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28 and Starting My Investment Journey: How Can I Plan for Retirement with Frequent Withdrawals?

Ramalingam Kalirajan |8241 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Nov 19, 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 - Nov 19, 2024Hindi

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Hi Hemant, I am 28 and recently started my investment journey. Initially I thought of it as retirement funds but looks like I need to redeem it every 5-6 years cause of my sister's wedding, my wedding, future children education and the list just goes on. Is there any way I can invest for retirement considering I don't have to redeem it for emergency purposes.

Ans: Your concern about long-term retirement planning while managing intermediate financial goals is valid. It's great that you’ve started early, as time is your biggest asset in building wealth. Below is a detailed 360-degree financial plan to help you achieve your retirement goals without derailing your investments for emergencies or other life events.

Understand the Need for Separate Goals
Segregate Financial Goals: Clearly define your financial objectives—retirement, weddings, emergencies, and children’s education.

Allocate Separate Investments: Avoid using your retirement corpus for other purposes by setting up dedicated funds for each goal.

Prioritise Goals: List out goals based on timelines (short-term, medium-term, and long-term) to allocate investments accordingly.

Establish an Emergency Fund
Build an emergency fund covering 6-12 months of your expenses.

Use secure, liquid options like fixed deposits or liquid mutual funds for easy access.

Replenish the fund immediately after usage to maintain financial stability.

This buffer ensures emergencies don’t disrupt your other investments.

Set Up a Retirement-Exclusive Portfolio
Separate Retirement Corpus: Open a dedicated account to manage retirement funds.

Use Long-Term Instruments: Invest in equity mutual funds or other growth-oriented assets for high returns over time.

Automate Investments: Use systematic investment plans (SIPs) to build discipline in retirement investing.

Lock-in Options: Consider instruments like NPS, which discourage premature withdrawal, keeping your retirement funds intact.

Plan for Life Milestones
Sister’s Wedding: Plan with a target date in mind and invest in short-term instruments like ultra-short-term or hybrid mutual funds.

Your Wedding: Mid-term goals (5-7 years) align with balanced funds or hybrid equity mutual funds for moderate growth with reduced risk.

Children’s Education: Use child-specific investment products like Sukanya Samriddhi Yojana (if applicable) or equity funds for long-term growth.

Build a Diversified Investment Portfolio
Short-Term Needs: Keep funds in fixed-income instruments for stability and liquidity.

Medium-Term Goals: Invest in hybrid mutual funds, which balance equity and debt exposure.

Long-Term Goals: Focus on equity mutual funds to harness market growth over 10-20 years.

Avoid Investment-Linked Insurance: Use term insurance for life coverage, not for wealth accumulation.

Enhance Your Financial Discipline
Stick to the Plan: Resist the urge to redeem retirement investments prematurely.

Create Goal-Based Accounts: Physically or mentally separate funds for each objective.

Automate Savings: Set up automatic transfers into various investment accounts.

Insurance to Protect Wealth
Health Insurance: Cover yourself adequately to avoid using savings for medical expenses.

Life Insurance: Buy a term insurance plan with a sufficient sum assured to protect dependents.

Maximise Tax Benefits
Use tax-saving options under Section 80C, such as PPF and ELSS funds, for dual benefits of saving taxes and growing wealth.

Avoid redeeming tax-saving instruments prematurely, as this affects long-term compounding.

Monitor and Review Regularly
Review your portfolio every 6-12 months to track progress and rebalance.

Adjust investments based on market conditions and your evolving financial goals.

Final Insights
Your retirement plan should remain untouched. Life events like weddings and children’s education require separate financial strategies. By prioritising and diversifying your investments, you can achieve all your goals without compromising your financial freedom. Early planning and disciplined execution are the keys to long-term success.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Asked on - Nov 19, 2024 | Answered on Nov 20, 2024

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Thanks for the clarification. Just one follow up question. I have been investing 50percent in flexi cap fund, 25percent in midcap and 25percent in small cap. Can I consider midcap or small investment as my retirement savings?

Ans: Investing in mid-cap and small-cap funds for retirement can be risky due to market volatility. These funds may deliver high returns but lack stability, especially closer to retirement. For retirement savings, a balanced approach is better. Consider reallocating part of these investments to stable, long-term options like flexi-cap or balanced hybrid funds, ensuring steady growth and risk mitigation. Always consult a Certified Financial Planner for tailored advice.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

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

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