43-Year-Old Retiree with ₹2.46 Crore Portfolio: Will It Last 40 Years?

Hello Sir, I am 43 year old guy with own house in metro and no liabilities/loan. My current retirement portfolio consists of Equity MF 1.75 Cr, Debt MF 35 Lakhs, PF & Gratuity 36 Lakhs (Total: 2.46 Cr) . I will reach 3 Cr in next 2 years and I plan to retire by then. I also have a plot worth 30 lakhs I will rebalance my portfolio to have 50% Equity and 50% Debt/Fixed Income. If my monthly expense is 60,000 with no dependents, will my portfolio last for 40 years with 7% inflation and 8% returns?

Ans: Hi,

You have decided to retire early and you have already accumulated 2.46 Cr + assets without any outstanding liabilities. Congratulations on your achievements.
Retiring early is on many peoples wish-list and you too have the same desire. So lets see how you are placed for early retirement.
Expecting to have a corpus of 3 Cr in the next couple of years and you have planned a rebalancing of the portfolio too. So with the inflation rate of 7% and return rate of 8% as acceptable, lets see what to expect in the future after 40 years.

Short answer - After 40 years you will have a corpus of over 10 Cr remaining after expenses are taken care of.
This is primarily because your withdrawal/expenses are much below the growth/returns on the portfolio and hence each year the value of your portfolio in increasing.

Lets me clarify that this is not considering any tax liabilities you will need to service on the withdrawals each year. The tax liabilities will depend on the composition of your portfolio and your strategy of withdrawal amounts from Equity and debt/fixed income buckets.
But I am sure even after considering tax liabilities, your corpus will be sufficient and at the end of 40 years you will still have a considerable amount to pass on as inheritance to your loved ones/charity (though you mentioned no dependents).

I would like to recommend you have good Health cover (outside of your employer) and buy it asap. Also retirement of 40 years is a long time and hence do give some thought on how you plan to occupy your time. I hope you have a plan of what you will do once retired. Engage yourself in meaningful and fulfilling activities and keep minimum idle time - exercises, sports, reading, cooking, meeting/catching up with friends and family etc. This will help you stay healthy in mind and body. As money is not your concern, you don't need to think of earning any income from these activities/engagements, so it should be about giving you pleasant experiences. Best time to travel is in early retirement, so go and enjoy.

I also recommend, that you engage/consult with a Certified Financial Planner who will guide you with your retirement corpus planning and other requirements including taxation. Any wrong decision at an early stage can prove very costly and the impact can be felt for long too. Hence it will prudent to get the right advice and guidance at appropriate time.

All the best for long and enjoyable future.

Thanks & Regards
Janak Patel
Certified Financial Planner.

Ans: It’s commendable that you’ve accumulated a substantial portfolio and are considering retirement thoughtfully. Let's evaluate each asset class within your portfolio to assess your retirement readiness.

Monthly Income Needs and Existing Assets

You mentioned monthly expenses of Rs 40,000.
Over a 20-30 year retirement period, inflation may gradually increase this amount. A sustainable withdrawal strategy will help address this.
Given a life expectancy of 70-80 years, a monthly income from investments is essential to meet your needs without depleting your corpus.
Mutual Funds

Your mutual fund corpus of Rs 40 lakh could play a key role in providing regular income.

Actively managed funds, unlike index funds, allow expert fund managers to navigate market conditions. They aim for growth even in uncertain markets.
These funds can also be diversified across equity and debt categories to maintain balance. Equity funds can support growth, while debt funds can offer stability and liquidity.
Suggested Action

Retain and build your mutual fund corpus. Regular funds through a Certified Financial Planner (CFP) and Mutual Fund Distributor (MFD) offer guidance, minimizing risk while aiming for returns.
Setting up a Systematic Withdrawal Plan (SWP) can provide monthly income in a tax-efficient manner. SWP helps maintain principal while generating steady cash flow.
Direct Share Investments

With Rs 50 lakh in direct shares, your exposure to the equity market is significant.

Direct shares can be volatile and may not always align with the cash flow needs of retirement.
However, with proper management, shares may serve as a growth engine in your portfolio.
Suggested Action

Gradually shift part of your direct shares to diversified equity mutual funds. They provide professional management, spreading risk across sectors and companies.
Review the remaining stocks for potential dividends. Dividend-yielding stocks can complement your monthly cash flow needs.
Bond Investments

Your Rs 10 lakh in bonds offers stability but limited growth. Bonds are more effective as a balance to higher-growth assets like equities.

Bonds have fixed interest, but they may not keep up with inflation. Over time, they could lose purchasing power.
Suggested Action

Retain some bonds for safety but consider partially reallocating to debt mutual funds. Debt funds offer liquidity and potentially better post-tax returns than traditional bonds.
Maintain a mix of short and medium-term debt funds. These provide safety while possibly enhancing returns over traditional fixed-income instruments.
Gold Holdings

Gold can serve as a hedge in times of market volatility, and your Rs 10 lakh in gold contributes to a diversified portfolio.

However, gold alone may not generate regular income. It is more useful for capital preservation.
Suggested Action

Keep your gold as a long-term hedge but avoid expanding your holdings in gold.
For income generation, focus on growth-oriented assets like equity or hybrid funds, which combine equity and debt in a balanced manner.
Insurance (ULIP)

Your Rs 20 lakh in a Unit Linked Insurance Plan (ULIP) provides both insurance and investment. However, ULIPs can come with high charges and may not yield optimal returns.

Suggested Action

It is advisable to consider surrendering or partially exiting the ULIP.
Reinvest the proceeds into mutual funds, which offer greater flexibility, transparency, and cost-efficiency. A term insurance policy can cover any remaining insurance needs.
Real Estate

You own a flat valued at Rs 60 lakh, which can provide security or rental income if required. However, real estate as an asset is typically illiquid, and immediate access to funds can be challenging.

Suggested Action

If rental income isn’t feasible, consider whether this asset aligns with your retirement goals. Selling the property can free up funds for more liquid investments.
Alternatively, keep it as a fallback option but prioritize liquid and income-generating investments for cash flow needs.
Creating a Sustainable Income Stream

To cover Rs 40,000 monthly expenses, an ideal approach is to create a mix of income sources from your portfolio:

A Systematic Withdrawal Plan (SWP) from equity and hybrid mutual funds could provide monthly income while maintaining the principal.
Dividends from shares, if selected well, can further support your cash flow.
For liquidity, a portion in debt mutual funds or bonds can cover emergencies.
Optimizing Tax Efficiency

Long-term capital gains (LTCG) on equity mutual funds above Rs 1.25 lakh are taxed at 12.5%, and short-term gains at 20%.
Debt funds, on the other hand, are taxed per your income tax slab.
Setting up withdrawals strategically can help minimize tax impact and extend the life of your corpus.
Maintaining Emergency Funds

Since you are planning for a lengthy retirement, set aside a portion of liquid assets as an emergency reserve. This could be a mix of cash, liquid mutual funds, and short-term debt funds.

A sufficient emergency fund provides a buffer without disrupting your main investment portfolio.
It ensures that you won’t need to liquidate assets in unfavorable market conditions.
Healthcare Planning

Without dependents, healthcare planning is crucial to address any unforeseen medical expenses. Consider a robust health insurance policy to minimize out-of-pocket costs.

If you already have health insurance, evaluate the coverage for adequacy.
Top-up plans can provide extra protection without a large increase in premiums.
Finally

Your retirement plan appears well-structured with diversified investments, yet a few refinements could ensure financial security. By consolidating your portfolio for income generation and stability, you can enjoy a comfortable and financially independent retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment