My age is 57 and just taken early retirement. I have a corpus of 2cr invested MF'S. I have three houses, (in Chennai, Hyderabad and Cochin) one we live and rental income of 30k from the other two. No loan or liabilities. My son has completed PhD abroad and have to complete his marriage for which expenses will be from Corpus. Approx 30L. Our monthly expenses are around 70k (withdrawing 30k monthly through swp) and will the corpus and rental be sufficient for our retirement period considering another 25-30 years of life span. Have medical insurance for 30L family floater.
Harikrishnan Ramakrishnan
Ans: You have successfully transitioned into early retirement. This is a significant milestone and deserves appreciation. You have a strong financial foundation to support your lifestyle and goals.
Your total corpus of Rs 2 crores invested in mutual funds provides a solid base for your retirement. You also own three properties in Chennai, Hyderabad, and Cochin, with two generating rental income of Rs 30,000 per month.
Your monthly expenses are around Rs 70,000, of which you are withdrawing Rs 30,000 through a Systematic Withdrawal Plan (SWP). You have a well-structured medical insurance policy with coverage of Rs 30 lakhs for your family.
These factors contribute to a promising financial outlook for your retirement years. However, it’s important to evaluate your resources to ensure they are sufficient for your expected lifespan of 25 to 30 years.
Income Sources and Financial Sustainability
Your primary income sources include:
Rental Income: You receive Rs 30,000 monthly from rental properties. This totals Rs 3.6 lakhs annually.
SWP from Mutual Funds: You are withdrawing Rs 30,000 monthly, which amounts to Rs 3.6 lakhs annually as well.
Total Income: Your total annual income from rental and SWP is approximately Rs 7.2 lakhs.
Your estimated expenses of Rs 70,000 per month lead to total annual expenses of Rs 8.4 lakhs.
This creates a shortfall of Rs 1.2 lakhs annually, which will need to be covered by your mutual fund corpus.
Evaluating the Corpus for Longevity
You have Rs 2 crores in mutual funds. Let’s assess how long this corpus can sustain your retirement lifestyle.
Estimated Annual Withdrawals: If you continue with your current SWP of Rs 3.6 lakhs annually, your total withdrawals from the corpus will be Rs 3.6 lakhs.
Impact of Withdrawals on Corpus: If you maintain this withdrawal strategy, the corpus will deplete faster due to your shortfall in income.
Considerations: Based on historical market performance, your mutual fund investments can grow over time. The actual growth will depend on market conditions and the performance of your funds.
Strategies to Ensure Financial Stability
To enhance the sustainability of your retirement corpus, consider the following strategies:
Reassess Your SWP
While your SWP strategy allows for regular income, it may not be the most efficient approach if there are shortfalls.
Recommendation: Evaluate the possibility of adjusting your SWP amount. If possible, consider lowering your monthly withdrawals to better match your income from rentals.
Exploration of Alternative Withdrawals: If you find it challenging to reduce your SWP, think about temporarily pausing your withdrawals until your rental income increases or other sources of income become available.
Explore Investment Growth
Your mutual fund investments are critical for long-term growth. Ensure you are invested in funds that align with your goals.
Recommendation: Focus on actively managed mutual funds with a strong performance track record. These funds have the potential to outperform passive strategies over the long term, especially during volatile market conditions.
Performance Evaluation: Regularly assess the performance of your mutual funds. If some funds consistently underperform, consider reallocating those investments to better-performing options.
Maintain an Emergency Fund
It’s wise to keep an emergency fund to cover unexpected expenses.
Recommendation: Ensure you have enough liquid funds available to cover at least 6 to 12 months of your living expenses. This will help you avoid withdrawing from your investments during market downturns or personal emergencies.
Location of Emergency Fund: Consider keeping this emergency fund in a high-yield savings account or liquid mutual fund for quick access.
Review Monthly Expenses
Regularly reviewing your monthly expenses can help identify areas to save.
Recommendation: Analyze your current expenses to see where cuts can be made. Reducing discretionary spending can increase the longevity of your corpus.
Budgeting: Create a budget that reflects your essential and non-essential expenses. This will allow you to allocate funds more efficiently and identify potential savings.
Preparing for Future Expenses
You mentioned the upcoming marriage of your son, with an expected expense of approximately Rs 30 lakhs. This will impact your corpus significantly.
Recommendation: Plan for this expense well in advance. Since this is a substantial amount, consider allocating a portion of your mutual fund investments specifically for this purpose.
Investment Strategy: To accumulate funds for this expense, you may want to increase your investments temporarily. This could include redirecting a portion of your SWP to a dedicated fund for your son’s marriage.
Healthcare Considerations
You have a family floater medical insurance policy with coverage of Rs 30 lakhs. This is a good measure for health-related expenses in retirement.
Recommendation: Regularly review your health insurance coverage. Ensure it remains adequate as medical costs continue to rise.
Incorporate Health into Financial Planning: Plan for potential healthcare expenses in your overall financial strategy. This may involve setting aside a separate fund for medical emergencies or treatments.
Final Insights
You have a solid financial foundation for your early retirement. Your strategy should focus on ensuring the longevity of your corpus while managing expenses effectively.
Balance Income and Expenses: Continue to monitor your income from rentals and the withdrawals from your mutual funds. This balance is crucial for your financial health.
Consider Additional Income Sources: If possible, explore ways to generate additional income, such as part-time work or freelance opportunities that align with your skills and interests.
Professional Guidance: Consider consulting a Certified Financial Planner for personalized strategies. They can provide tailored insights based on your specific situation and goals.
With careful planning and consistent monitoring, your corpus can sustain your retirement lifestyle for many years. Stay proactive and adapt your strategy as needed.
Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment