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45-Year-Old with Wife & 2 Kids: How Much FD Needed for No-Work Retirement?

Ramalingam

Ramalingam Kalirajan  |7374 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 09, 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
Jyothish Question by Jyothish on Sep 09, 2024Hindi
Money

I saw you answer to someone that 2 crore rupees in FD may not be sufficient for someone to retire at 45 years with no job. Ok agreed. But then what should be that amount I must have in FD by 45 or 59 years of age so that I can retire and do no work. Other factor to remain same as the other person-two kids and a wife!

Ans: Retirement is a major life milestone, and financial planning for it should be as specific as possible. You’ve rightly identified the concern—Rs 2 crore in FDs alone may not provide a secure and comfortable retirement when you consider inflation, expenses, and family responsibilities like children’s education and marriage. The amount of money you need by the time you retire, either at 45 or 59, is highly dependent on your lifestyle, ongoing expenses, family size, and the financial goals you set.

To give you a 360-degree analysis, let’s look at the key factors influencing how much capital you need to retire with two kids and a wife.

Family Needs and Lifestyle Assessment
Family Structure: Two children and a spouse will require careful planning. You’ll need to account for expenses such as education, marriage, and healthcare, apart from daily living costs. These are long-term goals that will grow due to inflation.

Monthly Expenses: Based on the lifestyle you wish to maintain, you need to calculate your monthly expenditure. A family of four usually has higher expenses than a single individual or a couple.

Inflation Impact: Inflation is an invisible factor that eats away the value of money. The costs of food, healthcare, education, and utilities rise annually. To maintain the same standard of living, the amount of money you need will increase every year.

Benefits and Limitations of Fixed Deposits (FDs)
Safety and Stability: Fixed Deposits provide a stable return, but they lack flexibility and growth. Interest rates on FDs, which usually range between 5-7%, barely cover inflation in the long run.

Tax Implications: Income from FDs is fully taxable. This significantly reduces the real return, especially for someone in a higher tax bracket. After-tax returns could fall below inflation, impacting your corpus.

Limited Growth Potential: FDs don’t offer the same growth potential as other investment avenues like mutual funds. With long retirement horizons, you need a mix of growth and safety.

Determining the Ideal Retirement Corpus
Retirement Age: Whether you retire at 45 or 59 makes a significant difference. Retiring at 45 would mean relying on your savings for a much longer period—potentially 35-40 years. Whereas retiring at 59 would require you to sustain for around 25-30 years.

Healthcare Costs: As you age, healthcare expenses tend to rise. With two children and a wife, you must factor in not just your healthcare needs but also your family’s. This is a variable that requires long-term planning.

Education and Marriage of Children: By the time you retire, your children might still need financial support for their education or marriage. Both are substantial costs, especially if you want to provide the best education for your kids or a grand wedding.

Creating a Balanced Investment Plan
Active vs. Passive Management: While FDs are good for short-term safety, actively managed mutual funds provide long-term growth. You might hear about index funds and direct funds, but these often fall short in terms of customization and professional management.

Why Choose Actively Managed Funds: Actively managed funds, handled by an MFD with CFP credentials, focus on generating better returns than a benchmark index. This offers you the advantage of growth, especially in the equity markets, which is essential for a retirement plan. In comparison, index funds merely track a market index and don’t offer the same level of flexibility or potential for higher returns.

Diversification: You need to spread your investments across multiple asset classes like equity mutual funds, debt funds, and FDs. A certified financial planner can guide you on the right balance depending on your risk tolerance, goals, and timeline.

Strategy for Age 45 Retirement vs. Age 59 Retirement
Retirement at 45:

This is an early retirement, and you will need to plan for approximately 35-40 years without a job.
Your FD savings alone will not suffice because inflation will continuously erode your purchasing power.
You should aim for a combination of FDs (for short-term safety) and mutual funds (for long-term growth).
Actively managed equity funds will help you create a corpus large enough to last 40 years.
Retirement at 59:

Retiring at 59 gives you more time to save and invest.
By the time you retire, your children’s education might be settled, and your monthly needs may focus more on healthcare and lifestyle.
You can rely more on debt mutual funds and FDs for a stable income, but you should still maintain a portion in equity for growth.
With a shorter retirement period, your required corpus will be smaller than if you retire at 45.
Determining the Corpus
For a 45-year-old retirement: You need a much larger corpus, likely in the range of Rs 5 to Rs 7 crore. This assumes higher expenses over a longer retirement period, healthcare needs, and inflation.

For a 59-year-old retirement: You might need Rs 3 to Rs 5 crore, considering shorter retirement years, healthcare costs, and other inflation-adjusted expenses.

Final Savings Approach: By combining FDs with mutual funds, you can balance safety and growth. You should aim to build a corpus that allows you to withdraw inflation-adjusted income for the rest of your life.

Systematic Withdrawal Plans (SWP)
Regular Income: Once you retire, you can use Systematic Withdrawal Plans (SWP) to get a regular income from your investments. This ensures you don’t run out of money in your golden years.

Avoid Fixed Annuities: While they seem like a safe option, annuities don’t adjust for inflation, and the returns are often very low.

Tax Efficiency: SWPs from mutual funds are more tax-efficient than FDs. You get to defer taxes and pay them only on the capital gains portion, which can reduce your tax liability significantly.

Importance of Healthcare Coverage
Health Insurance: Medical expenses will increase as you grow older. Ensure you have a family floater health plan that covers all members adequately.

Top-up Plans: Consider adding a top-up plan to your base health policy to cover any unexpected medical emergencies.

Final Insights
Retiring with no job and relying entirely on your savings requires a strategic and well-balanced financial plan. Relying solely on FDs, especially with inflation and tax concerns, might not be sufficient. To retire comfortably with two kids and a wife, you should consider a mix of actively managed mutual funds and FDs.

Your retirement plan should be customized to your specific goals, and a certified financial planner can help guide you in this journey. Starting early and investing in the right assets will ensure you have a large enough corpus to retire without worries. By carefully balancing growth and safety, you’ll achieve a stable financial future for you and your family.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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I am 45 working with 15lakh in hand pacakge I hvae property worth 2 crore in which I am living . Family of 3 (me my wife and daughter 8 ) no loan Assest inveatment of 1.2 crore as property. Sip of total 5000 in index funds Epf worth 15lakh Fd 10lakh Helath hdfc 10 lkah and 20lakh with company and term insurance (1 crore ) How much corpse required for retirement and child education .
Ans: It's commendable that you're thinking ahead about your retirement and your child's education. Let's assess your financial situation and estimate the corpus required for your retirement and your daughter's education:

Retirement Corpus:
Consider factors such as your desired retirement age, expected lifespan, estimated post-retirement expenses, and inflation.
Determine your retirement income needs, including living expenses, healthcare costs, and leisure activities.
Calculate the corpus required to generate the desired income using conservative withdrawal rates and factoring in inflation.
Child's Education Corpus:
Estimate the cost of your daughter's education, including tuition fees, accommodation, and other related expenses.
Consider the inflation rate for education expenses and the duration until your daughter enters college.
Calculate the corpus required to fund her education using a combination of savings, investments, and education loans if necessary.
Additional Considerations:
Take into account any other financial goals or obligations, such as buying a car or funding vacations.
Review your existing investments and savings to determine how much additional corpus you need to accumulate to meet your goals.
Developing a Financial Plan:
As a Certified Financial Planner, I recommend developing a comprehensive financial plan that addresses your retirement and education funding needs.
Consider various investment options, asset allocation strategies, and risk management techniques to achieve your goals.
Regularly review and adjust your financial plan as your circumstances change, such as salary increases, changes in expenses, or market fluctuations.
Seeking Professional Advice:
Consult with a financial advisor to analyze your current financial situation, set realistic goals, and create a customized financial plan.
A professional can provide personalized guidance and recommend strategies to help you achieve your retirement and education funding objectives.
By proactively planning for your retirement and your daughter's education, you can ensure a financially secure future for yourself and your family. Remember to stay disciplined in your savings and investment approach, and seek professional advice whenever needed. With careful planning and prudent financial management, you can achieve your goals and enjoy peace of mind.

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Iam central government employee retired on December 24 near about 70 to 80 lacks RS my account as per my record and having own house & 5 acar agriculture land about 50 lacks.free medical cover & medicine.after retired 50 thousand pension per month.my liability is 2 daughter marriage & 8 lacks loan how many rupees ican invest for regular income.& Happy future retirement life.
Ans: Retiring from a central government job is a significant milestone, and planning for a financially secure and fulfilling retirement is paramount. Let's outline a strategy to ensure a comfortable retirement life while addressing your financial needs and goals.

Assessing Your Current Financial Situation
With approximately ?70 to ?80 Lakhs in your account, a pension of ?50,000 per month, and assets including a house and agricultural land, you have a solid foundation for retirement. However, it's essential to address existing liabilities and plan for future expenses, such as your daughters' marriages.

Managing Liabilities and Expenses
Prioritize paying off the ?8 Lakhs loan to reduce financial burden and free up funds for investment. Additionally, allocate a portion of your retirement corpus towards setting aside funds for your daughters' marriages. Consider creating a separate savings fund for these specific goals to ensure you're financially prepared when the time comes.

Creating a Sustainable Income Stream
To supplement your pension and ensure a steady income stream in retirement, consider investing a portion of your retirement corpus in income-generating assets. Fixed income options like Senior Citizen Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS), or government bonds can provide regular income while preserving capital.

Diversifying Investments for Long-Term Growth
Allocate a portion of your retirement corpus towards growth-oriented investments to hedge against inflation and build wealth over the long term. Consider a diversified portfolio comprising equity mutual funds, real estate investment trusts (REITs), or dividend-paying stocks to capitalize on growth opportunities while managing risk.

Estimating Investment Capacity
With your retirement corpus and pension income, assess how much you can comfortably invest without compromising your financial security and lifestyle. Aim to strike a balance between generating regular income and pursuing growth-oriented investments to achieve your long-term financial goals.

Seeking Professional Guidance
Consult with a Certified Financial Planner to develop a personalized retirement income strategy tailored to your needs and objectives. They can help you optimize your investment portfolio, manage risks, and navigate tax implications to ensure a happy and financially secure retirement life.

Final Thoughts
By proactively managing your finances, addressing liabilities, and investing strategically, you can enjoy a fulfilling retirement with peace of mind. Remember to review your financial plan regularly and adjust as needed to adapt to changing circumstances and achieve your retirement aspirations.

Best Regards,
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Asked by Anonymous - May 21, 2024Hindi
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Hi sunil sir iam 45 year old i want to retire next year my monthly expense 50000 per month, how much money need to sustain at the age of 80
Ans: Understanding Your Retirement Needs
Sunil sir, planning for retirement is a critical step. I understand your need for a comfortable and secure retirement. Retiring next year at age 46 and sustaining until age 80 requires careful financial planning.

Estimating Future Expenses
Your current monthly expense is ?50,000. This amount will likely increase due to inflation. It's important to account for this in your retirement plan. Inflation can erode the value of money over time. For instance, what costs ?50,000 today will cost much more in the future.

Creating a Retirement Corpus
To maintain your lifestyle, you need to accumulate a substantial retirement corpus. This corpus should generate enough returns to cover your monthly expenses adjusted for inflation. The goal is to ensure you do not outlive your savings.

Investment Strategy
A well-diversified investment portfolio is essential. Diversification reduces risk and enhances returns. Focus on a mix of equity and debt funds. Equity funds provide growth, while debt funds offer stability.

Benefits of Actively Managed Funds
Actively managed funds can outperform the market with the expertise of fund managers. They adjust portfolios based on market conditions. This dynamic management can yield better returns than index funds.

Professional Guidance
A Certified Financial Planner can help tailor an investment strategy to meet your retirement goals. They offer personalized advice considering your financial situation and risk tolerance. Their expertise ensures a well-structured retirement plan.

Importance of Regular Review
Regularly reviewing your retirement plan is crucial. Financial markets and personal circumstances change. Annual reviews with your planner can help adjust your investments to stay on track.

Emergency Fund
Maintain an emergency fund to cover unexpected expenses. This fund should be easily accessible and separate from your retirement corpus. It ensures you don't have to dip into your retirement savings for emergencies.

Health Insurance
Adequate health insurance is vital. Medical expenses can be significant in retirement. A comprehensive health insurance plan protects your savings from unforeseen medical costs.

Managing Withdrawals
Plan your withdrawals carefully to avoid depleting your corpus too soon. A systematic withdrawal plan helps manage your finances efficiently. It ensures you have a steady income stream throughout retirement.

Tax Planning
Effective tax planning can enhance your retirement savings. Utilize tax-efficient investment options. A Certified Financial Planner can help optimize your investments to minimize tax liabilities.

Appreciating the Journey
Your foresight in planning for retirement is commendable. Taking steps now ensures a secure and comfortable future. It's important to stay informed and proactive about your financial health.

Conclusion
Sunil sir, your dedication to securing a stable retirement is inspiring. With a comprehensive plan and professional guidance, you can achieve your retirement goals. Remember, the key is to start early and stay disciplined.

Best Regards,

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Chief Financial Planner,

www.holisticinvestment.in

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Invest monthly in a diversified equity mutual fund for a period of 7+ years.
Equity funds historically offer higher returns over long periods, outpacing home loan interest rates.
Align your SIP amount with your financial capacity, ensuring consistency.
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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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