Can I Generate a Monthly Net Income of 2 Lakhs After Retiring at 54 with 2.25 cr Corpus?

Hello .... I am RV - 54 years old male from a tier 3 city ( capital of a State ). I am a partner in my family owned partnership business. My wife is a home maker ( 44 years ) and a son ( M.Tech ) in Europe - looking for job. I have my own house, vehicle etc., and I have no debt. Since year 2006, I have been investing in MF through SIP & STP through a personally known Manager of an AMC. I have a Family Floater Health Insurance Policy of 10L with Top Up of additional 10L. I have a Term Plan of 25L. I wish to retire w.e.f 01.04.2025. I have a corpus of 2.25 cr. I wish to have an income ( interest / profit ) of 2L per month net of income tax for next 50 years. To achieve the goal, I seek your expert guidance keeping in view that my investment of 2.25 cr remains safe and grows as well over next 50 years. I would be extremely grateful for your detailed response.

Ans: Financial Assessment
You have a well-established foundation with a corpus of Rs 2.25 crores, no debt, and a good insurance cover. Your goal of generating Rs 2 lakhs per month net of taxes for the next 50 years is ambitious but achievable with careful planning.

Investment Portfolio Review
1. Mutual Funds (MF):

You have been investing in MFs through SIP and STP, which is a good strategy.
Actively managed funds can provide better returns than index funds.
Ensure diversification across equity, debt, and hybrid funds.
2. Health and Term Insurance:

Your family floater health insurance of Rs 10L with a Rs 10L top-up is adequate.
Your term plan of Rs 25L is essential for protecting your family.
3. Diversification:

Diversification reduces risk. Spread investments across different asset classes.
Income Generation Strategy
1. Systematic Withdrawal Plan (SWP):

SWPs in mutual funds can provide regular income.
Invest in a mix of equity and debt funds to balance risk and returns.
2. Balanced Allocation:

Allocate funds across equity (40%), debt (40%), and other assets (20%).
Equity for growth, debt for stability, and other assets for diversification.
3. Monthly Income Plans (MIP):

MIPs in mutual funds can provide regular monthly income.
Choose funds with a good track record.
Risk Management
1. Regular Monitoring:

Review your portfolio regularly.
Adjust based on market conditions and personal needs.
2. Professional Guidance:

Seek advice from a Certified Financial Planner (CFP).
Regular reviews with your CFP will ensure your plan stays on track.
Tax Planning
1. Tax-efficient Investments:

Invest in tax-efficient instruments like ELSS for equity exposure.
Use tax benefits under Section 80C.
2. Regular Review:

Regularly review your tax-saving investments.
Adjust based on changes in tax laws.
Long-term Growth
1. Reinvestment:

Reinvest returns for compounded growth.
Use SIPs and STPs to maintain discipline.
2. Diversified Portfolio:

Maintain a diversified portfolio to mitigate risks.
Include a mix of large-cap, mid-cap, and small-cap funds.
Final Insights
Your financial plan is on a solid footing. With a corpus of Rs 2.25 crores, careful investment in mutual funds, and regular monitoring, you can achieve your goal of Rs 2 lakhs per month. Ensure you diversify your investments and seek professional guidance.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

Asked on - Jul 27, 2024 | Answered on Jul 27, 2024

Thanks a lot for your response. I have also contacted your Firm ( Holisticinvestment ) and a Google Meet has been scheduled for 29.07.2024 afternoon for further discussions.

Ans: You're welcome! I appreciate your trust and willingness to connect.
Let's embark on this financial journey together.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Your planned retirement investment strategy has a clear focus on security and stability. You aim for sustainable income with an eye on fulfilling goals like your daughter's marriage, vacations, and car replacement. Let’s evaluate each component to ensure long-term financial health.

1. Investment in MF-SWP: 40 Lakh for Monthly Income
You have proposed to invest Rs 40 lakh in Mutual Fund SWP across debt, conservative hybrid, and balanced advantage funds. Your goal is to start withdrawing Rs 20,000 per month after two years with a 6% annual increase.

Appreciation:

A Systematic Withdrawal Plan (SWP) allows flexibility.
The annual increase helps counter inflation.
Suggestions:

Starting withdrawals after two years can protect your corpus during market volatility.

However, withdrawing 6% may be high over the long run, especially with inflation. A more conservative withdrawal rate of 4-5% could offer more sustainability.

Focus on active funds with a conservative approach. Actively managed funds can potentially outperform index funds over time due to active risk management, especially in volatile markets. Index funds, by nature, may underperform during market corrections, which could erode your capital faster.

Regular funds (via a mutual fund distributor with a certified financial planner) offer professional guidance and monitoring, which is crucial, especially as markets fluctuate. Direct funds lack the advisory element and may lead to inappropriate fund selection.

Final Thoughts on MF-SWP:

Your plan is solid but consider reducing the withdrawal percentage slightly. Ensure you have a Certified Financial Planner review the fund's performance regularly to make adjustments as needed.

2. Investment in SCSS: 30 Lakh
Investing Rs 30 lakh in Senior Citizens Savings Scheme (SCSS) with a monthly return of Rs 20,500 is a stable option.

Appreciation:

SCSS is an excellent choice for a retiree. It provides fixed returns, capital protection, and regular income.
Suggestions:

SCSS is a very safe investment and should remain a core part of your plan. Ensure you renew it after five years for continuous income.

Given that SCSS interest rates are subject to government policy, review the scheme periodically. If rates decline, consider shifting a portion to other fixed-income products with better returns.

Final Thoughts on SCSS:

SCSS is reliable and essential for balancing your portfolio’s risk. Keep a check on interest rate changes and plan renewals accordingly.

3. LIC VPBY: 6.4 Lakh
Your investment in LIC’s Varishtha Pension Bima Yojana (VPBY) offers Rs 5,000 per month.

Appreciation:

VPBY offers a steady monthly income and is backed by the government, making it low-risk.
Suggestions:

This product offers financial security but returns are fixed. As it’s a long-term commitment, ensure that the payout will meet your needs even with inflation.

Evaluate if the returns from VPBY alone will support your rising expenses over the years. Inflation will erode the real value of this fixed income.

Final Thoughts on LIC VPBY:

It's a low-risk, guaranteed income option. However, ensure it remains part of a diversified income strategy to combat inflation.

4. Balance 10 Lakh in MF Lumpsum: Adopt 50-50 Approach
You propose to invest Rs 10 lakh in a 50-50 approach, with a six-year horizon.

Appreciation:

The 50-50 strategy, which likely refers to splitting between equity and debt, is a balanced approach.
Suggestions:

For the equity portion, focus on actively managed funds. This will allow for potentially higher returns compared to index funds, especially if the market faces fluctuations.

For debt, choose high-quality funds with a strong track record. Conservative hybrid funds or debt mutual funds can offer stability while growing your capital over time.

After six years, review your strategy and reinvest intelligently. Consider keeping a portion in hybrid funds or SWP to ensure you have regular income without depleting the corpus entirely.

Final Thoughts on 50-50 Strategy:

This strategy is sound. However, actively managed funds should be a part of it for optimal performance. Stay vigilant and re-evaluate after six years.

Current Investments and Monthly Income
You currently have:

Bank FD: Rs 10 lakh, generating Rs 7,000 per month
RBI FRSB: Rs 6 lakh, generating Rs 4,000 per month
LIC Pension Plan: Rs 7.75 lakh, generating Rs 4,000 per month
MF Dividend: Rs 4 lakh, generating Rs 3,000 per month
MF SWP: Rs 45 lakh, generating Rs 30,000 per month
Appreciation:

Your diversified income sources ensure multiple streams of regular cash flow.

The mix of fixed and market-linked returns is well thought out.

Suggestions:

Continue monitoring the performance of your mutual fund dividends and SWP. The market-linked returns may fluctuate, so regular reviews are necessary.

You are generating a total monthly income of Rs 48,000, excluding your proposed new investments. This falls short of your planned Rs 70,000 monthly expense. Therefore, your planned additional investments, especially in MF SWP and SCSS, are crucial to bridge the gap.

Consider keeping Rs 10 lakh in a liquid or ultra-short-term debt fund for emergency expenses. This can provide higher returns than a savings account and still be accessible when needed.

Final Thoughts on Current Investments:

Your current investments are well-balanced, but regular reviews and rebalancing will help maintain their effectiveness over the long term.

Future Goals and Planning
Your future goals include:

Daughter’s Marriage: Rs 20 lakh in 2027/2028
Car Replacement: Rs 5 lakh in 2028
Domestic and Overseas Vacations: Rs 1.5 lakh for domestic trips and Rs 4 lakh for overseas trips every three years until you are 75 years old
Appreciation:

Your future goals are well defined, and your plan to allocate specific amounts for them shows good foresight.
Suggestions:

For your daughter's marriage, continue investing in a combination of debt and equity funds to grow the corpus.

Consider creating a separate fund for vacations and car replacement. These are predictable expenses and can be planned in advance using a mix of short-term and long-term debt instruments to match your time horizons.

Final Thoughts on Future Goals:

Your goal planning is practical. However, allocate separate funds for each goal to avoid dipping into your retirement corpus prematurely.

Assessing Overall Retirement Sustainability
You have planned for a monthly expense of Rs 70,000 plus Rs 10,000 for emergencies. With your proposed and current income sources, your monthly income can meet this comfortably, provided the funds are managed well and the withdrawal rate is sustainable.

Suggestions:

You aim to live off your investments for the next 30 years. Keep a conservative withdrawal rate (4-5%) from your SWP to avoid running out of money too early.

Inflation will impact your living costs. Ensure your portfolio has enough equity exposure to allow for growth and offset the cost of living increases.

Regularly review your investment performance. You may need to adjust your strategy depending on market conditions, particularly when it comes to SWPs and dividends.

Final Thoughts on Retirement Sustainability:

Your plan is generally well-structured, but regular monitoring and slight adjustments can ensure that your retirement years remain financially secure without depleting your resources.

Final Insights
Your retirement investment plan is thoughtful and comprehensive. You have diversified well across different income streams, including fixed-income schemes and market-linked instruments. Keep reviewing your withdrawal rates, inflation impact, and fund performance to ensure long-term sustainability.

Make sure to re-evaluate your strategy periodically, especially every three to five years, to ensure it meets your needs and goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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