Asked on - Jun 22, 2024 Hello Sir, I am 57 yrs Male employed, residing in Bangalore and have total savings of 2.8 Crores (1.5 crores in MF (74% eq, 20% debt, 6% gold); 50 lakhs in PMS, 50 lakhs in PF & Gratuity and 30 lakhs in FD). Planning an early retirement next year. Current monthly expns of Rs.60000 including 20k house rent. My wife is insisting to buy a house which will cost around 75 lakhs but I want to continue in rental house. My Son would be joining college next year and expect around 25 lakhs total for his engineering degree and his marriage expenses (25 lakhs) after 10 years which would be funded from my savings. Is it advisable to buy a house which will reduce monthly expenses to Rs.40000 and continue with SWP to meet the monthly expenses for the rest of our life assuming 7% inflation. Thanks

Ans: Your current financial position is impressive. You have Rs. 2.8 crores in savings. This includes Rs. 1.5 crores in mutual funds (MFs), Rs. 50 lakhs in portfolio management services (PMS), Rs. 50 lakhs in provident fund (PF) and gratuity, and Rs. 30 lakhs in fixed deposits (FDs). You plan to retire early next year, which is a significant life decision.

Your monthly expenses are Rs. 60,000, including Rs. 20,000 for house rent. Your wife wants to buy a house costing around Rs. 75 lakhs, but you prefer to stay in a rental house. Your son will be starting college next year, and you expect his engineering degree to cost around Rs. 25 lakhs. You are also planning for his marriage, estimating another Rs. 25 lakhs in 10 years.

Evaluating the Decision to Buy a House
Pros of Buying a House
Reduced Monthly Expenses: Owning a house will reduce your monthly expenses from Rs. 60,000 to Rs. 40,000. This is a significant saving.

Stability and Security: Having your own house provides stability and a sense of security, especially in retirement.

No Rent Hike: You won't have to worry about rent increases every few years.

Cons of Buying a House
Large Upfront Cost: Buying a house for Rs. 75 lakhs will require a substantial chunk of your savings.

Maintenance Costs: Owning a house comes with maintenance costs, property tax, and other expenses.

Less Liquidity: A house is not a liquid asset. In case of emergencies, it may not be easy to sell quickly.

Assessing Your Preferences
While buying a house has its advantages, staying in a rental house provides flexibility. It allows you to keep your investments diversified and liquid. This can be crucial in managing unexpected expenses in retirement.

Planning for Your Son's Education and Marriage
Education Expenses
You have estimated Rs. 25 lakhs for your son's engineering degree. This is a significant amount but manageable with your current savings. Ensuring these funds are in relatively safe and easily accessible investments is crucial.

Marriage Expenses
You plan to set aside Rs. 25 lakhs for your son's marriage in 10 years. This goal is long-term, allowing you to invest in a mix of equity and debt to grow this corpus.

Managing Retirement Expenses
Systematic Withdrawal Plan (SWP)
You plan to use a systematic withdrawal plan (SWP) to meet monthly expenses. This is a wise strategy. It allows you to withdraw a fixed amount regularly, ensuring a steady cash flow while keeping your investments growing.

Inflation Consideration
Assuming a 7% inflation rate, your current monthly expenses of Rs. 60,000 will increase over time. Ensuring your investments grow at a rate that outpaces inflation is crucial.

Evaluating Your Investment Portfolio
Mutual Funds
Your Rs. 1.5 crores in MFs are diversified (74% equity, 20% debt, 6% gold). This is a balanced approach, providing growth potential and stability. However, regularly reviewing and rebalancing your portfolio is essential.

Portfolio Management Services (PMS)
Your Rs. 50 lakhs in PMS are managed by professionals. This is a good strategy, but monitoring performance and fees is crucial to ensure they align with your financial goals.

Provident Fund and Gratuity
The Rs. 50 lakhs in PF and gratuity are safe, long-term investments. These provide a steady and secure return, which is beneficial in retirement.

Fixed Deposits
Your Rs. 30 lakhs in FDs provide liquidity and safety. However, returns on FDs are usually lower. Balancing between safety and growth is crucial.

Assessing the Need for Professional Guidance
Certified Financial Planner
A Certified Financial Planner (CFP) can provide personalized advice tailored to your financial situation. They can help you optimize your investment strategy, ensuring it aligns with your retirement goals and risk tolerance.

Benefits of Active Management
Actively managed funds, overseen by a CFP, can outperform index funds. They offer flexibility to adjust investments based on market conditions, potentially providing better returns.

Addressing Direct and Regular Funds
Disadvantages of Direct Funds
Direct funds require active management and monitoring, which can be time-consuming. Without professional guidance, you may miss opportunities or fail to optimize your portfolio.

Benefits of Regular Funds
Investing through a CFP provides expert management and regular reviews. This ensures your investments are aligned with your financial goals, offering peace of mind.

Planning for Future Uncertainties
Health Care Costs
Healthcare costs can be a significant expense in retirement. Ensuring you have adequate health insurance and a contingency fund is essential.

Emergency Fund
Maintaining an emergency fund to cover unexpected expenses is crucial. This should be in a liquid and easily accessible form, like a savings account or FD.

Estate Planning
Proper estate planning ensures your assets are distributed according to your wishes. This includes making a will and considering potential tax implications.

Final Insights
Your financial situation is strong, providing a solid foundation for early retirement. Balancing your wife's desire to buy a house with your preference to stay in a rental is crucial. Consider both financial and emotional aspects in this decision.

Ensuring you have adequate funds for your son's education and marriage is essential. A diversified investment strategy, guided by a CFP, will help you achieve these goals while managing retirement expenses.

Regular reviews and adjustments to your investment portfolio are crucial to keep pace with inflation and changing market conditions. Professional guidance can provide valuable insights and peace of mind.

Balancing safety and growth, maintaining liquidity, and planning for future uncertainties will help you enjoy a comfortable and secure retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in