What is the best 2023-24 regime for people whose income is more than 27Lakhs and above sir

Ans: For person earning income of 30 lakhs and deduction of PPF of 1.5 lacs, tax liability under old regime will be Rs.667500 and under new tax regime it will be Rs.600000 as per Budget proposal for FY 23-24. So new tax regime more beneficial as all tax benefits are not taken.

Ans: If person is earning 9 lacs from salary and have invested Rs.1,50,000 for tax saving (housing loan/insurance/mediclaim/NPS/tax saver MF etc); new tax regime will be beneficial after changes proposed in Budget 2023 for slab rate and standard deduction. Gross tax liability (without cess) under old regime will be Rs.52,500 and under new regime it will be Rs.40,000.

Ans: Hi Harish
As it seems, the new regime may be beneficial to your case but you could check that after accounting for your tax savings investments

Ans: Hi,
For the income mentioned by you, assuming that one takes all the deductions available under old tax regime, the old tax regime allows you to save some tax but not by a huge margin. Also, please note that going forward the Government might make more changes in the new tax regime to benefit larger interests. I hope this answers your question
Best Regards,
Anil Rego,
Founder & CEO,
Right Horizons

Ans: It is appreciable that you have built up substantial savings. At the age of 47, with Rs. 2.3 crore in total savings, you are in a strong financial position. Additionally, the majority of your child's education will be taken care of by 2026. This is an advantage as it reduces a significant financial burden.

By 2026, your financial freedom goal seems achievable, but it is important to plan carefully. A thorough assessment of your current financial assets, ongoing obligations, and future plans is needed to ensure that your transition to "doing something else" is smooth and secure.

Let’s evaluate each aspect from a 360-degree perspective.

Current Financial Snapshot
Total savings: Rs. 2.3 crore
SIPs contributing to future savings growth
Education expenses for your child nearing completion by 2026
You are also considering stopping your job after May 2026. This means you’ll need a sustainable income source or investment plan to replace your current salary.

Prioritising Financial Independence
You are aiming for financial independence, which is a great goal. Post-2026, you will need to ensure your savings and investments can generate a steady income. Here are the key steps:

Building a passive income stream: Post-May 2026, your regular salary will stop. It is essential to create a stream of passive income. Your existing savings and SIPs can be used to generate returns.

Consolidating investments: It would be wise to review your investment portfolio. Ensure a good balance of equity and debt investments to safeguard your future income. Equity helps in wealth accumulation, while debt instruments provide stability.

Structuring Your Investments
Current SIPs: You have a significant portion of your wealth invested in SIPs. While SIPs in equity funds provide long-term growth, consider diversifying into a mix of funds. A blend of large-cap, mid-cap, and small-cap funds will give you balanced exposure. Actively managed funds, especially in mid- and small-cap categories, offer potential for higher returns compared to passive funds like index funds. This allows you to maximise growth during the final years of your career.

Debt funds and safer investments: As you move closer to your retirement, it would be prudent to allocate some of your investments into debt funds or safer instruments. This will reduce the volatility of your portfolio. Debt funds offer stable returns with relatively lower risk, balancing your overall portfolio. A 60:40 equity-debt allocation by 2026 can be a good strategy.

Avoid direct funds: You might be tempted to invest in direct funds to save on costs. However, investing through a Certified Financial Planner (CFP) and a mutual fund distributor (MFD) has several advantages. You will benefit from expert guidance, timely advice, and portfolio management services. This support is essential, especially when transitioning into retirement and needing more structured financial advice.

Planning for Post-Retirement Income
By 2026, your primary focus should be on generating a stable income to cover your living expenses without dipping into your principal savings.

Withdrawal strategy: It is essential to have a well-thought-out withdrawal strategy. You must avoid withdrawing large amounts at once, as it can deplete your corpus. A systematic withdrawal plan (SWP) from your mutual funds can generate regular income. This will provide you with liquidity while allowing the rest of your investments to grow.

Systematic withdrawal plan (SWP): SWP can be structured in a way that you receive a fixed monthly income. This income will help you maintain your lifestyle without worrying about running out of money. The beauty of SWP is that it ensures a steady cash flow while allowing your remaining investments to grow.

Balancing growth and safety: You will need a balance between growth and safety. Continue investing a portion in equity to combat inflation. Equity provides higher returns over time, which is crucial to ensure your corpus grows even post-retirement. Debt and fixed-income instruments will protect your portfolio from market volatility.

Insurance and Risk Management
As you approach a new phase in life, managing risks is crucial.

Life insurance: If you have a term life insurance policy, assess its coverage. Ensure that it is sufficient to cover your family's financial needs in case something happens to you. If you are holding any endowment plans or ULIPs, consider surrendering them and moving the proceeds to mutual funds for better returns. Mutual funds, with the right mix of equity and debt, can give higher returns than most insurance-linked investments.

Health insurance: Healthcare costs are rising, and it is essential to have comprehensive health insurance. As you step away from employment, ensure that you have an adequate health cover for you and your family. It’s better to increase your coverage now while you are still employed, as premiums rise with age.

Emergency Fund
You must have an emergency fund set aside before you quit your job. Ideally, this fund should cover at least 12 to 18 months of expenses. It should be kept in liquid funds or savings accounts for easy access. This fund will protect you against any unforeseen expenses or economic downturns.

Future Income Ideas
Post-May 2026, when you stop working, you mentioned that you plan to do "something else." It’s a good idea to explore passion projects or part-time work that not only keeps you engaged but also provides additional income.

Consulting or freelancing: If you have expertise in your field, consider consulting. You can work on your terms and earn extra income. This can be a less stressful option compared to full-time employment.

Passive income ventures: You could also explore passive income ventures like investing in dividend-yielding mutual funds or bonds. These investments provide regular income without needing active involvement.

Estate Planning
It is important to plan for the future of your family and ensure that your assets are distributed according to your wishes.

Creating a will: Ensure that you have a valid and updated will. This will help avoid legal complications for your heirs. Your assets, including investments, property, and any other valuables, should be clearly mentioned in your will.

Nomination updates: Review and update the nominations on your bank accounts, mutual funds, insurance policies, and other financial instruments. This will ensure smooth transfer of your assets to your beneficiaries.

Final Insights
Your decision to stop working by May 2026 is well-timed given your savings and near completion of education responsibilities for your child.

Focus on creating a sustainable income source by diversifying your investment portfolio. Actively managed funds through a CFP will help you achieve this. Ensure that your insurance and emergency fund are up to date for peace of mind. Finally, consider estate planning to secure your family's financial future.

By following these steps, you can transition smoothly into the next phase of life and ensure a comfortable financial future for yourself and your family.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in