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Ramalingam Kalirajan |7281 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 12, 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

Question by Aniket on Jun 30, 2024Hindi

Hello, i am aniket age 27 currently working with pvt company with monthly 35k salary and side income of around 40k,i have mutual fund lumpsum around 22 lakh and FD of 45 lakh and real estate 70 lakh,my question is i want to retire at 40 age so how i can plan accordingly to that?? I have no debt

Ans: Dear Aniket,

Firstly, congratulations on your successful career and diligent financial planning so far. It's impressive to see your commitment to early retirement at the age of 40. Retiring early is a challenging goal, but with a well-structured plan, it is certainly achievable. Let's delve into a comprehensive strategy to help you attain this dream.

Understanding Your Current Financial Position

You currently earn Rs 35,000 monthly from your primary job, and an additional Rs 40,000 from side income, totalling Rs 75,000 per month. You have Rs 22 lakh in mutual funds and Rs 45 lakh in fixed deposits. Additionally, you own real estate worth Rs 70 lakh.

The first step towards early retirement is understanding your current assets and future requirements. Your combined savings of Rs 67 lakh (mutual funds and FDs) and Rs 70 lakh in real estate give you a solid foundation.

However, real estate can be illiquid and might not provide immediate funds when required. Therefore, our focus will be on liquid and semi-liquid assets for your retirement planning.

Setting Clear Retirement Goals

Define Your Retirement Lifestyle:

Your retirement lifestyle significantly impacts your financial requirements. Consider the following aspects:

Living expenses: Monthly and annual requirements.
Travel and hobbies: Costs for hobbies, travel, or other interests.
Healthcare: Future medical expenses.
Inflation: Anticipate the rise in costs over time.
Determine Your Retirement Corpus:

Calculate the corpus needed to sustain your desired lifestyle. Typically, a retirement corpus should be about 20 to 25 times your annual expenses. Given the goal of retiring at 40, your corpus needs to cover a longer period, increasing the importance of accurate estimation.

Building a Diversified Investment Portfolio

Balancing Risk and Returns:

Your current investments in mutual funds and FDs show a balanced approach. However, considering the early retirement goal, you might need to reassess the asset allocation.

Equity Investments:

Equity mutual funds provide higher returns compared to fixed income options. Allocate a portion of your savings to diversified equity mutual funds. These funds can potentially deliver inflation-beating returns over the long term.

Debt Investments:

Fixed deposits offer safety but lower returns. To balance risk, consider debt mutual funds. These funds provide better returns than FDs with relatively low risk.

Avoiding Real Estate and Index Funds:

Real estate investments are illiquid and can be cumbersome to manage. Similarly, index funds, though low-cost, might not always provide the active management required for early retirement planning. Actively managed funds, selected with the help of a Certified Financial Planner, can offer better opportunities for growth.

Systematic Investment Plan (SIP):

SIP is an excellent way to invest regularly and benefit from rupee cost averaging. Investing a fixed amount monthly in selected mutual funds can help build a substantial corpus over time.

Emergency Fund:

Maintain an emergency fund equivalent to 6-12 months of expenses. This fund ensures liquidity in case of unexpected events and prevents the need to dip into retirement savings.

Insurance and Healthcare

Life Insurance:

As you have no debt, your insurance needs primarily cover income replacement and family protection. Ensure you have adequate term insurance to protect your family in case of unforeseen circumstances.

Health Insurance:

Healthcare costs can be significant, especially in later years. Opt for comprehensive health insurance that covers you and your family. Consider a family floater plan for broader coverage. Ensure it covers critical illnesses and hospitalization expenses.

Estate Planning:

Estate planning involves preparing for the transfer of your assets to your beneficiaries. A well-drafted will ensures your assets are distributed according to your wishes. Consider consulting a legal expert to guide you through this process.

Tax Planning

Utilizing Tax Benefits:

Tax planning can significantly enhance your savings. Utilize tax benefits under Section 80C, 80D, and other relevant sections to maximize deductions and reduce taxable income.

Invest in Tax-efficient Instruments:

Consider tax-efficient investment instruments like Equity Linked Savings Scheme (ELSS) for tax savings and growth. ELSS funds provide dual benefits of tax savings and equity market returns.

Reviewing and Adjusting Your Plan

Regular Monitoring:

Regularly review your investment portfolio to ensure it aligns with your goals. Market conditions and personal circumstances change, necessitating adjustments in your strategy.

Rebalancing:

Rebalance your portfolio periodically to maintain the desired asset allocation. Rebalancing helps manage risk and ensures your investments stay aligned with your goals.

Professional Guidance:

Consider seeking advice from a Certified Financial Planner. A CFP can provide personalized advice, ensuring your investments align with your retirement goals. Their expertise can help optimize your portfolio for maximum returns while managing risk.

The Road Ahead

Given your target of retiring at 40, you have 13 years to build your corpus. Start by setting clear goals and estimating the required corpus. With your current savings and strategic investments, you can accumulate the necessary funds.

Focus on a diversified portfolio balancing equity and debt investments. Avoid real estate due to its illiquidity. Use SIPs for disciplined investing and maintaining an emergency fund. Adequate insurance, tax planning, and estate planning are crucial.

Stay informed and flexible, adjusting your strategy as needed. With diligence and a well-structured plan, your goal of early retirement is within reach.

Final Insights

Your goal of retiring at 40 is ambitious but achievable with careful planning. You have already built a strong financial foundation, which is commendable. The key now is to enhance and protect these savings through strategic investments and planning.

Regularly monitor your progress, adjust as needed, and stay committed to your goal. With the right approach, you can enjoy a comfortable and fulfilling early retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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