequacy periodically as your wealth and age advance. Since your daughter is financially independent, this insurance could be optimized based on current needs.

Health Insurance: With Rs 25 lakh in health cover, you have a solid base for medical emergencies. Increasing it to Rs 40 lakh over the next three years is a prudent plan. With rising healthcare costs, this will ensure comprehensive coverage. Keep an eye on renewals and top-ups, and consider a critical illness rider for additional protection.

Optimizing Tax Efficiency
Interest from FDs and Bonds: The Rs 85,000 per month in interest from FDs and Bonds is taxable. To reduce the tax burden, explore tax-efficient debt-oriented mutual funds or government-backed tax-saving schemes through a CFP.

Equity Mutual Fund Taxation: Under the new capital gains tax rule, long-term capital gains above Rs 1.25 lakh are taxed at 12.5%, while short-term gains are at 20%. Balancing equity investments with tax-efficient debt options will help optimize after-tax returns.

Inflation Protection and Wealth Accumulation
To protect against inflation, it’s advisable to allocate a portion of your wealth to higher-growth assets:

Increase in Equity Allocation: A gradual increase in equity allocation can provide inflation-beating growth. Equity mutual funds, especially actively managed ones, can offer higher returns over time. With a moderate risk approach, you can look at flexi-cap or balanced advantage funds with a CFP’s guidance.

Systematic Withdrawal Plan (SWP): Once you reach 60, consider an SWP from equity mutual funds for a tax-efficient, inflation-adjusted monthly income. This will help maintain a steady income flow without eroding capital rapidly.

Managing Future Needs and Legacy Planning
With your daughter being financially independent, your retirement plan gains further flexibility:

Retirement Corpus Sustainability: Based on your asset base and monthly expenses, your corpus should comfortably support you and your wife, even with inflation adjustments. It’s essential to have a regular review of your portfolio to keep your asset allocation aligned with changing needs.

Simple Approach to Daughter’s Marriage: Since you wish to keep the wedding simple, this choice supports your retirement goal. Any additional savings from your surplus income can be invested in growth-oriented assets, further strengthening your retirement fund.

Final Insights
Based on your well-structured asset base, stable income sources, and tax planning strategy, you are in a strong financial position to retire immediately. However, regular reviews with a CFP can help adjust your portfolio to changing financial and personal needs. Your foresight in preparing for inflation and future expenses will enable a comfortable and secure retirement.

Please feel free to reach out for a detailed investment plan and regular portfolio reviews.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
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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Ans: Retiring by 50 is an ambitious goal, but with careful planning and disciplined execution, it can be achievable. Here are some steps you can take:

Evaluate Your Financial Position: Review your current assets, liabilities, and investment portfolio. Ensure that you have a clear understanding of your financial situation.
Calculate Retirement Corpus: Estimate your desired retirement corpus based on your expected post-retirement expenses, inflation, and life expectancy. Consider consulting a financial planner for a detailed analysis.
Optimize Investments: Continue investing in a mix of mutual funds, stocks, and other instruments to grow your wealth. Since you have a diversified portfolio, ensure it aligns with your risk tolerance and investment objectives.
Accelerate Savings: Increase your monthly investments if possible to accelerate wealth accumulation. Consider reallocating resources from lower-yield assets to those offering higher returns, keeping risk in mind.
Debt Management: Focus on paying off your site loan within the next six years. Reducing debt will free up more resources for savings and investments.
Emergency Fund: Maintain an adequate emergency fund to cover unforeseen expenses. Aim for 6-12 months' worth of living expenses in a liquid and accessible account.
Plan for Contingencies: Consider factors like healthcare expenses, education costs for your daughter, and any other unforeseen events. Ensure you have adequate insurance coverage to mitigate risks.
Retirement Lifestyle: Define your desired retirement lifestyle and associated expenses. This will help you determine the size of your retirement corpus more accurately.
Regular Review: Periodically review your financial plan to track progress and make necessary adjustments. Stay informed about changes in tax laws, investment opportunities, and market trends.
Seek Professional Advice: Consider consulting a Certified Financial Planner to create a comprehensive retirement plan tailored to your specific goals and circumstances.
Remember, achieving early retirement requires discipline, sacrifice, and careful financial management. While it may seem challenging, with dedication and the right approach, you can work towards realizing your goal of retiring by 50.

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Ramalingam Kalirajan  |7201 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 26, 2024

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Hi my name is Somani, I have completed 39 years and planning to retire in my career, below are my current financial situation. Saving account: 5 Lac FD: 15 Lac, all maturing in 2026 Mutual fund: 28 Lac (current value: 36 Lac, Large cap: 50%, Mid cap: 26%, Small cap: 22%, Other: 2%) Gold Bonds: 3.5 Lac (current value: 6.85 Lac) Equity share: 26 Lac (current value: 47 Lac) NPS: current value: 6 Lac EPFO: 12.25 Lac PPF: 7.67 Lac Term Plan: 1 Cr Pension Plan after 60: 30k approx monthly Health insurance: 13 Lac whole family My wife is working and gets around 70k in hand Having one daughter, age is 8 year and studying in 2nd class My father is retired and below are his financial situation Pension: 45k approx per month FD: 1 cr Equity Share/Mutual fund/ Gold bonds: 1 cr approx Property: 80 Lac approx current valuation Own House: 1.75 cr - 2 cr current valuation Rental income: 18k approx per month Please guide me on above data, how much corpus I should have to have a peaceful retirement considering my current monthly expense around 1.25 Lac per month.
Ans: You have a strong and diverse financial foundation. Let us analyse it comprehensively.

Liquid Assets
Savings account balance of Rs 5 lakh offers immediate liquidity.

Fixed deposits worth Rs 15 lakh maturing in 2026 ensure mid-term stability.

Investments
Mutual fund portfolio of Rs 36 lakh is well-diversified across large, mid, and small caps.

Gold bonds with a current value of Rs 6.85 lakh add stability and hedge against inflation.

Equity shares valued at Rs 47 lakh showcase significant growth.

National Pension System (NPS) holding of Rs 6 lakh offers retirement-oriented savings.

Retirement Savings
EPFO corpus of Rs 12.25 lakh and PPF balance of Rs 7.67 lakh ensure steady long-term growth.

Term plan coverage of Rs 1 crore secures your family's future.

Family Support
Your wife’s monthly income of Rs 70,000 provides stability.

Your father’s solid financial base and Rs 45,000 pension ensure reduced dependency.

Estimating Retirement Corpus
Retirement planning requires addressing future expenses, inflation, and longevity.

Monthly Expense Analysis
Your current expenses of Rs 1.25 lakh per month are significant.

Adjust for post-retirement expenses like reduced work-related costs but increased healthcare spending.

Corpus Needed
For a peaceful retirement, aim for a corpus that generates Rs 1.25 lakh monthly for at least 30 years.

Factor in inflation at 6-7% annually to maintain purchasing power.

A corpus of Rs 12-15 crore is recommended for financial independence.

Strategic Recommendations
Step 1: Optimising Current Assets
Avoid excessive reliance on savings accounts and fixed deposits due to lower returns.

Reinvest FD maturity proceeds into higher-yielding instruments like mutual funds.

Step 2: Enhancing Mutual Fund Investments
Increase mutual fund allocation to Rs 50 lakh in a staggered manner.

Focus on actively managed funds for better performance over passive options like index funds.

Diversify further across asset classes and maintain a balance between equity and debt.

Step 3: Consolidating Gold and Equity
Gold bonds and equity shares have grown well.

Retain gold bonds for stability but monitor equity shares for market risks.

Systematically transfer gains from volatile equity to stable debt funds or hybrid funds.

Step 4: Strengthening Retirement-Specific Savings
Increase contributions to NPS for additional tax benefits and retirement growth.

Continue regular contributions to PPF, which is risk-free and tax-efficient.

Maintain EPFO balance, and avoid withdrawing unless necessary.

Step 5: Creating a Balanced Corpus for Child’s Education
Your daughter is 8 years old, and higher education expenses will occur in 10-12 years.

Allocate Rs 25 lakh into child education-focused mutual funds or debt-oriented funds.

Start an SIP to build this fund systematically.

Step 6: Managing Health and Insurance
Your health insurance coverage of Rs 13 lakh is good. Ensure it includes critical illness coverage.

Consider top-up plans to cover any significant medical expenses in the future.

Review your term plan periodically to ensure adequate coverage.

Optimising Your Father’s Financial Portfolio
Active and Passive Income
Your father’s Rs 45,000 monthly pension is stable.

Rental income of Rs 18,000 adds a small but regular inflow.

Investment Portfolio Management
Consolidate his Rs 1 crore equity/mutual fund portfolio to reduce risks post-retirement.

Diversify between equity, debt, and fixed-income instruments for balance.

Monitor FD renewals to ensure competitive interest rates.

Property Considerations
His property portfolio offers a mix of rental and non-income-generating assets.

Avoid liquidating assets unless it becomes necessary to meet financial needs.

Tax-Efficient Strategies
Use ELSS mutual funds to save taxes under Section 80C while building wealth.

NPS contributions provide tax benefits under Section 80CCD(1B).

Plan mutual fund redemptions carefully to minimise long-term and short-term capital gains taxes.

Finally
A peaceful retirement requires balancing current and future needs.

Build a robust corpus through diversified investments.

Review your portfolio annually and make adjustments with the guidance of a certified financial planner.

Stay disciplined and prioritise long-term financial security over short-term gains.

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Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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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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