Hello Ramalingam sir,
Nice to see you are replying to numerous queries raised by young Indians. Thank you very much.
I and my wife earn 4,60,000 per month(post tax), we both age at 39 years. Two kids(daughter 9 years, son 2 years). Our monthly portfolio & expenditure goes like below
Debt(24% of 460K): PF -40K, VPF-20k , PPF-12.5k(yearly 150K), SSY for daughter-12.5k(yearly 150K), Bank RD-5k, NPS – tier1 – 20k. Total: 1,10,000/month
Mutual fund (35% of 460k): Large cap – 63k, Mid cap – 48k, Small cap – 45K, Debt – 4k. Total 1,60,000/month. I will step up yearly by 10% once my loans closes(after 4 years). My aim to invest in mf till the age of 55.
Loans(24% of 460k, remaining tenure 4 years): Home loan emi-75k, company car lease emi -35k. Total 1,10,000/month
Monthly Expenditure(17% of 460k): 80K/month
Real estate: I have 2 plots: one in my native purchased in 2012 at 5 lacs, current date value might be around 15 lacs. One more plot is in Bangalore, purchased in 2015 at 13 lacs, current date value might be around 30 lacs. I have own house in my native currently my parents stay( My parents have built this) but I will be staying here after my retirement. I Own a flat in Bangalore where I am currently staying, current value of the flat is 1.1cr
Term insurance: I am planning to purchase in April 2025, the term insurance of 1.5 CR for myself(for my wife no term insurance)
Group medical insurance for family(company sponsored, combined 10 lacs). No self-sponsored health insurance.
My queries are as below
1) How much money I need post-retirement, current expenditure is 80,000/month, retirement age is 55, life expectancy 90 years?
2) How much monthly SWP I should do for current monthly expenditure of 80k. SWP will start when I turn 55 years.
3) Is company sponsored health insurance is fine till I retire. Or should I purchase (if yes what is the idle value for my case?). I don’t have smoking and drinking habits
4) Is 1.5cr of term insurance of mine is sufficient post 55 years?
5) What would be the rough inflation rate to consider?
6) Please suggest any modifications required for the above portfolio.
Ans: It’s great to see that you and your wife are disciplined savers and investors. Your current portfolio is well-structured with a balanced approach across different asset classes. Let's analyze and address your queries systematically.
1) How Much Money Do You Need Post-Retirement?
Your goal is to retire at age 55 with a life expectancy of 90 years. This means you are planning for 35 years of post-retirement life.
Your current monthly expenditure is Rs 80,000. Post-retirement, expenses may rise due to inflation. To plan accurately, considering a realistic inflation rate of around 6-7% is essential.
Therefore, you need a corpus that can generate enough income to sustain your lifestyle for 35 years. The target retirement corpus should be able to cover both your monthly expenses and potential medical emergencies.
You may also want to factor in inflation and potential increase in healthcare costs over time, which can take up a substantial portion of your budget post-retirement.
2) How Much Monthly SWP to Support Rs 80,000 Monthly Expenditure?
Once you retire, you can use Systematic Withdrawal Plans (SWPs) from mutual funds to receive a monthly income. Your current expenditure is Rs 80,000/month, which will need to be adjusted for inflation by the time you reach 55.
SWPs allow you to withdraw money regularly while keeping the remaining balance invested, which helps the corpus continue to grow. Ideally, you should withdraw an amount that does not deplete your portfolio too quickly.
If inflation is considered, the equivalent of Rs 80,000 today could be much higher by the time you retire. A corpus that generates Rs 1.5 lakh per month would be a good target. It’s advisable to have a large enough corpus that supports your lifestyle, even as costs rise over time.
You may need to gradually increase your SWP withdrawals over the years to ensure you keep up with rising expenses.
3) Is Company-Sponsored Health Insurance Sufficient?
While your company-sponsored health insurance of Rs 10 lakh covers your family for now, it’s important to consider having additional coverage. As you approach retirement, relying solely on company-sponsored health insurance may become risky.
Healthcare costs rise significantly with age, and a medical emergency could strain your finances if your coverage is inadequate.
Here’s why you should consider purchasing a separate health insurance policy:
Post-retirement health needs: Medical costs tend to increase with age, and company-sponsored insurance might no longer be available after retirement.
Inflation in healthcare: Healthcare inflation is higher than normal inflation, so you may need more coverage over time.
Consider a family floater health policy of Rs 20-30 lakh with top-ups as a backup plan.
This will ensure you are well-covered in case of any unforeseen medical situations, even after retirement.
4) Is Rs 1.5 Crore Term Insurance Sufficient Post-55?
You plan to purchase a term insurance policy of Rs 1.5 crore in April 2025. This is a good step to protect your family’s financial future. However, after the age of 55, your need for life insurance may reduce, as by then, you may have accumulated a substantial retirement corpus and other assets.
Here are a few factors to consider:
No loans: After the age of 55, you’ll likely have paid off your home loan and car lease, reducing the financial burden on your family.
Reduced liabilities: By 55, your children might become financially independent, reducing the need for large coverage.
However, Rs 1.5 crore term insurance for the next few decades is still a good option, especially if your retirement corpus falls short or you wish to leave behind a financial legacy for your children.
If your financial goals are on track and your corpus is adequate, you may consider reducing your insurance coverage post-55. For now, however, Rs 1.5 crore should be sufficient to cover your family’s needs in case of an unfortunate event.
5) What Would Be the Rough Inflation Rate to Consider?
Inflation plays a significant role in determining the real value of your savings over time. Historically, the average inflation rate in India has been around 6-7%.
For long-term financial planning, it’s safe to assume a 6-7% inflation rate while calculating your retirement corpus. Healthcare inflation is usually higher, often around 10-12%, so it’s crucial to account for that separately when planning for medical expenses post-retirement.
If inflation remains high, you’ll need to increase your investments accordingly to ensure your post-retirement income keeps up with rising costs.
6) Portfolio Suggestions and Modifications
Your portfolio is well-diversified with a focus on debt, mutual funds, and real estate. However, there are a few areas where minor adjustments can help you achieve your goals more efficiently.
Debt Investments (24% of Income):
You are currently investing a significant amount in debt instruments like PF, VPF, PPF, and SSY. These offer steady returns but may not beat inflation in the long run.
Your debt portion (24% of income) is appropriate given your age, but as you approach retirement, you may want to gradually increase your allocation to debt for capital preservation.
Continue with NPS Tier 1 contributions as this will provide tax benefits and help build a retirement corpus.
Mutual Fund Investments (35% of Income):
You have a good mix of large, mid, and small-cap mutual funds. However, you could consider slightly increasing the large-cap allocation as you approach your retirement age for stability.
Ensure you are investing in actively managed mutual funds rather than index or direct funds, as actively managed funds can outperform the benchmark over time.
Debt funds can offer better returns than RDs. You may want to consider increasing your allocation to short-term debt funds or dynamic bond funds for relatively safer returns compared to traditional bank RDs.
Loans (24% of Income):
Your loan EMIs are well within a reasonable portion of your income.
Since you plan to step up your SIPs by 10% once the loans close in 4 years, this is an excellent strategy to increase your investments while being debt-free.
Real Estate:
You have made some good investments in real estate with two plots and a flat. The current value of your flat (Rs 1.1 crore) and plots (total value Rs 45 lakh) gives you a significant real estate holding.
Since you already have multiple properties, it may be better to focus on financial assets (mutual funds, debt instruments) for future investments.
Insurance:
As discussed earlier, consider purchasing additional health insurance for your family.
The Rs 1.5 crore term insurance is sufficient for now, and you can review it post-retirement.
Final Insights
You are on the right track with your financial planning. Your portfolio is well-balanced, and you have a disciplined approach to savings and investments. A few key steps can further strengthen your financial position:
Increase health coverage beyond company-sponsored insurance.
Continue to step up your SIPs by 10% after your loans close.
Stick to actively managed mutual funds for higher potential returns over index funds or direct funds.
Plan your SWP carefully to ensure your post-retirement income keeps pace with inflation and healthcare needs.
Your current financial situation and discipline in managing expenses set you up for a comfortable retirement. With a few adjustments, you’ll be well-prepared to achieve your financial goals.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
Instagram: https://www.instagram.com/holistic_investment_planners/
Question by Rama on Jan 04, 2021Hindi
