Hi I am 46 years old, my current investment is -as the follows, 1.90 cr in bank FD, 10 lakh in mutual fund and stocks. 50 lakhs for child’s education 1 child in grade 10. I have a house worth 2 cr which I have given for rent 40k monthly .I do not want to work any more and plan to retire in the next 2 years in my other house in my village. Is it possible to retire by 50 years.
Ans: At 46, you have built up a solid base for retirement. Your current investments include Rs 1.9 crore in fixed deposits (FDs), Rs 10 lakh in mutual funds and stocks, and Rs 50 lakh set aside for your child’s education. Additionally, you own a house worth Rs 2 crore, generating a rent of Rs 40,000 per month. Retiring by 50 is a realistic goal, but careful planning is needed. Let’s break down how this can be achieved and sustained.
Monthly Expenses After Retirement
The first step to ensuring a successful retirement is to estimate your monthly expenses. Since you plan to retire in your village house, your living costs might be lower than in the city. However, it's important to account for:
Regular living expenses such as food, utilities, and transportation.
Medical and health care costs that might increase as you age.
Inflation, which will erode the value of your savings over time.
You should aim to create an emergency fund and a monthly income plan that covers at least your basic needs. Your rental income of Rs 40,000 will cover a part of this, but more sources of income will ensure financial stability.
Education Fund for Your Child
With Rs 50 lakh set aside for your child’s education, you are already in a strong position. However, as your child is currently in grade 10, higher education expenses could increase significantly over the next few years.
To maintain the growth of this fund, consider placing it in a combination of low-risk instruments like debt mutual funds. These funds are less volatile and offer better returns than traditional savings methods. This strategy ensures that the education corpus remains intact and grows moderately until it's needed.
Reassessing the Fixed Deposits (FDs)
You have Rs 1.9 crore in fixed deposits, which provides stability. While FDs offer guaranteed returns, the interest rates can be lower than inflation over time. Hence, relying too much on FDs could limit your long-term growth.
Since you are planning to retire within two years, it's essential to start shifting a portion of this money into balanced investment options. These can include mutual funds with a mix of debt and equity, which provide a balance of stability and growth.
This move can help you combat inflation and generate better long-term returns without too much risk.
Mutual Fund and Stock Investments
Your Rs 10 lakh investment in mutual funds and stocks is another important part of your portfolio. You could consider:
Increasing your exposure to mutual funds with a focus on equity, especially in growth funds. Over the next two to three years, these funds can potentially generate higher returns, enhancing your retirement corpus.
Actively managed funds can offer better results compared to index funds, as professional fund managers help navigate market volatility.
Avoid direct funds, as they require constant monitoring and may lack the guidance that comes with investing through a certified financial planner (CFP).
You can slowly phase out some of your FD savings and channel them into well-diversified mutual funds. This strategy will increase your overall return potential and give you more flexibility.
Rental Income and Sustainable Withdrawals
Your rental income of Rs 40,000 is a good source of passive income. Post-retirement, you will rely more on this money to meet your monthly expenses. But it is crucial to build a sustainable withdrawal strategy from your other investments as well.
Consider the following steps to ensure you have enough income post-retirement:
Systematic Withdrawal Plan (SWP): You can set up an SWP in your mutual funds to provide a regular stream of income. An SWP allows you to withdraw a fixed amount each month while letting your corpus continue to grow.
Diversification of sources: Along with your rental income, an SWP from your mutual funds, interest from fixed deposits, and dividends from your stock investments will help you maintain a steady cash flow.
Medical Insurance and Health Care Planning
One of the most important aspects of retiring early is securing your health care. Medical costs can take up a significant portion of your savings if not properly managed.
Ensure you have a comprehensive health insurance policy with adequate coverage. Additionally, consider a top-up health insurance plan to cover higher medical expenses that could arise in the future. This will protect your retirement corpus from being depleted due to medical emergencies.
Managing Inflation and Risk
Inflation can severely impact your retirement plans. The costs of goods, services, and medical care will rise over time. Therefore, your investments must grow faster than inflation to maintain your lifestyle.
To counter inflation, it’s advisable to:
Maintain a portion of your portfolio in equity. Equity investments historically offer higher returns compared to debt and fixed-income options. Over the long term, equities can help your corpus grow at a rate that outpaces inflation.
Diversify into debt funds to reduce risk while maintaining liquidity. A mix of equity and debt will help you stay safe from market volatility but still give you decent growth.
Risk Management in Retirement
Since you plan to retire at 50, it’s essential to preserve your capital while also growing it. The strategy of balancing risk and reward is crucial. You can:
Lower the risk in equity investments as you approach your retirement date. You could reduce your equity exposure gradually and shift to lower-risk investments like debt funds, which are more stable.
Avoid high-risk investments or speculative moves, especially when you are so close to retirement. Your focus should now be on wealth preservation with moderate growth.
Final Insights
Yes, retiring by 50 is possible, but it requires careful management of your assets and income sources. Here’s a summary of how you can achieve this:
Reassess your fixed deposits: Move a portion into mutual funds to increase returns while keeping a part for liquidity.
Increase your mutual fund investments: Actively managed funds can offer better long-term growth, especially when you are not working.
Leverage your rental income: Rs 40,000 monthly rental income will cover part of your expenses, but supplement it with SWPs from your mutual fund corpus.
Preserve the education fund: Invest in safer instruments to ensure the Rs 50 lakh remains secure and grows steadily.
Diversify and manage risk: A mix of equity and debt will give you growth and safety, and help fight inflation.
Health care planning: Ensure you have strong health insurance coverage to protect your retirement corpus from medical emergencies.
By taking these steps, you can retire at 50 with financial security and peace of mind.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Question by BRAHMA on Sep 20, 2024Hindi
