Dear Sir/Madam, Please keep it anonymous. I am writing in behalf of my cousine.He is 51 years, IT engineer. Post 50 many IT companies are forcing employees to retire. Unfortunately it has become a reality. He has simple lifestyle and has a small family with one 12 year old child, wife and 80 year old mother. He doesn't have any loans or liabilities. He owns a house and his monthly expenses don't go beyond 30K. He has around 1.5 cr in PPF, FD and EPF. 2.5 Cr in Savings account. He also has medical insurance of 5 L. He will continue with simple to moderate lifestyle. What is your opinion if he can survive well on his current investments if he has to retire soon? He don't want to invest in any risky schemes associated with markets. What else he can do in investmements front to improve his financial condition?

Ans: Your cousin's situation is very stable. At 51, his savings and investments are quite healthy. He owns a house, has no loans or liabilities, and his monthly expenses are only Rs 30,000. This reflects a simple lifestyle, which means he doesn't need a huge monthly income to maintain his standard of living. Additionally, his financial discipline is evident, given his savings and investments.

His financial assets include Rs 1.5 crore in PPF, FD, and EPF, and another Rs 2.5 crore in his savings account. This gives him a total corpus of Rs 4 crore. For someone who has a modest lifestyle and doesn't want to take market risks, this provides a solid foundation.

Assessing Retirement Readiness
Assuming your cousin has to retire soon, his current corpus of Rs 4 crore should easily support his lifestyle. Based on his monthly expenses of Rs 30,000, he would need Rs 3.6 lakh annually to meet his day-to-day expenses. This is a small fraction of his total assets, which can comfortably last for many years without any aggressive investment.

Let’s assess the sustainability of his corpus:

With Rs 4 crore in safe instruments like PPF, FD, and EPF, and assuming a conservative return of around 6% per annum, he would generate approximately Rs 24 lakh annually. This is far more than what he needs for his expenses.
His corpus alone, without considering any investment growth, could last for many decades, given his low monthly needs.
In short, from a retirement-readiness perspective, he is well-prepared financially.

Importance of Healthcare Coverage
While your cousin has Rs 5 lakh in medical insurance, it may be insufficient, especially given his age and the rising cost of healthcare. A comprehensive health insurance plan, with a higher cover, would offer him peace of mind in case of medical emergencies. Medical costs can quickly escalate, especially with an aging parent and other family members.

He should consider enhancing his medical cover by:

Opting for a top-up or super top-up plan to increase his health cover.
Ensuring that the policy covers day-care treatments, pre-existing illnesses, and critical illnesses.
Given the moderate cost of health insurance top-ups, this is an affordable and necessary addition to his financial plan.

Alternatives to Risky Investments
Since your cousin does not want to invest in market-linked products, there are still several low-risk investment options that can improve his financial condition without exposing him to high volatility. The focus here would be to preserve capital while generating steady returns.

Here are some suitable alternatives:

Senior Citizen Savings Scheme (SCSS): After turning 60, your cousin can consider investing in SCSS. It provides a safe and reliable return, higher than regular fixed deposits. This scheme would suit his risk profile and provide regular income.

Post Office Monthly Income Scheme (POMIS): Another safe option for post-retirement income. This scheme offers fixed monthly returns and guarantees the safety of capital.

RBI Floating Rate Savings Bonds: These bonds are low-risk and offer decent returns with interest rates adjusted every six months. They are ideal for those looking to earn interest while keeping capital secure.

Sovereign Gold Bonds (SGB): Though linked to gold prices, this is a government-backed option offering a fixed interest rate. It's a way to diversify his portfolio without taking too much risk.

Inflation Protection and Growth Options
Though your cousin’s current investments can support his lifestyle, he must consider the impact of inflation over the next 20-30 years. Inflation can erode purchasing power, and a Rs 30,000 expense today may rise significantly in the future.

Even though he prefers not to invest in market-linked products, having a small portion of his portfolio in inflation-beating instruments could help maintain his financial health in the long run. To strike a balance between safety and growth, he can:

Invest in debt mutual funds: These funds are safer than equity funds and offer better post-tax returns compared to FDs. They are a good choice for those seeking stable returns with minimal risk. Debt mutual funds will also help in tax-efficiency compared to traditional savings instruments.

Balanced or hybrid funds: If he wants to maintain low risk but is open to some market exposure, hybrid funds (with a mix of debt and equity) could be an option. They are less volatile than pure equity funds and offer reasonable returns.

Regular Plan Mutual Funds: If he ever considers mutual funds, it’s best to invest through a certified financial planner (CFP) via regular plans. The benefit of regular plans is that the fund manager’s advice and oversight can help in balancing risk and returns, unlike direct funds where he has to manage the investments himself.

Emergency Fund and Liquidity
Though your cousin has Rs 2.5 crore in his savings account, it is important not to keep too much money idle. While liquidity is important, holding such a large amount in savings will not generate meaningful returns.

Here’s a better approach:

Maintain 6-12 months’ worth of living expenses (around Rs 4-5 lakh) in the savings account or liquid funds for emergencies.

The rest of the amount in the savings account can be moved to safer and higher-return instruments like FDs or debt mutual funds. This way, his money earns better returns while still being relatively liquid.

Estate Planning and Legacy
It’s also important for your cousin to think about estate planning. He should ensure that his family is financially secure in the long term. Simple steps like:

Creating a will: To ensure his assets are distributed as per his wishes.

Nominations: Ensure that all his investments, insurance policies, and bank accounts have proper nominations in place.

Reviewing insurance needs: Even though he may not need life insurance now, he could consider taking term insurance if he wants to secure his family in case of an unexpected event.

Optimizing Tax Efficiency
Your cousin’s current portfolio in FDs and EPF will likely result in higher tax liability as these instruments are taxed as per his income tax slab. He can explore more tax-efficient options to optimize his returns.

Debt Mutual Funds: As mentioned earlier, they are tax-efficient compared to FDs, as they offer indexation benefits for long-term capital gains.

Tax-efficient Fixed Income Products: He can look into tax-saving fixed deposit schemes or long-term bonds that offer tax-saving benefits under Section 80C.

Avoid Direct Fund Investments: Investing directly in funds might seem like a good idea because of lower fees, but it comes with the burden of managing the portfolio independently. Investing through a certified financial planner ensures professional oversight, better fund selection, and an optimal investment strategy tailored to his goals.

Finally
Your cousin’s financial position is very strong. With a Rs 4 crore corpus and minimal monthly expenses, he is well-prepared to retire without any financial stress. He should focus on maintaining his simple lifestyle while also protecting his wealth from inflation and rising healthcare costs.

His reluctance to invest in high-risk market schemes is understandable. There are plenty of safe options available, such as debt mutual funds, SCSS, and floating rate bonds. These can ensure steady income without exposing him to unnecessary risk.

Additionally, estate planning, tax optimization, and healthcare coverage will further secure his financial future.

By taking these steps, he can retire confidently and maintain financial stability for himself and his family.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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