Dear Sir I have earlier asked for corpus planning for retiring now at 55 years age. I have a monthly expenditure of 75k/month. My corpus is around 4 cr. Will this be sufficient and how do I deploy them.

Ans: To assess if your current corpus is sufficient for your retirement and if there will be a remaining corpus to pass on to your kids, we need to consider several factors:

Retirement Expenses: Your monthly expenses are Rs. 1.25 lakhs, which amounts to Rs. 15 lakhs annually. Considering a life expectancy of 75 years, we need to estimate your expenses for the next 27 years.
Current Investments: With a corpus of Rs. 5.5 crores, we need to determine if this amount can sustain your retirement expenses for the next 27 years, factoring in inflation and investment returns.
Legacy Planning: If there is a remaining corpus after your retirement, it can be passed on to your kids as part of your legacy. Consider the potential growth of your investments and any potential bequests or inheritances you wish to leave for your children.
Inflation and Investment Returns: Consider the impact of inflation on your expenses and the potential investment returns on your corpus. Adjust your retirement planning accordingly to ensure your corpus can keep pace with inflation and continue to support your lifestyle.
To accurately determine if your current corpus is sufficient and if there will be a remaining corpus for your kids, it's advisable to consult with a Certified Financial Planner. They can analyze your financial situation comprehensively, consider various scenarios, and provide personalized recommendations tailored to your goals and aspirations.

Ans: It’s clear you’ve made significant strides in building a strong financial foundation. Let’s delve into your queries with a comprehensive assessment.

Understanding Your Current Financial Position
Current Assets

You have amassed Rs 5.1 crore in mutual fund SIPs, Rs 1.2 crore in PF, and Rs 1.2 crore in bank and other investments. You also own properties worth Rs 1.8 crore. This brings your total current assets to Rs 9.3 crore.

Future Savings

Over the next nine years, you anticipate saving an additional Rs 10 crore, which, coupled with the growth of your existing mutual funds, will further bolster your financial position.

Assessing Retirement Corpus Requirements
Living Expenses Post-Retirement

First, estimate your monthly expenses post-retirement. Consider inflation, healthcare, travel, and lifestyle changes. If we assume monthly expenses of Rs 1.5 lakh, this translates to Rs 18 lakh annually.

Life Expectancy and Inflation

Let’s assume a life expectancy of 85 years. That means your retirement could last for approximately 34 years. Given inflation, a conservative estimate might see these expenses doubling every 12 years.

Calculating Required Corpus

To sustain Rs 18 lakh annually for 34 years, accounting for inflation, a retirement corpus needs to be substantial. Generally, using a withdrawal rate of 4% is a safe rule of thumb. This implies you would need approximately Rs 4.5 crore just to cover expenses without depleting the principal.

However, considering inflation and healthcare, a more realistic figure would be closer to Rs 7-8 crore.

Can You Retire with a Corpus of Rs 9 Crore?
Current Corpus and Future Growth

Your current assets of Rs 9.3 crore are substantial. With an additional Rs 10 crore savings projected over the next nine years, your total corpus could potentially exceed Rs 19 crore.

Investment Growth

Assuming a moderate growth rate of 8% annually for your mutual funds and other investments, this corpus could indeed grow significantly. Diversifying your portfolio to include a mix of equity, debt, and other asset classes will help mitigate risks and ensure steady growth.

Retirement Timeline

At 51, planning to retire in nine years at 60, you have ample time to strategize and optimize your investments. This period is crucial for ensuring your corpus is well-managed and continues to grow.

Detailed Analysis and Strategic Recommendations
Mutual Fund Strategy

Your Rs 5.1 crore in mutual funds should be evaluated periodically. Actively managed funds tend to outperform index funds due to professional management and strategic adjustments. Focus on funds with consistent performance, experienced fund managers, and a track record of weathering market volatility.

Avoiding Index Funds

Index funds, while cost-effective, often underperform during market downturns. Actively managed funds offer the advantage of tactical asset allocation and better risk management. This is crucial in ensuring your retirement corpus is not significantly impacted by market fluctuations.

Disadvantages of Direct Funds

Direct funds may seem attractive due to lower expense ratios. However, investing through a Certified Financial Planner (CFP) ensures expert guidance, strategic planning, and comprehensive financial advice. Regular funds, managed through an MFD with CFP credentials, offer better long-term value despite slightly higher costs.

Diversification and Risk Management

Diversifying your portfolio is essential. Allocate assets across equity, debt, and other instruments. Equity offers growth potential, while debt provides stability. Consider balanced funds that offer a mix of both, ensuring steady returns with reduced volatility.

Health Insurance and Contingency Planning

As you approach retirement, prioritize health insurance. Opt for a comprehensive family floater plan with high coverage to protect against unforeseen medical expenses. This ensures your retirement corpus remains intact for its intended purpose.

Emergency Fund

Maintain an emergency fund of at least six months' expenses in a liquid instrument. This ensures liquidity during unexpected financial needs without disrupting your investment strategy.

Final Insights
Ongoing Financial Planning

Regularly review and adjust your financial plan. Market conditions, personal circumstances, and financial goals evolve. Continuous assessment ensures your plan remains aligned with your retirement objectives.

Professional Guidance

Working with a Certified Financial Planner (CFP) provides valuable insights, strategic planning, and peace of mind. Their expertise helps navigate complex financial landscapes and optimizes your investment strategy.

Empathy and Appreciation

Your dedication to securing your financial future is commendable. Balancing current needs with future goals is challenging, but your proactive approach positions you for a comfortable retirement. It’s crucial to continue this disciplined approach and seek professional advice when needed.

Retirement Dreams

With a projected corpus exceeding Rs 19 crore, you are well-positioned for a comfortable retirement. This allows for a fulfilling lifestyle, travel, and pursuing passions without financial stress.

In conclusion, your current and future financial outlook is promising. With careful planning, strategic investments, and professional guidance, you can achieve a secure and fulfilling retirement.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Ans: At the age of 60, retirement planning becomes even more critical as you prepare for a life without regular income. You’re correct in asking how much corpus accumulation you require to sustain yourself post-retirement. The general rule of thumb, which you mentioned—25 times your annual expenses—is a good starting point. However, let’s dive deeper to make sure you have enough financial security.

Importance of 25 Times Annual Expenses as Corpus

The 25 times rule for retirement corpus is widely recommended. This assumes that you withdraw 4% of your corpus annually to cover your expenses, leaving the rest to grow over time. In simpler terms, this rule gives you a safety net for about 25-30 years post-retirement.

Why 25 Times? This factor comes from the idea that withdrawing 4% of your retirement corpus annually should last through your retirement, assuming average returns from investments. It helps maintain your lifestyle without depleting your savings too quickly.

Will It Work for You at 60? Yes, 25 times your annual expenses is generally a safe number. However, there are several factors to consider, like inflation, healthcare costs, and unforeseen expenses.

Factors Influencing Your Corpus Requirement

Inflation Inflation is a crucial factor that can erode your purchasing power over time. While your current expenses may seem manageable, in 10-15 years, they could be significantly higher. Ideally, your investments should continue to grow to keep pace with inflation.

Longevity People are living longer these days, and this means your corpus needs to last longer as well. Planning for at least 30 years after retirement is a prudent approach. Having 25 times your annual expenses will ensure that you don’t outlive your savings.

Healthcare Costs As you age, healthcare costs tend to rise. Ensuring you have health insurance is essential, but you must also account for potential out-of-pocket expenses. Medical inflation is higher than general inflation, so it's crucial to have some buffer in your corpus for unexpected medical needs.

Unforeseen Expenses Life is unpredictable. Whether it’s home repairs, emergencies, or support for family members, unexpected costs can arise. It's always good to have a financial cushion for these surprises.

Is 25 Times Enough?

For most retirees, 25 times their annual expenses can provide a secure financial future. However, the following points can help you decide if you need to adjust this rule slightly for your circumstances:

Expenses Are Likely to Decrease or Stay the Same: Most people find that their post-retirement expenses either decrease or remain stable. This happens because your biggest financial commitments, such as children’s education or home loans, are likely already taken care of.

Medical Costs Might Increase: While many expenses go down in retirement, healthcare costs usually go up. Having health insurance can help, but you should also account for rising healthcare expenses by increasing your corpus beyond 25 times.

Investment Returns and Risk Appetite: Even after retirement, your corpus needs to keep growing. Low-risk investments may offer stable returns but won’t beat inflation. Consider keeping some of your corpus in diversified equity mutual funds, as they provide inflation-beating returns in the long run.

Why Not Index Funds or Direct Plans?

You may be tempted to use index funds or direct mutual funds for your retirement portfolio. While these options have low costs, they come with limitations:

Index Funds: They don’t provide flexibility in changing market conditions. Index funds simply follow the market, which means they won’t outperform during tough times. Actively managed funds, on the other hand, can adjust to market changes and find growth opportunities.

Direct Mutual Funds: Although direct plans have lower expense ratios, they lack professional guidance. Certified Financial Planners (CFP) provide valuable expertise, from portfolio reviews to personalized investment strategies. The slightly higher cost of regular funds invested through a CFP is often worth it for the ongoing support.

What Should Be Your Corpus at Age 60?

Let’s assume your annual expenses are Rs 10 lakhs. Based on the 25 times rule, your retirement corpus should be around Rs 2.5 crores. However, this can vary depending on your lifestyle, healthcare needs, and financial goals. Here’s what you should think about:

Comfortable Retirement: If you want to maintain your current lifestyle, 25 times your annual expenses should suffice. This will provide you with enough to cover your day-to-day living and still leave room for some discretionary spending.

Healthcare Cushion: Given rising medical costs, you might want to increase your corpus to 30 times your annual expenses, just to be safe. This would account for any significant healthcare costs that may arise as you grow older.

Legacy Planning: If you intend to leave behind a legacy for your children or other dependents, you might want to set aside an additional amount beyond your retirement corpus.

Sustainable Withdrawal Rate

The 4% withdrawal rule is a good way to ensure your corpus lasts throughout your retirement. Here’s why:

Predictable Income: Withdrawing 4% annually ensures you have a predictable income stream. This helps with budgeting and managing your retirement expenses.

Growing Investments: While you withdraw 4%, the remaining corpus continues to be invested, ideally in a mix of debt and equity mutual funds. This ensures your corpus continues to grow and keep pace with inflation.

Adjusting for Market Conditions: During market downturns, you might want to reduce your withdrawals temporarily to avoid depleting your corpus too quickly. Having a diversified portfolio helps here as different asset classes perform differently in varying market conditions.

Investment Options After Retirement

Even after retiring, it’s essential to keep your money working for you. Here’s how you can allocate your corpus for maximum security and growth:

Debt Mutual Funds for Stability Debt mutual funds are a great option for retirees as they provide stability and predictable returns. You can invest a significant portion of your corpus in debt funds to ensure regular income with lower risk.

Balanced or Hybrid Funds for Growth Balanced or hybrid funds invest in both equity and debt. They offer moderate risk with growth potential. A portion of your retirement corpus should remain in balanced funds to ensure your money keeps growing and beating inflation.

Equity Funds for Long-Term Growth You may want to retain a small portion of your corpus in equity mutual funds, especially flexi-cap or large-cap funds. These funds provide inflation-beating returns over time. Even in retirement, your investments should grow faster than inflation to maintain your purchasing power.

Final Insights

At age 60, planning your retirement corpus is crucial for a worry-free future. The general rule of 25 times your annual expenses is a good starting point, but it’s important to consider factors like inflation, healthcare, and unforeseen expenses.

Make sure your portfolio remains diversified across debt and equity funds, with a focus on low-risk options for stability. However, keep some investments in growth-oriented funds to protect against inflation.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Instagram: https://www.instagram.com/holistic_investment_planners/

Ans: Hi Sivaramakrishnan,

Congratulations on having an active working life at the age of 80.

For your monthly expenses of Rs 50000 and assuming an inflation of 7% over the next 15 years, you require approx. Rs 85 lakhs (today).

You already have Rs 182 lakhs (not including any further savings over the next 6 months) invested across MF/ FD/ and STOCKS.

I recommend you have a systematic withdrawal plan from your investments for your annual expenses.
Depending on how you have spread your investments, you can decide on the approach.
For MFs - its simple to do a SWP for an amount each month.
For FDs - you may need to liquidate them, so instead of breaking them, plan to use them at their maturity if its within six months of your requirement. if the maturity is long term, and you have a need then you may need to liquidate. Also check if there is an option to make them Sweep-in type FD, which means that when your account has less balance, it will move money from FD to account. Discuss with your bank on options available to you.
For Stocks - You can decide when to liquidate them. If you wish to move away from stocks, then you can consider investing in so hybrid Mutual fund schemes considering your time horizon.

Overall you will be looking to grow approx. Rs 1 crore over the next 15 years and this can grow to an amount of Rs 3 crores at 8% returns.

So your current corpus is more than sufficient and even if you increase your monthly expenses, you will have a surplus after 15 years.
Happy retirement and a healthy life ahead.

Thanks & Regards
Janak Patel
Certified Financial Planner.