I am 55 and want to retire.I have corpus of 7.5 cr, I need 1.5 lakhs every month. My question is, will I be able to leave enough for my son as a legacy, if I retire and start a SWP of 1.5 lakhs monthly.

Ans: Retirement planning is a crucial stage in life. Having Rs 7.5 crores is a substantial corpus. You need Rs 1.5 lakhs per month. Let's evaluate your situation thoroughly.

Understanding Your Monthly Needs
Your requirement of Rs 1.5 lakhs monthly is significant. It includes living expenses, medical costs, and leisure activities. Ensuring this amount adjusts for inflation is essential. The value of Rs 1.5 lakhs today will not be the same in the future.

Systematic Withdrawal Plan (SWP)
Starting an SWP of Rs 1.5 lakhs monthly from mutual funds is a good strategy. SWP helps manage cash flow efficiently. It provides a steady income while keeping the corpus invested. This approach balances growth and income.

Power of Compounding
Mutual funds offer the benefit of compounding. The returns earned on your investments get reinvested. This reinvestment generates additional returns. Over time, compounding significantly boosts the value of your corpus.

Types of Mutual Funds
Mutual funds come in various categories. Each category serves different purposes. Let’s explore a few:

Equity Funds: These invest in stocks. They offer high returns but come with higher risk. Suitable for long-term growth.

Debt Funds: These invest in bonds and fixed income instruments. They are safer but offer lower returns. Ideal for stability and regular income.

Hybrid Funds: These invest in both equity and debt. They provide a balanced approach, combining growth and stability.

Monthly Income Plans (MIPs): These are a type of hybrid fund. They focus on providing regular income with some exposure to equities for growth.

Active vs. Passive Funds
Active funds are managed by professionals. They aim to outperform the market. Passive funds, like index funds, track a market index. Active funds usually offer better returns due to expert management.

Risks and Returns
All investments come with risks. Equity funds have market risk. Debt funds have interest rate risk. Diversifying your portfolio can help manage these risks. Understanding the risk-return trade-off is crucial.

Legacy Planning
You want to leave a legacy for your son. With a well-planned SWP, you can withdraw Rs 1.5 lakhs monthly. At the same time, a portion of your corpus remains invested. This helps in wealth accumulation and legacy creation.

Inflation and Its Impact
Inflation erodes the value of money over time. Your expenses will increase due to inflation. Hence, your investments must grow faster than inflation. Equity funds are known to beat inflation over the long term.

Tax Implications
SWP in mutual funds has tax benefits. Only the capital gains are taxed, not the principal. Long-term capital gains (LTCG) on equity funds are taxed at 10% beyond Rs 1 lakh. Short-term capital gains (STCG) are taxed at 15%. For debt funds, LTCG is taxed at 20% with indexation benefits. Understanding these tax implications helps in efficient planning.

Role of a Certified Financial Planner
A Certified Financial Planner (CFP) can guide you in aligning your investments. They can tailor a strategy based on your risk appetite and financial goals. They provide personalized advice, which is crucial for effective planning.

Benefits of Regular Funds
Investing through a Mutual Fund Distributor (MFD) with a CFP credential has benefits. They offer professional advice and portfolio management. Regular funds come with slightly higher costs but the expertise provided often justifies these costs.

Re-evaluating Existing Policies
If you have LIC, ULIP, or other investment cum insurance policies, consider re-evaluating them. These often have lower returns compared to mutual funds. Surrendering and reinvesting in mutual funds might be more beneficial.

Creating a Balanced Portfolio
A balanced portfolio includes a mix of equity and debt funds. This approach ensures growth and stability. For example, having 60% in equity and 40% in debt can be a good start. Adjust this ratio based on your risk tolerance.

Regular Monitoring and Rebalancing
Regular monitoring of your investments is essential. Market conditions change, and so should your portfolio. Rebalancing ensures your asset allocation stays in line with your goals.

Emergency Fund
Keep an emergency fund aside. This should cover 6-12 months of expenses. It provides a safety net during unexpected situations.

Health Insurance
Having adequate health insurance is crucial. Medical expenses can drain your finances. Ensure you and your family are well-covered.

Estate Planning
Estate planning ensures your assets are distributed as per your wishes. A will or a trust can help in smooth transfer of assets. Consulting a legal expert for estate planning is advisable.

Communication with Family
Keep your family informed about your financial plans. This ensures they understand your goals and can manage finances in your absence.

Assessing Your Retirement Corpus
Your corpus of Rs 7.5 crores is substantial. If managed well, it can last your lifetime and leave a legacy. Start with an SWP and monitor the performance. Adjust the withdrawal amount based on market conditions and needs.

Creating a Sustainable Withdrawal Rate
A sustainable withdrawal rate is crucial. Withdrawing 3-4% annually is often recommended. This ensures your corpus lasts longer.

Aligning Investments with Goals
Align your investments with your retirement and legacy goals. Different goals require different strategies. Short-term needs might need safer investments, while long-term goals can leverage higher risk options for growth.

Seeking Professional Guidance
Professional guidance helps in making informed decisions. A CFP can help you navigate complex financial landscapes. Their expertise ensures your investments align with your goals.

Final Insights
Your Rs 7.5 crore corpus is strong. With a well-planned SWP, you can withdraw Rs 1.5 lakhs monthly and still grow your investments. Ensuring a balance between growth and income is key. Regular monitoring, professional guidance, and aligning investments with goals will help you create a legacy for your son.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Personal Situation Assessment
– You are 40 years old.

– Your family has four members.

– Children will be 10 and 6 years old when you retire.

– You plan to retire at 45 years.

– You estimate Rs 4 crores as your retirement corpus.

– You will withdraw Rs 1.2 lakhs monthly through SWP.

– You will live in your own home. No rent liability.

– You expect your corpus to cover living, children’s education, and marriage until 80 years.

– This is a sincere and bold retirement goal.

– Early retirement needs strict financial discipline and constant portfolio monitoring.

– Let’s now assess each part of your situation practically.

Monthly Withdrawal Expectation
– You want Rs 1.2 lakhs per month through SWP.

– This equals Rs 14.4 lakhs annually.

– Over 35 years of retirement, this sum becomes huge.

– Inflation will increase your monthly needs.

– After 10-15 years, Rs 1.2 lakhs won’t be enough.

– Cost of children’s education, healthcare, and other living costs will rise.

– Therefore, this withdrawal strategy needs adjustment over time.

Can Rs 4 Crores Sustain Your Life Until 80?
– Withdrawing Rs 1.2 lakhs monthly from Rs 4 crores is a 3.6% annual withdrawal initially.

– This withdrawal seems fine in the short term.

– But inflation will erode the value of this withdrawal.

– At 6% inflation, your expenses will double in about 12 years.

– So, by age 57, your monthly need may be around Rs 2.5 lakhs.

– If your investments generate less than this, your corpus will shrink.

– You need your investments to earn higher than inflation after tax and SWP.

– Else, the corpus will start reducing early.

– From a 360-degree perspective, the corpus alone may not last till 80.

– Education and marriage costs for two kids will further reduce the corpus.

– Healthcare expenses from age 60 onwards will rise sharply.

– Your plan could work until around age 60-65 if unmanaged.

– For lifelong survival until 80 years, additional income sources or corpus are needed.

Assessing the SWP Route
– SWP is a smart strategy for steady income.

– But withdrawing from growth funds may create tax implications.

– When equity mutual funds are sold, capital gains apply.

– As per new rules:

LTCG above Rs 1.25 lakh is taxed at 12.5%.

STCG is taxed at 20%.

– If you use debt funds for SWP, income is taxed as per your slab.

– Tax will eat into your withdrawals.

– Therefore, your actual available income will be lower.

– Also, market volatility may affect your portfolio growth.

– Withdrawal when the market is down will erode your capital faster.

– Hence, you need a diversified, actively managed mutual fund portfolio.

Why Avoid Index Funds in Retirement
– Some may suggest index funds for retirement SWP.

– But index funds do not protect you during market downturns.

– They simply mirror the index movements.

– They don’t rebalance or protect capital during market volatility.

– This increases your risk when you need stable withdrawals.

– On the other hand, actively managed funds provide better risk-adjusted returns.

– A Certified Financial Planner (CFP) and Mutual Fund Distributor (MFD) can suggest better active fund options.

– Active funds also reduce overlap and give better style diversification.

– They help you plan growth and safety for retirement life.

Why Avoid Direct Mutual Funds for Retirement
– Some investors think direct funds save commissions.

– But direct funds provide no financial advice.

– In retirement, you will need timely rebalancing and safety checks.

– Direct funds don’t give personalised support.

– Regular funds through a CFP and MFD provide advice, handholding, and annual reviews.

– They will help to:

Manage market volatility.

Plan for kids’ education and marriage.

Adjust withdrawal rates.

Balance equity and debt exposure.

– Regular plan’s commission is an investment in professional guidance.

– For retirement life, support is far more important than saving small fees.

Managing Kids’ Education and Marriage
– You mentioned you need to fund education and marriage.

– Children’s higher education will happen around your age 50-55.

– Marriage could be around your age 60-65.

– These are high-cost goals.

– You will need to carve out separate funds for these.

– Withdrawals for these events will further reduce your retirement corpus.

– Estimate both these goals today with your Certified Financial Planner.

– Then, create two separate goal-based mutual fund portfolios.

– Do not use your main retirement corpus for these.

– Else, you may run short during your old age.

Risks of Early Retirement
– Retiring at 45 gives you no fresh income source.

– You will be dependent fully on your corpus.

– Any unexpected expense can shake your plan.

– Examples are:

Healthcare emergencies.

Higher education costs.

Inflation spikes.

Market crashes.

– Therefore, early retirees must plan even better than normal retirees.

– You cannot afford trial-and-error in this phase.

– Your margin of safety is low.

Recommended Investment Strategy for Retirement
– Invest in actively managed equity and hybrid mutual funds.

– Allocate a part to short-term debt and liquid funds.

– Maintain an emergency fund for 12-18 months of expenses.

– Rebalance the portfolio every year.

– Withdraw through SWP only from stable funds.

– Use equity growth for long-term inflation-beating returns.

– Shift gradually towards hybrid and debt as you age.

– Take guidance from a CFP to reallocate as market conditions change.

– Keep separate goal-based portfolios for kids’ education and marriage.

– Avoid taking extra risks by investing in direct funds or index funds.

Long-Term Sustainability
– With proper asset allocation, your money may last till 75 years.

– Beyond that, the corpus may fall short unless returns are very high.

– If you ignore inflation, you may outlive your corpus.

– Healthcare, family emergencies, or market losses will worsen this.

– Unless planned well, you may face shortages at 70+.

– Periodic review every year is essential.

– Your CFP should recalculate the corpus sustainability every 12-24 months.

Lifestyle Adjustment and Income Planning
– You may have to reduce expenses in later years.

– Consider part-time consulting or business for some years after retirement.

– Passive income like royalty, online work, or freelance could help.

– If your wife can work part-time, it adds safety.

– Focus on health in retirement to avoid large medical costs.

Healthcare and Insurance Readiness
– Ensure you have a Rs 20-25 lakh family floater health insurance.

– Add critical illness and personal accident cover before retirement.

– Premiums are cheaper now than in old age.

– Create a healthcare buffer fund aside from your SWP portfolio.

– This keeps your SWP portfolio intact during medical emergencies.

Should You Postpone Retirement to 50?
– Retiring at 50 instead of 45 will give you:

Extra corpus growth for 5 years.

Higher compound interest.

Better preparation for kids’ education.

Stronger healthcare coverage.

– Your retirement corpus could increase by 50-80% in 5 years.

– This will make your retirement much more sustainable.

– If possible, postpone retirement by 3-5 years.

Alternative Withdrawal Strategy
– Instead of flat Rs 1.2 lakhs withdrawal, start with lower SWP.

– Withdraw 3%-3.5% of corpus in initial years.

– Increase withdrawal slowly with inflation.

– This will give your corpus more time to grow.

– Discuss these withdrawal models with your CFP.

Summary Evaluation of Your Plan
– Rs 4 crore corpus at age 45 is a good start.

– But this may not be enough for lifelong expenses, education, and marriage.

– Without new income, your money may last till 70-75 years, not 80.

– Large education and marriage expenses may deplete your funds faster.

– Market returns and inflation will control how long your corpus lasts.

– Regular plan mutual funds through a CFP and MFD give better protection.

– Direct funds and index funds are unsuitable due to lack of risk management.

– You need annual reviews and ongoing adjustments post-retirement.

What You Should Do Next
– Reassess your Rs 1.2 lakh monthly need.

– Factor in inflation and future lifestyle changes.

– Build a separate education and marriage fund.

– Review your health insurance cover.

– Discuss all retirement and family goals with your Certified Financial Planner.

– Recheck your corpus sustainability every year post-retirement.

– Stay invested in actively managed mutual funds with a dynamic allocation.

– Keep liquidity for emergencies and market corrections.

– Postpone retirement by a few years if feasible to increase safety.

Finally
– Your early retirement goal is bold but needs more preparation.

– Rs 4 crores may support you till 65-70, but not till 80 confidently.

– Without additional sources of income, old age could be financially tough.

– SWP alone will not safeguard you from inflation and family goals.

– A Certified Financial Planner can build a 360-degree plan for your retirement.

– Regular mutual funds, dynamic allocation, and periodic review will help achieve stability.

– Postpone retirement to strengthen your plan if possible.

– Prioritise health insurance, goal-based portfolios, and ongoing financial advice.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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