Hi I am 35 years old. My annual ctc is 45 lacs. I have 26 lacs in epf, 24 lacs in equity, 1.1 lacs in gold soverign bond. I own a car and scooty. I have one flat worth 1.2cr with 30 lacs as loan . My monthly expense is 70k . My wife is home maker and i have 2 children(girl 9 years old, boy 4 years old) I want to retire after 5 years . How should i plan my investment
Ans: Planning for retirement is a significant life decision, especially if you aim to retire in just five years. Given your current financial standing and responsibilities, let's delve into the details of how you can achieve your goal.
Current Financial Snapshot
To start, let's review your current financial situation:
Annual CTC: Rs 45 lakhs
EPF: Rs 26 lakhs
Equity: Rs 24 lakhs
Gold Sovereign Bonds: Rs 1.1 lakhs
Car and Scooty
Flat worth Rs 1.2 crore with a Rs 30 lakhs loan
Monthly expenses: Rs 70,000
Homemaker wife and two children (9 and 4 years old)
Your primary objective is to retire in five years. To do this, we need to create a strategy that ensures a steady income post-retirement and covers your family's needs.
Assessing Your Current Investments
Equity Investments: Your Rs 24 lakhs in equity is a solid start. Equities generally offer high returns over the long term but come with risks. Given your short timeline, we need to balance this with safer investments.
EPF: Your EPF is a stable and secure investment. It offers moderate returns and should be preserved for your retirement corpus.
Gold Sovereign Bonds: These bonds are a safe investment, but the returns are relatively lower. They do provide a hedge against inflation.
Debt Management
Home Loan: You have a Rs 30 lakhs loan on your flat. Paying off this loan before retirement is crucial. This will reduce your financial burden and free up funds for other investments.
Monthly Expenses and Budgeting
With monthly expenses of Rs 70,000, managing your budget is vital. Post-retirement, your expenses might change, but planning for inflation and additional medical costs is necessary.
Investment Strategy
Mutual Funds
Equity Mutual Funds: Investing in equity mutual funds can provide good returns. However, you should consider actively managed funds over index funds. Actively managed funds, handled by professional fund managers, can outperform the market, whereas index funds only match the market's performance.
Balanced Funds: These funds invest in both equity and debt, offering a balance of risk and return. They are suitable for investors looking for growth with moderate risk.
Debt Funds: Debt mutual funds are less risky compared to equities. They invest in government securities, corporate bonds, and other fixed-income instruments. They provide steady returns and are useful for diversifying your portfolio.
Advantages of Mutual Funds
Diversification: Mutual funds allow you to spread your investment across various assets, reducing risk.
Professional Management: Certified financial planners and fund managers handle the investment, ensuring better returns.
Liquidity: Mutual funds can be easily converted to cash, providing flexibility when you need funds.
Compounding: Over time, the returns from mutual funds can significantly increase due to the power of compounding.
Risk Management
Insurance: Ensure you have adequate life and health insurance. This will protect your family financially in case of any unforeseen events. Review your insurance policies regularly.
Emergency Fund: Maintain an emergency fund equivalent to at least 6-12 months of expenses. This fund will cover any unexpected costs and protect your investments.
Children's Education
Education costs can be significant, especially for your two children. Start a systematic investment plan (SIP) in mutual funds dedicated to their education. This will ensure you have a separate corpus for their higher education needs.
Retirement Corpus Calculation
Estimate the corpus you will need post-retirement. Consider your monthly expenses, inflation, medical costs, and any other anticipated expenditures. Use this figure to determine how much you need to save and invest over the next five years.
Surrendering Non-Performing Policies
If you hold LIC, ULIP, or other investment-cum-insurance policies, evaluate their performance. These policies often have high fees and low returns. Consider surrendering them and reinvesting in mutual funds. Mutual funds typically offer better returns and more flexibility.
Creating a Retirement Income Stream
Plan for a steady income post-retirement. This can come from:
Systematic Withdrawal Plan (SWP): Set up an SWP from your mutual fund investments. This allows you to withdraw a fixed amount regularly, providing a steady income.
Fixed Deposits and Senior Citizen Schemes: Consider fixed deposits and senior citizen savings schemes for stable and safe returns.
Tax Planning
Ensure your investments are tax-efficient. Utilize tax-saving instruments and schemes under Section 80C and other relevant sections. Proper tax planning can help maximize your returns and reduce your tax liability.
Regular Review and Rebalance
Regularly review and rebalance your portfolio. This ensures your investments align with your goals and risk tolerance. A certified financial planner can help you with this process.
Genuine Compliments and Empathy
Your commitment to securing your family's financial future is commendable. It's evident that you've worked hard to build a solid foundation. Planning for early retirement requires meticulous planning and discipline, and you're on the right track.
Final Insights
Retiring in five years is an ambitious but achievable goal. Focus on building a diversified portfolio, managing risks, and ensuring a steady income stream post-retirement. Regular reviews and adjustments will help you stay on track. Seek the guidance of a certified financial planner to fine-tune your strategy and provide expert insights.
By following these steps, you can confidently look forward to a comfortable and financially secure retirement.
Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in