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What corpus is needed for an SWP of 3 lacs pm & 35 yrs post-retirement?

Ramalingam

Ramalingam Kalirajan  |9668 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 28, 2025

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
Asked by Anonymous - Jan 24, 2025Hindi
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Hi, What is the ideal corpus for an SWP of 3 lacs p.m. considering 35 year’s longevity after retirement.

Ans: To generate an SWP (Systematic Withdrawal Plan) of Rs. 3 lakh per month for 35 years, we must assess the corpus required. Factors include inflation, market returns, and tax implications. A well-structured portfolio ensures sustainable cash flow while preserving the capital over a long horizon.

Key Considerations for Corpus Planning
1. Monthly Requirement and Inflation Adjustment:

Rs. 3 lakh per month equates to Rs. 36 lakh per year in today’s terms.

Over 35 years, inflation will erode purchasing power. Assuming inflation at 6%, the corpus must support increasing withdrawals yearly.

2. Portfolio Composition:

A diversified portfolio is essential for stability and growth.

Allocation should include equity, debt, and hybrid funds.

Equity ensures long-term growth, while debt provides stability.

A 60:40 ratio of equity to debt is ideal for long horizons.

3. Withdrawal Rate Assessment:

An SWP involves regular withdrawals. The withdrawal rate must balance sustainability with growth.

Excessive withdrawals deplete the corpus prematurely.

4. Tax Implications:

Gains from mutual funds are subject to capital gains tax.

Equity funds: LTCG above Rs. 1.25 lakh taxed at 12.5%.

Debt funds: Gains taxed as per income slab.

Tax-efficient withdrawals can maximise returns.

5. Market Fluctuations:

Equity markets are volatile.

A buffer for 3 years’ expenses in debt funds mitigates risks during downturns.

Regular review ensures portfolio alignment with goals.

Evaluating the Required Corpus
1. Estimating Corpus Size:

The corpus should be sufficient to generate Rs. 3 lakh monthly for 35 years.

Considering inflation, a larger starting corpus is needed.

Assuming a real return (post-inflation) of 7%, the estimated corpus could range from Rs. 7 crore to Rs. 9 crore.

2. Balancing Growth and Stability:

Equity funds provide inflation-beating returns.

Debt funds ensure capital protection.

Hybrid funds balance both objectives.

3. Portfolio Rebalancing:

Rebalancing adjusts the equity and debt mix as goals evolve.

Periodic reviews ensure sustainability and risk management.

Active Fund Management Over Direct Funds
1. Disadvantages of Direct Funds:

Direct funds lack professional guidance.

Investors may miss portfolio rebalancing opportunities.

In volatile markets, missteps in direct investments are common.

2. Benefits of Regular Funds via Certified Financial Planner:

Certified Financial Planners provide personalised strategies.

Regular funds offer ongoing support for portfolio adjustments.

Professional oversight ensures tax efficiency and alignment with financial goals.

Importance of Actively Managed Funds
1. Limitations of Index Funds:

Index funds replicate market performance.

They lack active management to mitigate risks.

In volatile markets, active funds outperform due to strategic decisions.

2. Benefits of Actively Managed Funds:

Active funds adapt to changing market conditions.

Fund managers aim for returns exceeding benchmarks.

Customisation aligns investments with goals.

Steps to Create the Ideal SWP Corpus
1. Assess Current Savings and Investments:

Calculate existing assets.

Evaluate their potential for SWP funding.

2. Build a Diversified Portfolio:

Invest in equity for growth and debt for stability.

Hybrid funds bridge risk and return gaps.

3. Allocate for Emergencies:

Set aside funds for medical or unforeseen needs.

Emergency funds prevent portfolio disruption.

4. Factor in Inflation:

Inflation impacts withdrawal value.

Investments must generate returns exceeding inflation.

5. Monitor and Adjust:

Annual reviews ensure portfolio sustainability.

Rebalancing aligns with changing goals and market trends.

Additional Insights
1. Avoid ULIPs and Endowment Plans:

These products offer low returns and high costs.

Surrendering such policies can free funds for mutual funds.

2. Use Systematic Transfer Plans (STP):

STPs transfer funds from debt to equity in a phased manner.

This approach minimises market timing risks.

3. Incorporate Long-Term Perspective:

Equity funds perform better over longer horizons.

Patience and discipline enhance returns.

Final Insights
Planning an SWP of Rs. 3 lakh monthly requires careful strategy. A well-diversified portfolio balances growth with stability. Regular reviews ensure the corpus lasts 35 years, accounting for inflation and market changes. Relying on a Certified Financial Planner ensures professional management, tax efficiency, and alignment with financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
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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Ramalingam Kalirajan  |9668 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 20, 2024

Asked by Anonymous - May 07, 2024Hindi
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Hi I am 34 years old and earning 3 lacs per month. Currently I have a corpus of about 75 lacs in MF. And I have been doing SIP from last 7 years. Now my month SIP is about 1.8 lacs per month. I want to retire by 45. How much corpus would I have if I continue to save the same amount for next 10 - 11 yrs. Also, please help me to understand that how much corpus do I need to make. For monthly income of 2 lacs from my corpus or saving
Ans: Assessing Retirement Corpus Growth
Current Investment Scenario
Your disciplined approach to SIP investments has contributed to building a substantial corpus over the past seven years.

Projecting Future Corpus Growth
Continuing your monthly SIP of 1.8 lakhs for the next 10-11 years can potentially result in significant wealth accumulation due to the power of compounding.

Estimating Future Corpus
By projecting the expected returns based on historical performance and assuming a conservative growth rate, we can estimate the potential corpus you may accumulate by the time you retire at 45.

Understanding Retirement Income Needs
To determine the corpus needed for generating a monthly income of 2 lakhs post-retirement, we must consider factors such as inflation, lifestyle preferences, and other financial obligations.

Calculating Required Corpus
Using conservative estimates for inflation and investment returns, we can calculate the corpus required to generate a monthly income of 2 lakhs, ensuring financial security and maintaining your desired lifestyle.

Conducting Retirement Gap Analysis
Comparing the projected corpus from your SIP investments with the required corpus for generating the desired monthly income will help identify any potential shortfall and enable strategic planning to bridge the gap.

Recommendations for Retirement Planning
Optimize Investment Strategy: Consider diversifying your investment portfolio to mitigate risk and maximize returns, ensuring sustainable wealth accumulation over the long term.

Increase SIP Contributions: Evaluate the possibility of gradually increasing your SIP contributions to accelerate corpus growth and achieve your retirement goals more efficiently.

Review Retirement Goals: Regularly review your retirement goals and adjust your investment strategy as needed to align with evolving financial objectives and life circumstances.

Explore Supplementary Income Sources: Explore additional avenues for passive income generation, such as rental properties, dividend-paying stocks, or alternative investment options, to supplement your retirement corpus and enhance financial security.

Conclusion
By maintaining a disciplined approach to savings and investments and periodically reassessing your retirement goals and investment strategy, you can maximize the potential of achieving financial independence and securing a comfortable retirement lifestyle. It's essential to seek professional guidance and stay committed to your long-term financial objectives to ensure a smooth transition into retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |9668 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 29, 2024

Asked by Anonymous - May 25, 2024Hindi
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I m 31 years now, having 1.8L P.M, want a corpus of 20Cr after 30 years, currently having 21L in PPF plan to continue till 60 with 1.5L PA, Have LIC which will give me 5Cr at 60 years, having NPS for last 3 years at 1L pm contribution, having PPF as per company norns. Also Mediclaim of 40L Please let me know what to be do to attain the objective
Ans: It's great to see your clear vision for the future and your diligent saving efforts. Your goal of a Rs 20 crore corpus after 30 years is ambitious but achievable with the right strategy. Let’s analyze and outline a comprehensive plan.

Assessing the Current Situation
You're 31, earning Rs 1.8 lakh monthly, with various investments:

Rs 21 lakh in PPF with Rs 1.5 lakh annual contributions.
LIC policy for Rs 5 crore at age 60.
NPS with Rs 1 lakh monthly contributions.
Employer-provided PPF.
Mediclaim policy with Rs 40 lakh coverage.
The Role of LIC Policy
While your LIC policy promises a substantial payout at 60, it ties up a significant portion of your funds with limited flexibility. Surrendering it can free up resources for potentially higher-yielding investments.

Surrendering LIC Policy
Surrendering the LIC policy involves discontinuing premium payments and receiving the surrender value. This value is lower than the policy's maturity value due to deductions. Before surrendering, assess the surrender value and consider any penalties.

Reinvesting in Mutual Funds
Reinvesting the surrender value into mutual funds offers several advantages:

Higher Potential Returns: Mutual funds, especially equity funds, historically offer higher returns over the long term compared to traditional insurance policies like LIC.

Flexibility: Mutual funds provide flexibility in investment amounts, redemption, and fund choices, allowing you to adapt to changing financial needs and market conditions.

Diversification: Mutual funds allow you to diversify across asset classes and fund types, reducing risk compared to a single insurance policy.

Importance of Professional Guidance
Consulting with a Certified Financial Planner (CFP) is crucial before surrendering the LIC policy. A CFP can assess your financial situation, evaluate the surrender value, and recommend suitable mutual fund investments aligned with your goals and risk tolerance.

Considerations Before Surrendering
Before making a decision, consider the following:

Surrender Charges: Assess any surrender charges or penalties associated with discontinuing the LIC policy. Calculate the net surrender value after deductions.

Tax Implications: Understand the tax implications of surrendering the LIC policy and reinvesting the proceeds into mutual funds. Consult with a tax advisor to optimize tax efficiency.

Risk Tolerance: Evaluate your risk tolerance and investment horizon. Mutual funds, especially equity funds, carry higher market risk compared to insurance policies. Ensure your investment strategy aligns with your risk profile.

Financial Goals: Review your long-term financial goals and assess whether reinvesting in mutual funds supports these objectives better than maintaining the LIC policy.

Rebalancing Your Portfolio
After reinvesting the surrender value into mutual funds, rebalance your portfolio to ensure optimal asset allocation. Consider factors such as age, risk tolerance, and investment horizon when reallocating assets across different fund categories.

Regular Monitoring and Adjustments
Regularly monitor the performance of your mutual fund investments and make adjustments as needed. Market conditions and your financial goals may change over time, requiring periodic portfolio reviews and rebalancing.

Conclusion
Surrendering your LIC policy and reinvesting the proceeds into mutual funds can potentially enhance your long-term wealth accumulation and financial flexibility. However, it's essential to carefully evaluate the surrender value, tax implications, and investment strategy before making a decision. Seeking guidance from a Certified Financial Planner ensures that your investment decisions align with your financial goals and risk tolerance.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |9668 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Mar 19, 2025

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I am 42 and investing 1.15 L as SIP and also has a corpus of around 2 cr. SWP of 1.15 L is also active. I am planning to retire by 2030. My expenses thereafter can be taken care with a SWP of 2L. What do you advise? How much will be my corpus value in 2030?
Ans: You are 42 years old and planning to retire by 2030.

You have a corpus of Rs. 2 crores.

You are investing Rs. 1.15 lakhs per month through SIPs.

You are also withdrawing Rs. 1.15 lakhs per month through SWP.

Your expected monthly expenses in retirement are Rs. 2 lakhs.

This is a well-structured plan, but some adjustments are needed.

How Much Will Your Corpus Be in 2030?
Your current corpus of Rs. 2 crores will continue to grow.

Your ongoing SIPs will add to this corpus.

Your SWP withdrawals will reduce the corpus.

Market returns will impact the final value.

Assuming a reasonable return, your corpus can grow to around Rs. 4.5 - 5 crores by 2030.

If the market performs well, it may be slightly higher.

If returns are lower, it may be slightly less.

This estimate considers the impact of both SIPs and SWPs.

Will Rs. 2 Lakhs SWP Be Sustainable?
Your withdrawal rate should not deplete your corpus too soon.

Rs. 2 lakhs per month means Rs. 24 lakhs per year.

If your corpus is Rs. 5 crores, this is about 4.8% withdrawal per year.

This can be sustainable if your portfolio earns more than this annually.

Inflation needs to be factored in, as expenses will rise over time.

Proper asset allocation is key to ensuring sustainability.

Changes to Consider Before Retirement
Reduce equity exposure gradually: As you approach retirement, shift some funds to safer assets.

Build a contingency reserve: Keep at least 2-3 years of expenses in a safe, liquid investment.

Ensure tax-efficient withdrawals: Plan SWP withdrawals to minimize tax outflow.

Review insurance needs: Ensure you have adequate health insurance coverage.

Monitor investment performance: Review your portfolio every year and adjust allocations.

Asset Allocation After Retirement
You need both growth and stability.

Keep a portion in equity for long-term growth.

Allocate a part to debt funds for stable income.

Maintain liquidity for short-term expenses.

Avoid overexposure to any single asset class.

A well-diversified portfolio will ensure financial security.

Tax Planning for SWP Withdrawals
Long-term capital gains (LTCG) above Rs. 1.25 lakh are taxed at 12.5%.

Short-term capital gains (STCG) are taxed at 20%.

Debt mutual funds are taxed as per your income tax slab.

Plan SWP withdrawals to reduce tax impact.

Use a mix of investments for tax efficiency.

Final Insights
Your current plan is strong, but some refinements are needed.

Ensure your corpus is allocated wisely before retirement.

Review and adjust your withdrawal strategy for sustainability.

Plan for inflation and rising expenses over time.

Keep a regular check on market conditions and your portfolio.

A structured approach will ensure financial independence post-retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

..Read more

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