44-Year-Old Male Seeks Financial Advice: How to Achieve Financial Freedom by 50?

Ans: It’s impressive that you have established a strong foundation for your family's financial security. With diversified investments across fixed deposits (FD), Public Provident Fund (PPF), Voluntary Provident Fund (VPF), equity, mutual funds, Sukanya Samriddhi Yojana (SSY), and insurance, you’ve managed to balance stability and growth. This diversified approach is a positive indicator of financial discipline.

Given your objective of achieving financial freedom around the age of 50, we’ll aim to optimize your investments, focusing on growth while ensuring you meet your monthly expense requirement of Rs 2 lakh in retirement.

Retirement Corpus Planning
Assess Monthly Income Needs: You’ve estimated a monthly retirement income requirement of Rs 2 lakh. Considering inflation, this amount could increase by the time you retire at 50. Maintaining and growing your investments is essential to secure this future amount.

Corpus Target: To generate Rs 2 lakh per month (Rs 24 lakh annually), you’ll need a retirement corpus that can sustain regular withdrawals. With a 4%-5% safe withdrawal rate, targeting a corpus of around Rs 6-7 crore is advisable. Your current investments have laid a good base, but further adjustments can bridge any gaps.

Investment Strategy: Maximizing Current Contributions
Review and Redirect Insurance Plans: Your LIC endowment plan, with a total outlay of Rs 35 lakh, is nearing completion. These plans often deliver lower returns compared to other instruments. Given your substantial term, it may be optimal to avoid future investments in similar endowment plans. Once matured, the proceeds from this plan could be reinvested in higher-yield options, such as mutual funds.

Voluntary Provident Fund (VPF): While VPF offers a secure return, it may not match the potential growth needed for early financial freedom. You’re currently contributing Rs 45,000 monthly. This could be reassessed, possibly reallocating a portion towards equity mutual funds, which historically offer higher long-term returns.

Monthly SIPs in Mutual Funds: Your monthly contributions of Rs 25,000 each in mutual funds and stocks are valuable steps toward wealth accumulation. Considering your timeline, you may want to increase your mutual fund contributions, focusing on well-performing, actively managed equity mutual funds. Actively managed funds tend to outperform index funds, especially in volatile or growing markets.

Avoiding Index Funds: Index funds, though popular for low fees, offer limited potential for high returns, as they merely mirror the market. Actively managed funds, guided by expert fund managers, can identify high-growth opportunities. With your goal of financial freedom by 50, actively managed funds could better suit your needs.

Regular Funds via Mutual Fund Distributor (MFD): Direct mutual funds may appear cost-effective, but investing through an MFD with a Certified Financial Planner (CFP) can offer substantial advantages. MFDs provide insights, help rebalance your portfolio, and suggest funds aligned with your goals. This approach ensures your portfolio is optimized for growth, with adjustments based on market trends and performance.

Tax-Efficient Investment Adjustments
Equity Investments: Your equity holdings are Rs 20 lakh, plus Rs 25,000 in monthly stock investments. This is a promising strategy for capital appreciation. To optimize, it’s crucial to balance your portfolio between large-cap, mid-cap, and small-cap stocks. This diversity can help reduce risk while maximizing returns. Any long-term capital gains above Rs 1.25 lakh will be taxed at 12.5%, and short-term gains are taxed at 20%. Regular portfolio review is essential for tax efficiency.

Mutual Fund Capital Gains: With the recent tax rule changes, equity mutual funds’ LTCG above Rs 1.25 lakh attracts a 12.5% tax, and STCG is taxed at 20%. Debt mutual funds, however, are taxed as per your income slab, which is higher. Given this, maintain a larger allocation in equity mutual funds over debt mutual funds to maximize post-tax returns.

Education Planning for Children
Sukanya Samriddhi Yojana (SSY): Your investment in SSY for both daughters is commendable and provides assured returns. However, as the girls near college age, the funds in SSY could be utilized for education expenses.

Additional Education Funds: With the rising cost of higher education, consider investing further in diversified equity mutual funds. This will allow the education corpus to grow over the next few years, ensuring funds are available when needed without compromising your retirement plans.

Major Upcoming Expenses
Car Purchase: Planning for a Rs 25 lakh investment in a new car is a significant short-term expense. Consider using funds from your FD or other low-growth assets, like the proceeds from the LIC endowment plan, to fund this purchase. This approach avoids the need to redeem growth-oriented investments.

Emergency Fund: Ensure a liquid emergency fund of at least 6-12 months of monthly expenses. This can be held in a mix of savings accounts and liquid funds for easy access while offering slightly higher returns than a standard savings account.

Optimizing Current Assets
Public Provident Fund (PPF): Your Rs 35 lakh in PPF is a strong asset for long-term security. Continue maintaining this investment as it offers tax-free returns and stability, which is beneficial for retirement planning.

Fixed Deposits (FD): Your Rs 25 lakh in FD provides stability but lower returns compared to other investments. Reconsider maintaining a high balance in FD, which could be redirected towards mutual funds for better growth potential. Retain some amount in FD as a safety net, but consider reducing your reliance on this asset for long-term growth.

Targeted Portfolio Review with Certified Financial Planner
Regular Portfolio Review: With your multiple investments across various instruments, periodic review and rebalancing are essential. Engaging with a Certified Financial Planner (CFP) can help you evaluate each investment’s performance and adjust as needed.

Risk Assessment and Rebalancing: A CFP can assess your risk tolerance as you approach retirement. Gradually shifting a portion of your equity investments to safer instruments over time, while keeping growth-oriented investments for longer, is a balanced strategy.

Final Insights
Achieving financial freedom at 50 is a realistic goal with your disciplined financial habits and diversified investments. Small adjustments to maximize growth while managing risk will help you reach the retirement corpus required to generate Rs 2 lakh monthly.

Reallocate funds from low-yield investments like FD and endowment plans towards equity mutual funds and stocks.

Review your VPF contributions and consider reallocating a part towards higher-growth options.

Increase SIPs in actively managed mutual funds, which provide expert-driven potential for higher returns.

Regularly review your portfolio and adjust as per changing market conditions with the support of a Certified Financial Planner.

By carefully optimizing each component, you can continue building towards a secure, independent retirement, enabling you to meet both personal and family goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

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