I'm 45 and my retirement is 10 years away. How should I rebalance my portfolio?

Ans: Excellent portfolio and thought process, no rebalancing required please continue.

Ans: You are 41 years old, earning Rs 2.5 lakh post-tax, with an additional Rs 40,000 monthly interest from FDs. Your assets include Rs 80 lakh in FDs, Rs 23 lakh in mutual funds, Rs 32 lakh in PF, and Rs 13 lakh in PPF. You also have two flats valued at Rs 50 lakh and Rs 90 lakh. Additionally, you contribute Rs 1 lakh per month to an RD and Rs 75,000 per month to SIPs. With a son entering college in five years and a desire to retire at 51, now is the right time to reassess and rebalance your portfolio.

Assessing Your Asset Allocation
Fixed Deposits (FDs): You have Rs 80 lakh in FDs, providing Rs 40,000 per month in interest. FDs are safe, but returns are low compared to inflation. Consider reducing the FD portion as you approach retirement.

Mutual Funds: Rs 23 lakh is invested in mutual funds, which is a good step towards growth. However, ensure these funds are diversified across different asset classes. Review their performance regularly.

Provident Fund (PF) and Public Provident Fund (PPF): With Rs 32 lakh in PF and Rs 13 lakh in PPF, these are long-term, safe investments. They offer tax benefits and steady returns. Continue contributing to PPF, but assess whether additional contributions to PF are necessary.

Recurring Deposit (RD): You are investing Rs 1 lakh monthly in RD. While RDs provide safety, they offer lower returns compared to mutual funds. Consider reallocating some of this towards more growth-oriented investments.

Real Estate: You own two flats worth Rs 50 lakh and Rs 90 lakh, respectively. Real estate offers capital appreciation and rental income. However, it’s illiquid and involves maintenance costs. Evaluate if these properties align with your retirement goals.

Rebalancing Your Portfolio for Retirement
Equity vs. Debt Allocation: At 41, with a retirement goal at 51, it's crucial to balance equity and debt. Consider a 60:40 equity-to-debt ratio. Equity provides growth, while debt ensures stability.

Increase Equity Exposure: Your current SIPs of Rs 75,000 per month should be diversified into different equity mutual funds. Focus on large-cap, mid-cap, and flexi-cap funds to capture growth while managing risk.

Gradual Shift to Debt: As you approach retirement, gradually shift from equity to debt. This will protect your corpus from market volatility. Start increasing your debt exposure five years before retirement.

Review Mutual Fund Selection: Ensure your mutual fund portfolio includes a mix of growth and value funds. Regularly review the performance and make necessary adjustments. Avoid index funds, as actively managed funds have the potential to outperform.

Reduce FD Dependency: FDs are safe but offer lower returns. Consider moving some FD funds to debt mutual funds or balanced funds, which offer better returns with moderate risk.

PPF and PF Contributions: Continue contributing to PPF for tax-free, safe returns. Assess whether additional PF contributions align with your overall portfolio strategy.

Planning for Your Son’s Education
Education Corpus: With your son entering college in five years, start building an education corpus. Allocate a portion of your SIPs towards education-specific mutual funds or balanced funds.

Systematic Withdrawal Plan (SWP): Consider an SWP from your mutual funds to cover education expenses. This will provide a regular income stream without depleting your entire investment.

Retirement Corpus Planning
Estimate Retirement Expenses: With current monthly expenses of Rs 50,000, factor in inflation to estimate future expenses. Your retirement corpus should be sufficient to cover these expenses for at least 25-30 years.

Diversified Income Streams: Post-retirement, aim to have diversified income streams. This could include rental income, SWPs from mutual funds, and interest from debt investments.

Avoid Annuities: Annuities may offer regular income but often have low returns. Instead, consider SWPs or dividend income from mutual funds.

Health and Life Insurance
Health Insurance: Ensure you have adequate health insurance coverage. Medical expenses rise with age, and a comprehensive policy will protect your retirement savings.

Life Insurance: At this stage, life insurance should be focused on covering any remaining liabilities. If your son becomes financially independent, the need for life insurance may decrease.

Estate Planning
Will and Nominees: Ensure you have a will in place. Clearly assign nominees for your investments, bank accounts, and properties. This will ensure a smooth transfer of assets to your heirs.

Power of Attorney: Consider assigning a power of attorney to manage your financial affairs if you are unable to do so.

Finally
At 41, you are in a strong position with diversified assets and steady income. To retire comfortably at 51, focus on rebalancing your portfolio towards a mix of growth and stability. Increase equity exposure now, with a gradual shift to debt as you near retirement. Plan for your son’s education and ensure you have adequate insurance coverage. With careful planning and regular reviews, you can achieve a secure and comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hello;

My suggestion would be to consolidate entire stocks, equity and debt mutual funds in to a single hybrid fund.

I recommend equity savings type mutual fund with low to moderate risk for eg. ICICI Pru equity savings fund and do a SWP at 4%.

This may fetch you a monthly income of around 1.04 L. Add to this the 24 K monthly payout you get from the 40 L annuity.

So your total monthly income will be 1.28 L fulfilling your requirement of 1.25 L monthly income.

Since the fund is classified as equity oriented, it's returns are tax friendly.

Kindly ensure nomination for your funds.

Also please buy a good health care insurance for yourself and your spouse.

Happy Investing;