Hello Sir, I am 42 years hold with monthly salary of 3 lakh after tax deduction. My son is 9 years old, and I want him to become doctor. How much money i need to save or invest for him to become doctor, also how much money I need for my risk-free retirement, if i plan it by 55. Kindly Advise
Ans: At the age of 42, you are earning a stable monthly salary of Rs 3 lakh after tax deductions. You have a 9-year-old son, and your dream is for him to become a doctor. Additionally, you plan to retire by the age of 55. I appreciate your foresight in planning for both your son’s education and your retirement.
It’s essential to address both goals with a structured financial strategy to ensure a secure future for your family. Let's break down how you can achieve these two significant objectives.
Estimating the Cost of Medical Education for Your Son
The cost of becoming a doctor in India can vary greatly. Private medical colleges charge a premium, while government colleges are more affordable.
Currently, the cost of a full medical degree (MBBS) at a private college can range from Rs 30 lakh to Rs 1 crore, depending on the institution. For top-tier colleges, this could go even higher.
If your son gets into a government medical college, the costs will be much lower, possibly around Rs 10 lakh to Rs 15 lakh.
Considering inflation, the cost of education could double in the next 10 years when your son is ready for college. This means you might need to accumulate Rs 1.5 crore to be on the safer side.
It's prudent to start a focused investment plan now. This way, you'll be prepared whether he chooses a private or government medical institution.
Strategic Investment Plan for Your Son’s Education
You should invest in a mix of equity and debt mutual funds to accumulate this corpus. Equities provide high growth potential, while debt ensures stability.
Start a Systematic Investment Plan (SIP) in actively managed equity mutual funds. This will help you build a sizeable corpus over the next 9 to 10 years.
Consider stepping up your SIP contributions annually. Increasing it by Rs 5,000 to Rs 10,000 every year can significantly boost your fund value.
Avoid index funds as they simply mimic the market and may not deliver high returns over the long term. Actively managed funds, with skilled fund managers, are better suited for higher returns.
You can also use Systematic Transfer Plans (STP) to gradually move from equity to debt funds as your son approaches his medical college admission. This will reduce market risk during the final years.
Building a Risk-Free Retirement Plan by Age 55
Your retirement target is just 13 years away. You will need a substantial corpus to ensure a comfortable, stress-free retirement.
Assuming you want to maintain your current lifestyle, you will likely need at least Rs 1.5 lakh per month post-retirement. Factoring in inflation, this amount could double in 13 years.
To retire with a monthly income of Rs 3 lakh, you may need a retirement corpus of around Rs 6 crore. This will ensure that your investments can generate the required cash flow without depleting the principal.
You should focus on maximizing your existing savings and investing in a balanced portfolio of equity and debt mutual funds. This combination will provide growth and stability.
Steps to Achieve a Secure Retirement Corpus
Increase your existing investments in equity mutual funds. Equities have the potential to deliver inflation-beating returns over the long term.
Invest in diversified equity funds and large-cap funds for stability and growth. These funds can perform well in different market cycles.
Avoid direct equity funds if you are not a seasoned investor. Investing through mutual fund distributors with CFP credentials ensures expert guidance and consistent monitoring.
As you get closer to your retirement, gradually move a portion of your portfolio to debt funds. This shift will protect your accumulated wealth from market volatility.
Debt funds are tax-efficient compared to fixed deposits. They offer indexation benefits, which can lower your tax liability on long-term capital gains.
The Importance of Tax Planning
Under the latest tax rules, equity mutual funds attract long-term capital gains (LTCG) tax at 12.5% if the gains exceed Rs 1.25 lakh annually. Short-term capital gains (STCG) are taxed at 20%.
Debt funds are taxed based on your income tax slab. It's wise to hold debt funds for over three years to avail indexation benefits and reduce your tax outgo.
Plan your withdrawals systematically to stay within the LTCG exemption limit. This will minimize your tax liabilities during retirement.
Setting Up an Emergency Fund and Adequate Insurance
Ensure that you have an emergency fund of at least 12 months' worth of expenses. Keep this amount in a liquid fund for easy access.
You should also have adequate term insurance to protect your family's financial future in your absence. The cover should be at least 10 times your annual income.
Additionally, review your health insurance policy to cover unforeseen medical expenses. As you approach retirement, healthcare costs are likely to increase.
Avoiding Real Estate and Other Risky Investments
Real estate investments require significant capital and lack liquidity. It may not be the best option if you are aiming for a flexible, liquid portfolio.
Focus instead on mutual funds, which offer higher returns, tax efficiency, and easy access to your money when needed.
Avoid mixing insurance with investments. Do not consider ULIPs, endowment plans, or any investment-cum-insurance policies. These often come with high charges and low returns.
Reviewing Your Financial Plan Regularly
It's important to review your investment portfolio annually. This ensures that your funds are performing optimally and aligned with your goals.
A certified financial planner (CFP) can help you adjust your portfolio based on changing market conditions, new tax laws, and your evolving needs.
Rebalance your investments periodically to lock in profits from high-performing funds and reinvest in underperforming areas with growth potential.
Additional Strategies to Accelerate Your Goals
Consider investing any annual bonuses or extra income into your SIPs or lump sum investments. This will further boost your retirement and education funds.
You can also explore side income opportunities or upskill in your current profession to increase your earnings. This additional income can help increase your savings rate.
Start exploring Sovereign Gold Bonds (SGBs) for some diversification. These bonds offer tax-free returns on maturity and can serve as a hedge against inflation.
Finally
You have a clear vision for your son’s future and your retirement. Your steady income and disciplined approach are strong assets.
Focus on increasing your SIPs, diversifying your investments, and planning your taxes efficiently.
Stay consistent with your financial strategy. By following this structured approach, you can achieve both your goals well in time.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Question by Subho on May 15, 2024Hindi
