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Can I Retire at 55 With Savings of 2.5 Crore?

Ramalingam Kalirajan |6302 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 13, 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 - Aug 12, 2024Hindi

Hi request your advise on early retirement and Post retirement cash flow requirements considering the following 1 I am 52 years old working Pvt sector earning 2.5 Lacs PM(take home) would like to retire by 55. 2. my current savings are a) Fixed deposit in Post office and NBFC is 50 Lacs b) in EFP 45 lacs, NPS 15 lacs, PPF 15 Lacs, c) Mutual finds 30 Lacs ( current value 60 Lacs). d) having own house worth of 1.5 Cr, staying in different city - paying rent of 15 K as per Job requirement. e) Investment in Wife A/c- 10 Lacs in MF ( Current value 13 Lacs) & 6 Lac in PPF f) In shares 20 lacs ( present value) g) Loans - car and Education loan -20 Lacs month EMI of 40 K ( upto 2029) h) son studying Btech 3rd Year- savings made in form of Bank FD for 50 Lacs for his Higher education and Future needs, earned Interest on same investing in MF - Current investment in MF is 10 Lacs. i) no further liabilities j) having health insurance of 10 Lacs for family with top up of 50 Lacs ( total premium 40 K PA), Life insurance cover 1 cr with annual premium of 30 K h) current monthly SIP is 1 lac in different funds, and monthly expenses are 75K. Requirements - Post retirement 1.5 Lacs PM for 10 Years balance life 2 Lacs advise on the sufficiency of savings to meet the requirement and corpus required post retirement to meet the expenses

Ans: You have built a diverse portfolio with investments across fixed deposits, provident funds, mutual funds, and equities. You own a house worth Rs. 1.5 crore, although you are currently living in a rented accommodation due to job requirements. You have liabilities in the form of car and education loans with an EMI of Rs. 40,000 per month until 2029.

Your current savings and investments include:

Rs. 50 lakhs in Fixed Deposits
Rs. 45 lakhs in EPF
Rs. 15 lakhs in NPS
Rs. 15 lakhs in PPF
Rs. 60 lakhs in Mutual Funds (initial investment of Rs. 30 lakhs)
Rs. 20 lakhs in shares
Rs. 10 lakhs in Mutual Funds in your wife's account (current value Rs. 13 lakhs)
Rs. 6 lakhs in PPF in your wife's account
Rs. 50 lakhs in Bank FD for your son's higher education, with Rs. 10 lakhs invested in Mutual Funds from the interest earned
Post-Retirement Income Requirements
You anticipate needing Rs. 1.5 lakhs per month for the first 10 years post-retirement, and Rs. 2 lakhs per month thereafter. Given the current inflation rates and your lifestyle, it’s crucial to ensure that your savings and investments can meet these needs.

Assessment of Current Portfolio
Your portfolio is well-diversified across various asset classes. Here’s a detailed analysis:

Fixed Deposits: You have Rs. 50 lakhs in Fixed Deposits, which is a safe but low-return investment. Given your proximity to retirement, it's important to balance safety with returns.

Provident Fund (EPF, NPS, PPF): You have Rs. 75 lakhs in various provident funds. These are great for long-term savings, offering tax benefits and moderate returns. However, the liquidity is limited.

Mutual Funds: You have Rs. 60 lakhs in mutual funds, which shows substantial growth. This is a positive sign as mutual funds, especially actively managed ones, tend to outperform fixed income instruments over the long term.

Equity Investments: Your Rs. 20 lakhs in shares represents a more aggressive part of your portfolio. Equity investments can offer high returns, but they come with higher risk.

Wife’s Investments: Rs. 13 lakhs in mutual funds and Rs. 6 lakhs in PPF provide additional financial security. However, you might want to align these investments with your overall retirement goals.

Son’s Education Fund: The Rs. 50 lakhs in Bank FD ensures that your son’s education needs are covered. The interest being reinvested into mutual funds is a smart way to keep this money growing.

Loans: You have Rs. 20 lakhs in car and education loans, with a monthly EMI of Rs. 40,000 until 2029. This is a manageable liability, but it does reduce your disposable income.

Post-Retirement Cash Flow Strategy
To ensure a comfortable retirement, here’s a strategic approach:

Debt Management: Prioritize paying off your loans before retirement, if possible. This will reduce financial stress and free up more cash flow for your post-retirement needs.

Rebalancing Your Portfolio: As you approach retirement, gradually shift your equity investments to more stable instruments. However, avoid moving completely out of equities, as they provide growth that can beat inflation. You might consider shifting to hybrid funds that offer a mix of equity and debt.

Systematic Withdrawal Plan (SWP): For your mutual fund investments, consider setting up an SWP post-retirement. This will provide a steady income stream while keeping your capital invested.

Provident Funds: Continue contributing to your EPF, NPS, and PPF. Upon retirement, you can withdraw from these funds in a phased manner to meet your monthly expenses.

Emergency Fund: Ensure you have an emergency fund equivalent to at least 6-12 months of expenses. This should be kept in a liquid or short-term debt fund.

Insurance: Your current health and life insurance coverage seems adequate. However, review these policies annually to ensure they remain sufficient. Consider increasing your health cover if necessary, especially given rising medical costs.

Corpus Requirement Analysis
Given your monthly expense requirements post-retirement, your current savings and investments will need to generate a sustainable income stream. Without getting into specific numbers, you will need to build a retirement corpus that can generate Rs. 1.5 lakhs per month initially and Rs. 2 lakhs later, adjusted for inflation.

A rough estimate suggests that you would need a corpus of approximately Rs. 5-7 crore to comfortably meet your post-retirement needs. This includes accounting for inflation, healthcare costs, and other unforeseen expenses.

Final Insights
Your current financial position is strong, with a diverse portfolio and adequate savings. However, retirement planning is not just about having enough money. It's also about ensuring that your money is in the right places.

Focus on:

Paying off your loans early.
Rebalancing your portfolio gradually.
Setting up a systematic withdrawal plan.
Ensuring your insurance covers are adequate.
By following this approach, you can retire comfortably at 55 and enjoy a financially secure retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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