I am 41 with a house worth Rs 3 crore and an apartment worth Rs 1.8 cr. I also have FDs worth Rs 6 cr. I want to retire by 2026. I earn around Rs 90 lakh per annum. I have two school-going daughters. Would my retirement savings be good to last long after I retire?
Ans: Retirement is a crucial phase of life. It requires careful planning, especially if you want to maintain your current lifestyle. At 41, you have built a solid foundation with a house, an apartment, and significant fixed deposits (FDs). You plan to retire by 2026, which gives you two years to prepare. Let’s assess your current situation and evaluate how well your retirement savings will serve you in the long run.
Current Assets and Income
Your current assets include:
A house valued at Rs 3 crore
An apartment valued at Rs 1.8 crore
FDs worth Rs 6 crore
Your annual income is Rs 90 lakh. These are impressive figures and reflect your diligent saving and investment efforts. You also have two school-going daughters, which adds the responsibility of planning for their future education and possibly their weddings.
Retirement Timeline
You aim to retire by 2026, which gives you a time horizon of two years. This is a relatively short period, and your focus should be on preserving your capital and ensuring it generates sufficient income post-retirement.
Evaluating Your Retirement Corpus
Let’s break down your assets to see how well they can sustain your retirement.
Real Estate Assets
Your house and apartment have a combined value of Rs 4.8 crore. However, real estate is generally considered an illiquid asset. Selling property during retirement could be challenging due to market conditions and other factors.
Additionally, real estate doesn’t generate regular income unless you plan to rent out the apartment. Even if you do, rental income might not be sufficient to cover all your retirement needs.
Fixed Deposits (FDs)
You have FDs worth Rs 6 crore, which is a significant amount. FDs are safe, low-risk investments. They provide regular interest income, which is beneficial for retirement.
However, the interest rates on FDs have been on the decline. This could affect your income stream. Also, the interest from FDs is fully taxable, which could reduce your net income.
Estimating Post-Retirement Expenses
A crucial part of retirement planning is estimating your post-retirement expenses. Your current income is Rs 90 lakh per annum, which translates to Rs 7.5 lakh per month. After retirement, your expenses will likely reduce, but you need to consider:
Living Expenses: Basic needs, utilities, groceries, and other day-to-day expenses.
Healthcare: Medical expenses tend to increase with age. Ensure you have adequate health insurance coverage.
Daughters’ Education and Marriage: Planning for these significant expenses is essential. They can be substantial, depending on the level of education and the type of wedding.
Income Streams Post-Retirement
After retiring, you’ll need to generate income from your assets. Let’s explore your options:
Interest Income from FDs
FDs will provide regular interest income. However, as mentioned earlier, the interest rates are not as attractive as they used to be. Plus, the income is taxable. This might reduce your net income and could impact your cash flow.
Rental Income
Renting out your apartment could provide a steady income stream. However, rental income may not be substantial compared to your current earnings. Moreover, rental income is also taxable.
Diversifying Investments
While FDs are safe, they might not be sufficient to cover your retirement needs, especially considering inflation. It’s advisable to diversify your investments into instruments that can offer better returns.
Investment Options for Retirement
Given your current assets and retirement timeline, you should consider the following investment strategies:
Actively Managed Mutual Funds
Actively managed mutual funds can provide better returns compared to FDs. Professional fund managers handle these funds, aiming to outperform the market. This could be a good option to grow your corpus, especially with a two-year investment horizon.
Unlike index funds, which passively track the market, actively managed funds are designed to take advantage of market opportunities, potentially providing higher returns.
Regular Funds vs. Direct Funds
Regular funds, invested through a Certified Financial Planner (CFP), offer the benefit of professional advice and monitoring. This is particularly important as you approach retirement, where capital preservation and steady income generation are key.
Direct funds, on the other hand, do not offer this professional oversight. While they have lower expense ratios, the lack of guidance could lead to suboptimal investment choices, especially for someone nearing retirement.
Tax Efficiency in Retirement
Minimizing tax outflow is crucial to maximizing your retirement income. Here are a few strategies:
Tax-Free Instruments: Consider investing in tax-free bonds or instruments like the Public Provident Fund (PPF), which offer tax-free returns. However, be mindful of the lock-in periods.
Long-Term Capital Gains (LTCG): Investments in equity mutual funds or ULIPs (if you hold any) could provide tax advantages if held for more than a year, as LTCG tax is only 12.5% above Rs 1.25 lakh.
Healthcare and Insurance
Healthcare costs can be significant during retirement. Ensure you have:
Health Insurance: Adequate health coverage to cover potential medical expenses. Review your policy to ensure it meets your needs.
Life Insurance: If you hold any life insurance policies, assess whether they are still necessary post-retirement. If they are investment-cum-insurance policies, consider surrendering them and reinvesting in more appropriate instruments.
Final Insights
Your current financial standing is robust, with a diverse asset base. However, the focus should be on optimizing these assets for retirement. Diversifying your investments, focusing on tax efficiency, and ensuring adequate healthcare coverage are crucial steps.
Your FDs provide safety but might not generate enough income, especially considering inflation and taxes. Consider actively managed mutual funds for better returns. Real estate, while valuable, is illiquid and may not be the best income-generating asset in retirement.
You have done well so far in building a strong financial base. Now, it’s about fine-tuning your strategy to ensure a comfortable and secure retirement.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in