Sir/s, I need financial or investment experts' advise. I am a retired 67 years old male with reasonable good health. My wife is 65 years of age. I have a corpus of 1.2 crores invested mostly in Bank F D's. @ an average interest of 6 to 7 %. I...

Sir/s, I need financial or investment experts' advise. I am a retired 67 years old male with reasonable good health. My wife is 65 years of age. I have a corpus of 1.2 crores invested mostly in Bank F D's. @ an average interest of 6 to 7 %. I have own home. I also have some agriculture lands that gives us a return of around 2 lakhs per year. The market value of the lands is around 2•5 crores. we do not have any type of life or health insurances. our current life style requires at least Rs 1 lakh a month. I request your advise as to how to manage my money better, the investment strategies I should fallow. I am a risk averse person. Kindly advise..

Ans: First off, I must say you’ve done a great job accumulating a significant corpus and ensuring a stable lifestyle post-retirement. Let’s look into your financial situation and how we can optimize your investment strategy to ensure you continue enjoying a comfortable life.

Current Financial Situation
You are 67 years old and retired, with a corpus of Rs. 1.2 crores invested mostly in Bank FDs at an average interest of 6-7%.

Your wife is 65 years old.

You own your home, which eliminates housing costs.

You have agricultural lands that provide an additional Rs. 2 lakhs per year.

The market value of these lands is around Rs. 2.5 crores.

Your monthly lifestyle expenses are Rs. 1 lakh.

You have no life or health insurance, which is a concern given your age.

Evaluating Your Bank FD Investments
Bank FDs are safe and provide guaranteed returns, which aligns with your risk-averse nature. However, the returns from FDs, averaging 6-7%, might not be sufficient to cover inflation and your monthly expenses in the long term. Considering your need for Rs. 1 lakh per month, let’s assess how to manage and possibly diversify your investments while keeping risk low.

Agricultural Land as a Financial Asset
Your agricultural land provides a yearly return of Rs. 2 lakhs, which helps offset some of your expenses. The market value of Rs. 2.5 crores is substantial, but it is not a liquid asset. If ever there’s a need for a large sum, you might consider selling a portion of it. However, given its income-generating nature, it's best to keep it unless absolutely necessary.

Immediate Needs: Health Insurance
At your age, health insurance is crucial. Medical emergencies can be financially draining. It’s advisable to explore senior citizen health insurance plans. These plans may have higher premiums but are necessary for financial security. Ensure you get a comprehensive plan covering hospitalization, critical illnesses, and post-hospitalization expenses.

Monthly Income Strategy
You need Rs. 1 lakh per month, which is Rs. 12 lakhs annually. Your agricultural land provides Rs. 2 lakhs per year, so you need an additional Rs. 10 lakhs per year from your investments.

Fixed Deposits vs. Other Safe Investment Options
Fixed Deposits are safe but may not always beat inflation. Consider diversifying into other low-risk investment options:

Senior Citizens’ Savings Scheme (SCSS)
SCSS is a government-backed scheme offering higher interest rates than regular FDs, specifically designed for senior citizens. It provides regular income and tax benefits under Section 80C.

Post Office Monthly Income Scheme (POMIS)
POMIS is another safe investment option offering a fixed monthly income. It provides assured returns and can be a good addition to your portfolio.

Debt Mutual Funds
For slightly higher returns, consider debt mutual funds. They invest in fixed income instruments like bonds and are relatively safer than equity funds. They offer better post-tax returns compared to FDs due to indexation benefits.

Systematic Withdrawal Plan (SWP)
A Systematic Withdrawal Plan (SWP) from mutual funds can provide regular income while keeping your principal amount invested. You can choose to withdraw a fixed amount regularly, providing you with a steady cash flow.

Creating a Balanced Portfolio
Given your risk aversion, a balanced portfolio with a mix of safe investments is ideal. Here’s a suggested allocation:

Fixed Deposits and SCSS: Continue with FDs but consider moving some funds to SCSS for better returns.

Post Office Monthly Income Scheme: Allocate a portion to POMIS for a steady monthly income.

Debt Mutual Funds: Diversify into debt mutual funds for potentially higher post-tax returns.

Systematic Withdrawal Plan (SWP): Consider SWPs from mutual funds to provide a regular income stream.

Emergency Fund
Ensure you have an emergency fund equivalent to at least 6-12 months of expenses. This fund should be kept in a liquid form, like a savings account or a liquid mutual fund, to be easily accessible during emergencies.

Reviewing Expenses
Your monthly expense requirement is Rs. 1 lakh. Regularly review your expenses to ensure they are aligned with your income. If possible, identify areas where costs can be reduced without affecting your lifestyle significantly.

Avoiding High-Risk Investments
Given your risk aversion, avoid high-risk investments like equities or real estate. Stick to safe, government-backed schemes and low-risk debt instruments.

Importance of Regular Reviews
Regularly reviewing your financial plan is crucial. Market conditions and personal circumstances change over time. Schedule periodic reviews with a Certified Financial Planner (CFP) to ensure your investments are on track and make necessary adjustments.

Final Insights
You’ve built a strong financial base with your corpus and assets. With strategic planning and diversification, you can ensure a steady income stream and financial security. Prioritize health insurance, diversify your investments into safe options, and keep a close eye on your expenses.

By implementing these strategies, you can continue enjoying a comfortable and secure retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Asked on - Jul 06, 2024 | Answered on Jul 06, 2024

Thank you Sir. Thank you very much

Ans: You're welcome! If you have any more questions or need further assistance, feel free to ask. Best wishes on your financial journey!

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You and your wife have built a strong financial foundation. Your combined monthly salaries of Rs. 6.7 lakh, along with substantial real estate holdings and financial assets, reflect good financial discipline. It’s commendable that you have no loans or EMIs and that you are investing systematically in mutual funds, PPF, NPS, Sukanya Samriddhi, and other instruments.

Your monthly expenses are around Rs. 1.7 lakh, which is manageable given your income. Additionally, you have set up term and health insurance, which protects your family in unforeseen circumstances.

Real Estate Portfolio
Your real estate portfolio of Rs. 5-6 crores is valuable, with one property generating Rs. 20,000 per month in rental income. However, real estate is not as liquid as other investments, and the returns can be inconsistent due to market fluctuations. Diversifying away from real estate into more liquid and scalable assets like mutual funds can enhance your portfolio’s flexibility and growth.

Financial Assets Review
You have accumulated an impressive range of financial assets:

Provident Fund: Rs. 1 crore is a solid, long-term foundation for your retirement.
Public Provident Fund (PPF): Rs. 20 lakh is a reliable and tax-efficient investment.
National Pension Scheme (NPS): With Rs. 20 lakh in NPS and a Rs. 30,000 monthly contribution, this will provide additional retirement security.
Sukanya Samriddhi Yojana (SSY): Rs. 10 lakh saved for your daughter’s future education or marriage is a prudent move.
Mutual Funds: Rs. 50 lakh indicates a good approach to market-based investments.
Bank Balance and Fixed Deposits (FDs): Rs. 50 lakh gives you liquidity but earns low returns. Consider reducing exposure here.
Shares, Options, RSUs: Rs. 65 lakh (approx.) in stocks and RSUs is impressive and provides equity exposure.
Gold: With Rs. 1.5 crore in gold, you have a significant portion in this asset class. While gold is a good hedge, it doesn’t generate regular income.
Unlisted Shares: Rs. 6 lakh in unlisted shares adds some diversity but carries high risk.
Crypto: Rs. 7 lakh in cryptocurrencies is highly speculative. You should carefully monitor this segment.
Income and Investment Streams
You have a total of Rs. 1.5 lakh in mutual fund SIPs, Rs. 1.2 lakh in recurring deposits, Rs. 1 lakh in PF, Rs. 25,000 in PPF, Rs. 30,000 in NPS, and Rs. 12,500 in Sukanya Samriddhi. This indicates you are systematically investing Rs. 4.07 lakh per month. Your strategy of spreading investments across different asset classes is good, but there’s room for optimization.

Insurance
Your term insurance of Rs. 1 crore is sufficient to provide financial security for your family. You also have adequate health insurance, which is critical given the rising costs of healthcare. Since you are covered with corporate insurance as well, you are in a strong position.

Monthly Expenses and Lifestyle
Your monthly expenses of Rs. 1.7 lakh include international vacations, reflecting a comfortable lifestyle. Given your substantial income, this is well within your budget. However, given the uncertainty in the corporate sector, you should focus on increasing your investment surplus and potentially adjusting your lifestyle slightly to allocate more toward long-term financial independence.

Ancestral Inheritance
You are expecting an inheritance of Rs. 8 crore, which adds further to your financial strength. While inheritance can offer significant financial security, it is important not to rely solely on this for your long-term financial planning. Planning for financial independence with the assumption that this inheritance may be delayed or used differently is wise.

Goals for Financial Independence
Given the uncertainty in the corporate sector, achieving financial independence as early as possible is a wise goal. Here are some key strategies to focus on:

Build a Corpus for Early Retirement: Financial independence means having enough passive income to cover your expenses without relying on your active income from employment. To achieve this, you should aim to build a corpus that generates sufficient returns to cover your expenses.

Review Investment Allocation: While your current investments are diversified, there is room for improvement. Mutual funds should be a bigger part of your investment strategy due to their higher potential for growth and liquidity compared to real estate and FDs. You can consider increasing your SIPs or even adding more funds to increase equity exposure.

Enhance SIP Contributions: You are currently contributing Rs. 1.5 lakh to SIPs. To fast-track your goal of financial independence, consider increasing your SIP contributions by Rs. 50,000 to Rs. 1 lakh more per month. Since you already have a comfortable income surplus, this should be feasible.

Bank Recurring Deposits (RDs): Rs. 1.2 lakh per month in RDs is a significant amount. While RDs are low risk, the returns are also limited. You may consider redirecting some of this towards higher-return options like mutual funds.

Avoid Over-Reliance on Gold: With Rs. 1.5 crore in gold, your portfolio may be too heavily tilted toward this asset. Gold does not generate regular income or dividends, and its growth potential is limited. Consider gradually reducing your gold exposure and moving funds into more productive assets like equities.

Unlisted Shares and Crypto: Rs. 7 lakh in crypto and Rs. 6 lakh in unlisted shares carry high risk. Monitor these investments carefully, and avoid increasing exposure unless you fully understand the risks. While diversification is good, high-risk assets should not form a large part of your portfolio.

Reassess LIC Policies: If your LIC policies are purely for investment purposes, they may not be the most efficient vehicles for wealth creation. You could consider surrendering these and redirecting the funds into higher-return mutual funds, where returns are generally better over the long term.

Planning for Your Daughter’s Future
You’ve already made good progress with Rs. 10 lakh in Sukanya Samriddhi. Continue contributing to this for her education and marriage. Additionally, consider earmarking a portion of your mutual fund investments specifically for her education, given the rising costs of higher education.

Early Retirement Consideration
You are in a strong financial position to aim for early retirement. Here are some recommendations to strengthen this possibility:

Calculate Required Corpus: Based on your current lifestyle and expected future expenses, estimate the corpus you need to retire comfortably. Given your monthly expenses of Rs. 1.7 lakh, your retirement corpus should be large enough to generate sufficient passive income.

Focus on Increasing Equity Exposure: Equities are a growth-oriented asset class, and with your long-term horizon, increasing your exposure to equity mutual funds can provide the growth needed to achieve financial independence sooner. This is especially important if you wish to retire early.

Increase Contributions to NPS: NPS is a great retirement-oriented product that provides both tax benefits and long-term growth potential. You can consider increasing your contributions to NPS to create a larger retirement corpus.

Final Insights
You and your wife have laid the foundation for a financially secure future with a diversified portfolio and strong income. However, to achieve financial independence and protect against corporate sector uncertainty, you should focus on optimizing your investments.

By increasing SIP contributions, reducing exposure to low-return instruments, and focusing on high-growth assets, you can fast-track your financial independence. Additionally, ensure that your investment strategy accounts for your daughter's future, early retirement goals, and potential lifestyle changes.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

Ans: You have explained your income, goals, current assets, and future plans with great clarity. Your early planning spirit is strong. This gives a very good base. You can reach a peaceful retirement with smart steps in the next few years.

» Your Current Position

You are 40 years old. You plan to retire in 3 to 5 years. You earn Rs 2.3 lakh per month. Your wife also works but will stop working soon. You have one daughter aged 10. Your current monthly cost is around Rs 1.1 lakh. This cost will reduce after retirement because you will shift to your parental flat.

Your investment base is already good. You have saved in bonds, stocks, mutual funds, PPF, FD, and SIP. Your wife also has her own savings and rental income from a flat. All these create a good starting point.

This early base helps you plan stronger. It also gives room for more shaping. You are on the right road.

» Your Family Goals

You need Rs 75 lakh for your daughter’s higher education and marriage.

You want Rs 75,000 per month for family living after retirement.

You want to retire in 3 to 5 years.

You will shift to your parental flat after retirement.

You will have rental income of Rs 10,000 from your wife’s flat.

These goals are clear. They give direction. They allow a strong plan.

» Your Present Investments

Your investments include:

Rs 50 lakh in REC bonds maturing in 2029.

Rs 42 lakh in stocks.

Rs 17 lakh in mutual funds.

Rs 16 lakh in fixed deposits.

Rs 15 lakh in PPF.

Rs 1.3 lakh as monthly SIP.

Your wife holds:

Rs 30 lakh corpus.

A flat worth Rs 40 lakh with rent of Rs 10,000 each month.

Your combined net worth is healthy. This gives good power to build your retirement fund in the coming years.

» Understanding Your Expense Need After Retirement

You expect Rs 75,000 per month after retirement. This includes all basic needs. You will not have rent. That reduces cost. This assumption looks fair today.

Your cost will rise with inflation. So you must plan for rising needs. A strong retirement corpus must support rising cost for 40 to 45 years because you are retiring early.

An early retirement needs a large buffer. So you need safety along with growth. Your plan must include growth assets and safety assets.

» How Much Monthly Income You Will Need Later

Rs 75,000 per month is Rs 9 lakh per year. In future years, this cost can rise. If we assume steady rise, your future cost will be much higher.

So the retirement corpus must be designed to:

Give monthly income.

Beat inflation.

Support you for 40 to 45 years.

Protect your family even in market down cycles.

Allow flexibility if your needs change.

A strong retirement fund must support both safety and long-term growth.

» How Much Corpus You Should Target

A safe target is a large and flexible corpus that can support long years without running out of money. For early retirement, the usual thumb rule suggests a very high number. This is because you need income for many decades.

You need a corpus big enough to produce rising income. You also need a cushion for unexpected health costs, lifestyle shocks, and inflation changes.

Your target retirement corpus should be in a strong range. For your needs of Rs 75,000 per month and for goals like daughter’s education and marriage, you should aim for a combined retirement readiness corpus in the higher bracket.

A safe range for your family would be a very large number crossing multiple crores. This large range gives you:

Income safety.

Inflation protection.

Peace during market cycles.

Comfort in long life.

Room for daughter’s future.

Strong backup for health.

You are already on the way due to your existing assets. You will reach close to this range with systematic building over the next 3 to 5 years.

» Why You Need This Larger Corpus

You will retire early. That means more years of living from your corpus. Your corpus must not fall early. It must grow even after retirement. It must give monthly income and long-term family protection.

This is only possible when the corpus is strong and well-structured. A weak corpus creates stress. A strong corpus creates freedom.

Also, your daughter’s future cost must be kept aside. This must be parked in a separate fund. This must not touch your retirement money.

A strong corpus makes these two worlds separate and safe.

» Your Existing Assets and Their Strength

You already have good diversification:

Bonds give safety.

Stocks give growth.

Mutual funds give managed growth.

FD gives stability.

PPF gives tax-free long-term savings.

This blend is already a good start. But you need to make the blend more structured for early retirement.

Your Rs 1.3 lakh monthly SIP is also strong. It builds your future fast. You should continue.

Your wife’s rental income is small but steady. This adds strength.

Your combined financial base can reach your retirement target if you refine your allocation now.

» Your Daughter’s Future Fund Need

You need Rs 75 lakh for your daughter’s education and marriage. You should keep this goal separate from your retirement goal.

Your current SIP and future allocations should create a dedicated fund for this goal. A long-term fund can grow well when managed actively.

Do not mix this fund with your retirement needs. Mixing leads to shortage in old age. Always keep this corpus ring-fenced.

» A Strong Asset Mix For Your Retirement Path

A balanced mix is needed. You need growth assets to beat inflation. You also need stable assets for income.

You must avoid index funds because they do not give flexibility. Index funds follow a fixed index. They cannot make active changes in different markets. They cannot move to better stocks when markets change. They force you to stay in weak sectors for long. They also do not help you in down cycles because they cannot protect you by shifting to safer options. This can hurt retirement planning.

Actively managed funds are better because:

They give active asset selection.

They give scope for better returns.

They give flexibility to change sectors.

They give downside management.

They give access to a skilled fund manager.

They support long-term planning more safely.

Direct plans also carry risk. Direct plans do not give guidance. They do not give behavioural support. They do not give market timing help. They do not give portfolio shaping. They leave all the judgement to you. One mistake can cost years of wealth.

Regular plans with guidance from a Certified Financial Planner help you shape decisions. They help you remain disciplined. They help you avoid panic. They help you decide allocation changes at the right time. This saves wealth in long-term.

» How Your Investment Journey Should Grow in the Next 3–5 Years

Continue your SIP.

Increase SIP when your income rises.

Shift part of your stock holding into planned long-term mutual funds to reduce concentration risk.

Build a defined daughter’s education fund.

Keep a part of your REC bond maturity amount for long-term.

Avoid locking too much into fixed deposits for long periods.

Build a safety fund for one year of expenses.

This will create a full structure.

» Your Rental Income Role

Your rental income of Rs 10,000 per month is small but steady. Over time it will rise. This income will support your monthly cash flow after retirement.

You can use this for utilities or health insurance premiums. This gives a cushion.

» Your Emergency Buffer

You should keep at least one year of essential cost in a safe place. This can be in a liquid account or short-term fund. This protects you in shocks.

Since you plan early retirement, a strong buffer is important. It gives peace even in low months.

» A Structured Retirement Approach

A complete retirement plan for you should include:

A clear monthly income plan after retirement.

A corpus that can grow and protect.

A rising income system that matches inflation.

A separate daughter’s future fund.

A health cover plan for your family.

A tax-efficient withdrawal plan.

A market cycle plan to protect you in tough times.

This holistic approach keeps your family strong for decades.

» What You Should Build by Retirement Year

Your aim should be to reach a strong multi-crore range in investments before retirement. You already hold a large amount. You will add more in the next 3 to 5 years through SIP, stock growth, bond maturity, and disciplined saving.

Once you reach your target range, you can start the shifting process:

Move a part to stable assets.

Keep a part in long-term growth assets.

Create a monthly income strategy.

Keep a reserve bucket.

Keep a child future bucket.

Keep a long-term growth bucket.

This structure protects you in all market conditions.

» Final Insights

Your financial journey is already strong. You have a good income. You have saved well. You have multiple asset types. You have a clear timeline. And you have clear goals. This foundation is solid.

In the next 3 to 5 years, your focus should be on growing your combined corpus to a strong multi-crore range, keeping a separate fund for your daughter, reducing risk in unplanned assets, and building a stable long-term structure.

With the present path and a disciplined structure, you can retire peacefully and support your family with confidence for many decades.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment