Retired Consultant With 1.8 Cr Corpus & 20 Lakh Income Wants to Wind Up, Teach & Travel - How to Invest?

I retired from service & took consultancy as freelance and having a corpus of PPF 75 lacs, NPS 24 lacs, scss6. 5 lacs others 20 Mutual fund corpus 1.8 cr Equity 1.5 Cr Pension per month 9000 Income 20 lacs Rental income 1.2 lacs per annum. My question as I want to windup the consultancy in 2025 and devote time in teaching & traveling to explore new place. Health cover is there of 20 lacs Requirement per month is 1.5 lacs Kindly guide how to park the amount to get this with 10 percent increase in every year in expenses. Ashok

Ans: You may buy immediate annuity for your corpus of 4.55 Cr.

Considering annuity rate of 5% you may expect to receive monthly payout of 1.33 L(post tax).

Add you pension and rental income to this, so 133 K+9 K+ 10 K=152K.

Many insurance providers offer feature of increasing annuity per year.

You may opt for it for hiking the monthly payout each year.

Ans: Your current financial position is strong, with a diversified portfolio across various asset classes. The regular monthly savings and rental income provide a steady foundation. As your liabilities will end in 2028, the reduction in debt payments will significantly increase your investable surplus.

The goal of generating Rs 2 lakh per month post-retirement income (as per current cost of living) requires careful planning, especially considering inflation and future needs. Based on your current situation, we can create a comprehensive investment strategy to help you achieve this goal within the next five years.

Let’s evaluate each part of your financial plan.

Monthly Savings
You are already investing Rs 50,000 in mutual fund SIPs, Rs 20,000 in NPS, Rs 5,000 in Sukanya Samriddhi Yojana (SSY), and Rs 40,000 in Provident Fund (PF). These regular investments will play a crucial role in achieving your retirement goal. Your monthly rental income of Rs 80,000 is also significant.

Here are insights for each investment:

Mutual Fund SIPs: SIPs are a good long-term investment strategy, especially for wealth accumulation. Consider reviewing your portfolio and focusing on funds with a consistent track record of performance. Actively managed funds may offer better growth opportunities than index funds.

NPS (National Pension Scheme): NPS is tax-efficient and gives you a good balance between equity and debt. However, withdrawals are partially taxable. You should continue this contribution, as it helps create a retirement corpus, but ensure you align it with your risk tolerance.

SSY (Sukanya Samriddhi Yojana): SSY is a great tax-saving option for your daughter’s future needs. However, it offers relatively low returns compared to equities. Continue contributing, but ensure this aligns with your overall financial goals.

PF (Provident Fund): PF contributions are essential for building a safe, debt-based retirement corpus. You may want to continue these contributions, as they provide stability.

Rental Income
You are earning Rs 80,000 per month from your residential and commercial properties. This income will be a valuable component of your post-retirement strategy. However, since rental income may fluctuate, it’s essential to have a diversified investment portfolio to ensure a steady income stream.

Existing Assets
Your current assets include:

Provident Fund (Rs 20 lakh)
NPS (Rs 20 lakh)
SSY (Rs 8 lakh)
These are solid base investments, but to reach your target of Rs 2 lakh per month post-retirement, additional investments in equity-based instruments and other options are necessary.

Strategy for Achieving Rs 2 Lakh Post-Retirement Income
To generate Rs 2 lakh per month post-retirement income, the focus should be on wealth accumulation for the next five years, followed by a structured withdrawal strategy.

Increase Equity Exposure for Higher Returns
Mutual Funds: Actively managed funds provide the potential for higher returns over the long term compared to index funds. Consider increasing your allocation to diversified equity mutual funds or multi-cap funds. You can continue with your SIPs but regularly review their performance. A Certified Financial Planner can help in selecting the right funds.

Direct vs Regular Funds: If you are currently investing in direct funds, you might not be getting the benefit of expert guidance. Regular funds through a Certified Financial Planner (CFP) give you access to professional advice, portfolio reviews, and timely adjustments, which can make a significant difference in achieving your retirement goals.

Debt Funds and Conservative Options
Debt Mutual Funds: These funds can provide a stable income post-retirement. However, the returns are taxed according to your income tax slab, which can reduce the net gain. Debt mutual funds are a good complement to your equity investments, providing a safer growth avenue.

PF & NPS: Continue with these contributions, as they provide tax benefits and form a part of your debt allocation. However, keep in mind that NPS withdrawals are partially taxed. You should aim to create a balance between tax efficiency and liquidity.

Retirement Corpus Calculation (Estimated)
Assuming you need Rs 2 lakh per month (Rs 24 lakh per year) and accounting for inflation over the next 10-15 years, you will need a significant corpus. To generate Rs 24 lakh per year at a 6% withdrawal rate, you would need approximately Rs 4-5 crore at retirement.

Additional Investments
To bridge the gap between your current savings and your retirement goal, consider the following:

Increase SIPs: As your liabilities reduce in 2028, you can increase your SIPs. An increase in SIPs by Rs 30,000 to Rs 40,000 per month over the next five years could substantially enhance your retirement corpus.

NPS Contribution: Increasing your NPS contribution to the maximum allowed limit will help boost your retirement savings in a tax-efficient manner.

Balanced Approach: A 60:40 equity-to-debt ratio could work well for you. This ensures that you are taking advantage of market growth while still having a stable portion of your portfolio in safer instruments.

Rental Property Considerations
Your rental income is an important source of cash flow, but property maintenance and other costs could reduce your net income over time. Therefore, it's crucial not to rely solely on rental income for post-retirement. Diversifying into financial assets that are easier to liquidate can provide more flexibility.

Tax Efficiency
Post-retirement income is subject to taxation, so it's essential to optimize your portfolio for tax efficiency.

Mutual Fund Taxation: Long-term capital gains (LTCG) above Rs 1.25 lakh in equity mutual funds are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%. For debt mutual funds, both LTCG and STCG are taxed as per your income tax slab.

NPS Withdrawal Tax: Remember that 60% of NPS withdrawals are tax-free, but 40% must be used to purchase an annuity, which is taxable.

Structuring your withdrawals to minimize tax impact will be a key component of your retirement plan.

Emergency Fund and Medical Coverage
Ensure that you maintain an emergency fund equivalent to at least 6 months of your expenses. Additionally, your health insurance should be robust, given that healthcare costs are rising. You may also want to review your existing policies to ensure they provide adequate coverage.

Finally
To achieve your goal of Rs 2 lakh per month post-retirement, you need to:

Increase your SIPs and focus on actively managed mutual funds.

Maximize your NPS and PF contributions for a stable retirement base.

Diversify into both equity and debt instruments for balanced growth and stability.

Consider the tax implications of withdrawals and aim for tax-efficient strategies.

Review your portfolio regularly with the help of a Certified Financial Planner to ensure you remain on track.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment