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52-Year-Old with 5 Lakhs Monthly Savings: How to Secure Retirement and Children's Education?

Ramalingam Kalirajan |7014 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 13, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Aug 05, 2024Hindi

Hello sir, I am 52 years old male currently working abroad.These are my liabilities in next few years 1. Daugher education- only 12.5 more lakhs required as she is in her 2nd year MBA now (probably this is her last academic year and no more courses after this) 2. Sons engineering- 15lakhs total for 4 years at the most, his first year will start now (since based on his marks he should get in Govt college.) For his MBA/MS- probably @ 60 lakhs total if he goes abroad. 3. I have 5 lakhs per month to spare out of which 1 lakh goes in SIP and 12000 goes in to NPS per month. 4. Sons and daugters marriage- total 30-40 lakhs I have below corpus to date. 3.5 crores in MF 50 lakhs in PPF 6 lakhs in shares 15 lakhs in NPS 5 lakhs in FD 30 lakhs in EPF and gratuity so far No real estate investments (besides own house in which we live in ) . Pls guide me 1) Besides MF , I dont see any good investment options. Can you pls advise on AIF, any other investment options which I can do monthly? 2) I want 7 crores retirement corpus and based on this- Rs. 1 lakh on retirement at 60 years (7 more years) after spending on all these liabilities. pls guide on how to go next.

Ans: You are in a strong financial position, with a substantial corpus across multiple assets. At 52, with 7 years until retirement, it’s wise to focus on securing your future while meeting your children's educational and marriage expenses. Let’s break down your situation and plan accordingly.

Assessment of Current Liabilities
Your major financial responsibilities include:

Daughter’s Education: Rs 12.5 lakhs remaining. Since she’s in her final year, this should be a manageable short-term liability.

Son’s Education: Rs 15 lakhs for engineering and potentially Rs 60 lakhs for an MBA or MS abroad. This is a significant future expense.

Children’s Marriages: Rs 30-40 lakhs estimated. This is another considerable future outflow.

These expenses need to be covered while still allowing you to build your retirement corpus.

Analysis of Your Current Investments
You have wisely diversified your investments across mutual funds, PPF, shares, NPS, FD, and EPF. Your current portfolio includes:

Mutual Funds: Rs 3.5 crores, which is your largest investment. Mutual funds offer good growth potential, but careful selection is crucial at this stage.

PPF and EPF: Rs 80 lakhs combined. These are stable, long-term investments offering guaranteed returns.

Shares: Rs 6 lakhs. These can provide growth but come with higher risk.

NPS: Rs 15 lakhs. This is a good retirement-focused investment.

Fixed Deposit: Rs 5 lakhs. This is a low-risk, low-return investment that adds stability to your portfolio.

Investment Recommendations
You have wisely accumulated a significant corpus. However, to reach your retirement goal of Rs 7 crores and secure Rs 1 lakh monthly income post-retirement, here are some suggestions:

Reassessing Your Mutual Fund Portfolio
Focus on Actively Managed Funds: At this stage, avoid index funds due to their passive management. Actively managed funds can offer better returns through skilled fund management. Consider reviewing your current mutual fund holdings to ensure they are aligned with your goals.

Diversify Within Equity Funds: Consider a balanced allocation between large-cap, mid-cap, and flexi-cap funds. Large-cap funds provide stability, while mid-cap and flexi-cap funds can offer growth potential.

Reduce Risk with Hybrid Funds: Hybrid funds, which invest in both equity and debt, can help manage risk as you approach retirement. They provide a balanced approach with lower volatility.

Explore Alternative Investment Funds (AIFs)
AIFs are an option for sophisticated investors like you. They can offer diversification and potentially higher returns. However, they also come with higher risk and require a significant minimum investment. If considering AIFs, consult with a Certified Financial Planner to evaluate the specific options available and how they fit within your overall strategy.

Increase Your SIPs Strategically
Given your monthly surplus of Rs 5 lakhs, you can increase your SIP contributions. Consider allocating an additional Rs 2-3 lakhs monthly to high-performing equity funds. This will help you reach your Rs 7 crore retirement goal while also preparing for your children’s education and marriage expenses.

Consider Debt Funds for Short-Term Goals
For your children’s education and marriage, you might want to consider short-term debt funds. These funds are less volatile than equity funds and can provide stable returns. They can be a good option for meeting your financial obligations in the next few years without exposing your capital to high risk.

Tax Implications for Your Investments
As an NRI, you should be aware of the tax obligations related to your investments in India:

Capital Gains Tax: Long-term capital gains (LTCG) on equity mutual funds are taxed at 10% if held for more than a year. Short-term capital gains (STCG) are taxed at 15%.

Tax Deducted at Source (TDS): For NRIs, TDS is applicable on capital gains from equity and debt mutual funds. Ensure that your tax planning considers these deductions.

Double Taxation Avoidance Agreement (DTAA): If your country of residence has a DTAA with India, you may be eligible for tax relief. Consult with a tax advisor to optimise your tax liability.

Planning for Retirement
To ensure you reach your retirement corpus of Rs 7 crores and secure Rs 1 lakh monthly income post-retirement, consider the following:

Increase Equity Exposure Now: With 7 years to retirement, increasing your equity exposure can help grow your corpus. As you approach retirement, gradually shift towards safer debt instruments.

Consider Systematic Withdrawal Plans (SWPs): Post-retirement, SWPs from your mutual fund investments can provide a regular monthly income. This will ensure you have a steady flow of funds without depleting your corpus too quickly.

Review Your NPS Allocation: NPS is a good tool for retirement. However, ensure that your equity-debt allocation within the NPS is suitable for your risk profile and retirement goals.

Emergency Fund: Ensure you maintain an adequate emergency fund to cover unforeseen expenses, especially as you near retirement.

Finally
You have done well to accumulate a significant corpus and manage your expenses wisely. By strategically increasing your investments in equity funds, exploring AIFs, and managing your tax liabilities, you can confidently reach your retirement goals. Focus on a balanced approach that prioritises both growth and safety as you approach retirement.

Remember, regular reviews with a Certified Financial Planner will ensure your investments stay aligned with your changing needs and market conditions.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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