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Should I continue SIP at 60 with no need for legacy creation?

Ramalingam Kalirajan |8324 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Oct 19, 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

Question by Visu on Oct 19, 2024Hindi

I am 60, single, minimalist, all my SIPs are expired or completed. should I continue my SIP, even now, where I don't require to create legacy. I have a Corpus of 25 times of my yearly expenses, take care of my financial requirements. though I can set aside a portion for SIP, my question is should I require to continue SIP even now.

Ans: It's impressive that you have accumulated 25 times your annual expenses. This gives you excellent financial security, which is the foundation for the choices you make now. Let’s explore your situation from different angles, considering your minimalist approach, financial freedom, and goals for the future.

1. Assessing Your Financial Independence
You’ve reached a level where your corpus is sufficient for your financial needs. Having 25 times your annual expenses gives you a strong safety net. This allows you flexibility and freedom in deciding whether or not to continue your SIPs.

In financial terms, this is called achieving financial independence. It essentially means that your assets can support your lifestyle comfortably without any additional income.

Given this, your primary need is not wealth creation. Instead, your focus can shift to preserving wealth and ensuring it grows at a pace that protects against inflation.

2. Revisiting Your Goals
Since you’ve mentioned that you don’t need to create a legacy, it’s important to ask: What would you like your financial assets to do for you now? Without the need to create generational wealth, your goals can be focused on:

Maintaining a comfortable lifestyle
Preserving capital to ensure it lasts your lifetime
Managing inflation over the long term
Meeting unexpected future costs, such as healthcare
If there are no further significant expenses or goals to plan for, it’s worth reassessing whether continuing SIPs adds value to your financial plan.

3. Role of SIPs in Your Current Stage of Life
Systematic Investment Plans (SIPs) are tools designed for disciplined wealth creation over time. In your case, since wealth accumulation is no longer the primary need, continuing SIPs may not be necessary.

That said, if you enjoy investing and want your wealth to keep growing at a steady rate, you can consider continuing them. However, instead of focusing on aggressive growth, your strategy could shift towards capital preservation with low-risk funds or balanced funds.

But if you feel that your corpus is more than enough, stopping SIPs is also a reasonable option. There’s no need to continue SIPs just for the sake of it.

4. Shifting Focus from Growth to Preservation
At your stage, the focus should shift from aggressive wealth creation to maintaining and growing wealth conservatively. Here’s why you should consider this approach:

Inflation Protection: Even though your expenses are covered, you’ll still need to factor in inflation. Your corpus should grow enough to keep up with the rising cost of living, even with your minimalist lifestyle.

Safety of Capital: The aim now is to preserve your wealth rather than take unnecessary risks.

To achieve these, you can consider shifting a portion of your portfolio to more conservative instruments, such as:

Balanced mutual funds
Debt-oriented funds
Senior Citizen Savings Schemes or government bonds
These options provide some level of growth, while focusing on safety and steady returns.

5. Emergency Fund & Medical Coverage
Even with a large corpus, it’s important to keep an emergency fund separate. This fund should be easily accessible and cover at least 2-3 years of expenses. It should be kept in highly liquid and safe instruments, such as:

Bank Fixed Deposits
Liquid mutual funds
Additionally, since you’re single, your medical coverage becomes even more important. Ensure that you have comprehensive health insurance in place to cover potential healthcare costs in the future.

6. Reviewing Tax Efficiency
Even if you decide to continue your SIPs, tax efficiency is a crucial factor to consider. The tax landscape has changed, particularly for mutual funds.

For equity mutual funds, the new capital gains tax rules mean:

Long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%.
Short-term capital gains (STCG) are taxed at 20%.
For debt mutual funds:

Both LTCG and STCG are taxed as per your income tax slab.
This means that continuing to invest in certain types of funds could lead to higher tax liabilities. You may want to consider this when deciding whether to continue with SIPs.

7. The Disadvantages of Direct Funds
If you have been investing in direct mutual funds, it’s important to reassess this strategy. While direct funds save on expense ratios, the benefits of professional advice and active fund management are often overlooked.

By working with a Certified Financial Planner (CFP), you gain:

Ongoing monitoring of your portfolio
Tailored advice based on market conditions
Guidance in tax-saving strategies
Regular plans with a CFP help optimize your portfolio for long-term stability, especially in retirement, when risk management is crucial.

8. Evaluating Your Minimalist Approach
A minimalist lifestyle is commendable, and it works in your favor by keeping your expenses in check. This reduces the strain on your corpus and ensures it lasts longer.

However, even as a minimalist, it’s important to be prepared for unexpected costs, such as:

Healthcare needs
Sudden family responsibilities
Changes in lifestyle that may occur over time
Being prepared for these ensures peace of mind and protects your financial independence.

9. Final Insights
Your financial situation is in excellent shape, and you’ve done well to build a solid foundation. Since you don’t need to accumulate more wealth and are focused on maintaining your lifestyle, continuing SIPs is not mandatory.

However, if you enjoy the discipline of investing and want your wealth to continue growing in a conservative manner, you can allocate a portion of your corpus to safer instruments.

Consider stopping aggressive SIPs and shifting your focus to:

Capital preservation
Low-risk funds
Tax-efficient instruments
Keep a close watch on medical coverage and emergency funds, and ensure your wealth continues to serve your needs comfortably for the rest of your life.

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

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