Dear Sir, I am 53. Opted for early retirement. How should I plan for my retired journey....So need your suggestions to build a solid portfolio to get a fixed income of 12 LPA. Can allocate Rs 1.5 cr for the same. Also need a plan/suggestions...

Dear Sir, I am 53. Opted for early retirement. How should I plan for my retired journey....So need your suggestions to build a solid portfolio to get a fixed income of 12 LPA. Can allocate Rs 1.5 cr for the same. Also need a plan/suggestions to build a parallel portfolio for income generation for another 1.5 cr. Please suggest Apart from the above I have Rs 3 Cr in real estate ,Gold,emergency funding as a buffer. Currently have MF portfolio,need to rejig and build a new portfolio for the above goals.

Ans: Given your retirement goals, a two-pronged approach can be effective:

Fixed Income Portfolio (Rs 1.5 Cr):
Debt Funds: Opt for high-quality corporate bonds or government securities funds for stability.
Senior Citizen Savings Scheme (SCSS): Offers a fixed interest rate with tax benefits.
Post Office Monthly Income Scheme (POMIS): Provides monthly income with capital protection.

Income Generation Portfolio (Rs 1.5 Cr):
Dividend Yield Funds: Invest in mutual funds focusing on high dividend-paying stocks.
Equity Mutual Funds: Diversify across large-cap, mid-cap, and flexi-cap funds for growth.
Rental Income: If you have properties in real estate, consider renting them out for additional income.
Systematic Withdrawal Plan (SWP): Opt for SWP from mutual funds to generate regular income while keeping a part invested for growth.
Ensure regular portfolio reviews and adjustments based on market conditions and your financial needs. Consulting a financial planner will provide a tailored strategy suited to your goals and risk profile.

Asked on - Apr 22, 2024 | Answered on Apr 23, 2024

Dear Sir, Thanks for your quick revert. May I have 1 clarification. 1) In Fixed Income Portfolio suggestion, as I am 53, I cannot use the Senior Citizen Savings Scheme (SCSS). Do you recommend Direct Bonds, if yes which are those and how should I select them. 2) In Debt Funds for regular income, would a conservative Debt fund is recommended, does it prevent the downslide in adverse market conditions? OR should I consider a Balanced or Conservative debt fund for Income Generation Portfolio.

Ans: Direct Bonds can be a solid choice for stable income, akin to a reliable old oak tree offering shade year after year. But it comes with a credit risk. When selecting bonds, focus on credit quality, maturity, and yield to match your income needs and risk tolerance. As for debt funds, think of conservative debt funds as the sturdy foundation of a house; they aim to safeguard your capital but may offer lower returns. Balanced or conservative debt funds, on the other hand, blend stability with some growth potential, offering a middle ground. They can soften the impact of market downturns while striving for consistent income.

Ans: Your investment portfolio looks quite healthy. You have a variety of assets:

Rs 1.4 crore in shares
Rs 50 lakh in mutual funds
SIP of Rs 75,000 per month for another 3 years
Rs 1 crore real estate plot
Rs 45 lakh in PPF
Rs 80 lakh in gold
You also have a health insurance cover of Rs 7 lakh and no liabilities. With your wife being a homemaker, and your children settled, the focus should be on planning for sustainable retirement income.

Let’s analyse the situation and guide you on how to ensure your funds last throughout your retirement. Your goal is to maintain financial security till the age of 85, which means planning for the next 19 years.

Evaluating Your Current Assets
Shares (Rs 1.4 crore)
This is a substantial part of your portfolio. Shares can provide high returns but are volatile. Since you are retired, you need stability more than high-risk exposure. I suggest reviewing your shareholding and considering shifting a portion of this into less risky assets.

You may continue holding some of these shares for capital appreciation.
Shift part of the portfolio into less volatile instruments for regular income.
Mutual Funds (Rs 50 lakh) and SIPs
You have Rs 50 lakh in mutual funds and an ongoing SIP of Rs 75,000 per month for another three years. This systematic investment is a good approach, as it helps build wealth.

You could switch some of these mutual funds from growth-oriented funds to regular income-oriented funds.
This will ensure a steady stream of income while still enjoying some growth.
Note: Actively managed funds could be a better option for you at this stage of life. They are guided by professional fund managers who adjust the portfolio based on market conditions. Index funds, on the other hand, follow the market passively and can be volatile.

PPF (Rs 45 lakh, Valid Till 2026)
The PPF is a safe investment, giving tax-free returns. With Rs 45 lakh, it serves as a stable part of your portfolio.

You should continue holding it until maturity in 2026.
Upon maturity, reinvesting the proceeds into senior citizen schemes or low-risk instruments can ensure steady income.
Gold (Rs 80 lakh)
Your gold holding is quite significant. While gold can act as a hedge against inflation, it does not generate regular income.

I suggest retaining some portion of the gold.
Consider liquidating part of the gold and shifting the proceeds into low-risk, income-generating investments.
Real Estate Plot (Rs 1 crore)
You have a real estate plot valued at Rs 1 crore. However, real estate is an illiquid asset and may not provide regular income unless rented or sold.

You can explore selling this property if it doesn’t generate regular cash flow.
Reinvest the proceeds into safer, more liquid instruments that provide monthly income.
Retirement Corpus and Monthly Income
At this stage, it's crucial to build a consistent monthly income stream to meet your expenses.

Look at investing a portion of your shares, mutual funds, or real estate sale proceeds into debt instruments.
Debt mutual funds, bonds, or government-backed schemes can provide a steady flow of income without high risk.
You need to evaluate your monthly expenses and match them with the income from investments. Based on your assets, there are several options that offer predictable returns:

Senior Citizens' Savings Scheme (SCSS): Offers regular income, government-backed, and safe.
Debt Funds: These are relatively safe mutual funds focusing on fixed-income securities.
Monthly Income Plans (MIPs): These are hybrid mutual funds designed to give regular income, ideal for retirees.
These options can ensure that you have a regular monthly income to meet your lifestyle needs without depending on volatile assets like shares.

Emergency Fund Planning
You should keep aside 1-2 years’ worth of expenses in a very liquid form. This ensures you are prepared for any unexpected emergencies without liquidating long-term assets.

Liquid funds or bank fixed deposits can be a suitable place to park these emergency funds.
It will give you quick access to money, should the need arise.
Health Insurance Review
You currently have health insurance of Rs 7 lakh. At your age, healthcare expenses can rise, so reviewing your health cover is essential.

I recommend increasing your coverage to at least Rs 15-20 lakh.
You can do this by either upgrading your existing policy or taking a top-up plan.
Healthcare expenses are unpredictable and can put a strain on your savings. A larger health cover can protect your retirement corpus from being eroded.

Plan for Your Wife
Since your wife is a homemaker, it is important to ensure that she has financial security. If anything were to happen to you, she must have access to regular income and health coverage.

You can consider setting up joint investment accounts with your wife.
Ensure that your will and nominations are up to date.
Also, review her health insurance separately. Since she is 60 years old, it’s important that she has adequate cover in case of emergencies.

Structuring Your Retirement Income
Given the wide range of assets you have, structuring them properly is key to meeting your retirement goals. Here's how you can proceed:

Short-term needs (1-3 years): Keep money in highly liquid assets like bank FDs or liquid funds for emergencies.

Medium-term needs (3-10 years): Invest in debt mutual funds, bonds, or SCSS for regular income.

Long-term needs (10-15 years): Keep a portion of your shares and mutual funds invested for growth, but gradually move some into safer instruments.

Inflation Protection
You must also account for inflation in your retirement planning. Inflation will erode the value of your savings over time.

Consider keeping a portion of your funds invested in growth-oriented assets like mutual funds.
Gold also acts as a hedge against inflation, so maintaining some of your gold holdings will help.
Estate Planning
Since you own significant assets, it’s important to ensure a smooth transfer to your heirs.

Create a will if you haven’t already.
Review your nominations in all investment accounts and insurance policies to avoid legal complications.
You should ensure that your son, daughter, and wife are clear about your financial plans. This will help them manage assets if you are no longer able to.

Finally
You are in a strong financial position, but retirement requires careful planning. Diversifying your assets into more stable, income-generating options will give you the peace of mind that your money will last for the rest of your life.

Consider reducing exposure to volatile assets like shares.
Ensure regular monthly income through safer investments like debt mutual funds and senior citizen schemes.
Increase your health insurance cover to protect against rising healthcare costs.
By structuring your investments properly and making adjustments where necessary, you can ensure that you enjoy a comfortable retirement without worrying about outliving your savings.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

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