I want guidance on retirement planning. Having corpus of 3 CR in mutual funds, shares and 1.5 CR savings in FD. With no bank loans and own home. Kids are in class 1 and class 5. I need to provide support for their education which might overall cost around 2 CR. Is my corpus enough to retire now and take care of cost of living. My age is 45 years. My monthly expense is around 1.5 lakhs. I have medical insurance policy of 20 lakhs.

Ans: At the age of 39, you have a well-established financial foundation. Your monthly income is Rs 1.65 lakh, and you are already saving Rs 80,000 per month through SIPs. You have Rs 43 lakh in PF, Rs 5 lakh in PPF, Rs 12 lakh in NSC, Rs 41 lakh in mutual funds, and Rs 13 lakh in shares. With a term plan of Rs 1 crore and medical insurance of Rs 10 lakh for your family, you are ensuring both security and growth.

However, planning for retirement in 7 years and your daughters' education will need careful structuring to meet inflationary pressures and long-term needs.

Estimating the Retirement Corpus
To retire at 46, with your current monthly expenditure of Rs 80,000, we need to consider the following:

Inflation Impact: Assuming an inflation rate of around 6%, your expenses will nearly double in the next 7 years. That means at retirement, you will need around Rs 1.2 lakh per month.

Life Expectancy: Assuming a life expectancy of 85, your retirement could last 40 years. Therefore, the retirement corpus should be able to provide Rs 1.2 lakh (inflated expenses) for 40 years.

Considering all factors like inflation, withdrawal rates, and market growth, you may need around Rs 7-8 crore to retire comfortably at 46.

Education Planning for Both Daughters
For your daughters' education, considering the rising cost of education, you should plan for a significant amount:

Higher Education Costs: For your 8-year-old daughter, you will need funds in around 10 years. For your 5-year-old, you will need funds in around 13 years. Assuming a 10% inflation in education costs, you should target a corpus of Rs 40-50 lakh per child.
This means you may need around Rs 80 lakh to Rs 1 crore for both daughters’ education by the time they need to pursue higher studies.

Reviewing Your Current Investments
You already have a well-diversified portfolio across Provident Fund, PPF, NSC, mutual funds, and shares. Let's assess each component to see if any adjustments are necessary:

1. Provident Fund (PF), PPF, and NSC
These are safe investments that will help preserve capital. However, they may not grow aggressively enough to meet your retirement goals in 7 years.
PF and PPF are tax-efficient and low-risk, but their returns may not match inflation in the long run.
Consider continuing contributions but not overly relying on them for wealth creation.
2. Mutual Funds
You have Rs 41 lakh in mutual funds, which is a positive aspect of your portfolio. With your SIP of Rs 80,000 per month, you are already aggressively investing.
Ensure your mutual fund portfolio is well-diversified across equity and debt funds. Since you are aiming for retirement in 7 years, a mix of mid-cap and large-cap equity funds with some debt exposure would be ideal.
Avoid over-exposure to small-cap funds as they are more volatile, especially since your retirement horizon is short.
3. Shares
Rs 13 lakh in shares indicates a risk-taking approach, which is good for wealth creation but can be volatile.
If you are comfortable with the volatility, you can continue holding a portion of your portfolio in shares. However, ensure you do not rely too much on individual stocks for your retirement corpus.
Planning for Retirement in 7 Years
Given your SIP of Rs 80,000 per month, let’s assume an average return of 12% per annum from equity mutual funds. Over the next 7 years, this will accumulate to a significant corpus. However, it may not reach Rs 7-8 crore, which is the required amount for retirement.

Step-Up SIP: Consider increasing your SIP amount by 10% every year. This will significantly boost your retirement corpus.
Balanced Allocation: Maintain a balance between high-growth equity funds and safer debt instruments. As you approach retirement, gradually shift more of your investments into debt to reduce risk.
Education Fund Strategy
To meet your daughters' educational needs, consider creating a separate portfolio with a mix of equity mutual funds and PPF:

Equity Funds: Continue investing for the long term in mutual funds that offer higher growth potential.
Debt Funds: You may also consider debt funds for a portion of this portfolio to reduce risk as the need for funds approaches.
PPF Contributions: Since PPF offers tax benefits and stable returns, continue contributing to this for education as well.
Clearing Debt and Emergency Planning
You mentioned a home loan EMI of Rs 25,000 and a car loan EMI of Rs 16,200. Here’s how you can approach these:

Clearing Car Loan: Using Rs 4 lakh to clear your car loan makes sense. This will free up Rs 16,200 per month, improving your cash flow and liquidity.
Home Loan: Retaining your home loan for tax benefits is a wise strategy, especially since home loan interest rates are generally low.
Once you clear the car loan, build an emergency fund. A minimum of 6-12 months of expenses should be set aside. You plan to keep Rs 1 lakh for emergencies, which is a good start, but increase it as your liquidity improves.

Health Insurance Plans
You have a Rs 10 lakh medical claim for your family. Additionally, you are planning to take health insurance for yourself and your parents.

Family Health Insurance: Opting for an external policy like HDFC Ergo, with your wife covering the premiums, is a good step. Ensure that the sum insured is adequate, especially for critical illnesses.
Parents' Health Insurance: Your plan to take separate coverage for your parents with a Rs 5,000 premium is advisable. Ensure that it covers pre-existing diseases and offers lifetime renewability.
Final Insights
Retirement Corpus: Aim for Rs 7-8 crore to retire comfortably at 46, considering inflation.
Daughters’ Education: Plan for Rs 80 lakh to Rs 1 crore for both daughters' higher education.
SIP Strategy: Continue with your Rs 80,000 SIP but step it up by 10% annually to reach your goals faster.
Debt Management: Clearing your car loan is a good move, but retain your home loan for tax benefits.
Insurance Planning: Ensure your health insurance coverage is adequate for your entire family, including parents.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Hi,

Current state of your finances
Liquid Corpus - 3 Cr
Savings FD - 45 lakhs
Rent income - 37000

Monthly expenses - 1.5 lakhs

If we consider the above, then the monthly expenses will be covered for about 35 years (assuming inflation of 5-6% and average returns of 8%). This doesn't include the education expenses for your 2 children.

Retirement is now typically planned for up to age of 85 years (i.e. 43 years for you). Hence in your situation you have a challenge to support monthly expenses for retirement and children education.

You have 2 more houses and without knowing your intent for their usage/sale and their value it becomes difficult to indicate if they would be sufficient to support the 2 major goals you have listed.
Also with current lifestyle and medical expenses, the health insurance of 20 lakhs may need to be ramped up to a much higher amount.
Also you have not shared much details of your Insurance policies to understand if they are the appropriate ones and if the risk cover is sufficient.

Another important aspect to consider for early retirement is - how will you keep yourself occupied. You will have a lot of time on hand and do you plan to monetize your time by engaging in some financially rewarding activities. This will also have an impact on the overall state of your well-being - financially and psychologically.

I would highly recommend that you consult with a CFP who can guide you with a well defined Financial plan, this will include all your requirements and provide you with options and alternatives. You will need to have a plan of investment that meets your goals, plan risk covers for securing future of your family (Life and health) and consider tax implications of investing and subsequent utilization of the corpus for goals. So its an elaborate plan that will be personalized for you which will help you understand the right time for retirement and what to expect pre and post retirement.

Thanks & Regards
Janak Patel
Certified Financial Planner.