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At 49, with Rs. 1.5 lakhs salary, Rs. 15 Cr. property, can I retire at 55?

Ramalingam

Ramalingam Kalirajan  |7478 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 25, 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
Asked by Anonymous - Sep 25, 2024Hindi
Money

Hi Sir, I am working as college lecturer with in hand salary of 1.5 lakhs per month. I am 49 years old. My husband has a salary of 2.5 lakhs in hand salary. we have real estate worth 15 Cr. which fetches rent of close to 2 lakhs per month. But the cash corpus is only about 50 lakhs. and my son is only 14, how much more do we need to accumulate to retire at 55. My husband is 50 now. Our yearly expenses including school fees and property tax and health insurance and term insurance is around 15 lakhs.

Ans: First, I appreciate your thoughtful approach towards retirement planning. You and your husband have a good combined monthly income and a significant real estate portfolio generating Rs 2 lakhs in rent.

However, I notice that the cash corpus is Rs 50 lakhs, which might be insufficient for future liquidity and investment needs. Your current expenses, including school fees, property tax, health insurance, and term insurance, total around Rs 15 lakhs annually. Let’s assess how much more you need to accumulate to retire at 55.

Retirement Goals and Key Factors to Consider
For effective retirement planning, it’s important to consider the following aspects:

Desired Retirement Age: You plan to retire at 55, giving you six more working years.
Annual Expenses in Retirement: Current expenses are Rs 15 lakhs annually. After retirement, education expenses may reduce, but healthcare and inflation may increase other expenses.
Inflation Factor: Consider that inflation will erode purchasing power, making future expenses higher than today.
Income from Rent: Rental income is Rs 2 lakhs per month, which adds Rs 24 lakhs annually to your post-retirement income.
Corpus Growth and Safety: The cash corpus of Rs 50 lakhs needs to grow, as it plays a critical role in your retirement strategy.
How Much More Do You Need to Accumulate?
Current Cash Flow and Shortfall
Annual expenses: Rs 15 lakhs
Current rental income: Rs 24 lakhs
Your rental income already exceeds your annual expenses by Rs 9 lakhs. This is a positive sign, as it can potentially cover your basic lifestyle costs in retirement.

However, there are additional considerations:

Inflation Impact: If we assume a 6-7% inflation rate, your Rs 15 lakh annual expenses today will grow in the next 5-10 years. You must account for this to ensure that your rental income continues to cover your expenses.
Healthcare Costs: Post-retirement healthcare can be significant, and it’s crucial to have a plan for that. Consider separate investments for future healthcare.
Investment for Long-term Financial Security
Although rental income will support most of your needs, your Rs 50 lakh cash corpus must be optimally invested to supplement your lifestyle and unexpected expenses. Relying solely on rental income may expose you to risks like tenant vacancies or property repairs.

Instead of keeping all the cash idle or in low-return avenues, it’s vital to build a diversified portfolio with:

Equity-based mutual funds: For long-term growth and inflation-beating returns.
Debt mutual funds or fixed income instruments: For stable returns and liquidity.
Health insurance and emergency fund: Ensure these are strong enough to cover unforeseen expenses.
Education Planning for Your Son
Your son is 14, and his education expenses (graduation and possibly post-graduation) will be a significant part of your financial planning in the next 5-10 years. You should create a dedicated fund to ensure you can meet these costs without impacting your retirement corpus.

Estimated Education Costs: Consider allocating separate funds for higher education to be prepared for rising education costs. Equity-based investments can help grow this education corpus over time.
Debt Management
You haven’t mentioned any liabilities other than the property. However, if there are any loans, prioritizing repayment of high-interest debts before retirement is critical. Entering retirement with minimal debt ensures a stress-free financial situation.

The Importance of Liquidity
Real estate is illiquid, and though it’s a major asset class for you, having more liquid assets like mutual funds and fixed-income investments is essential.

Building Liquidity: The Rs 50 lakh corpus should ideally be increased in the next 5 years through systematic investment. This will provide a safety net if there are any disruptions in rental income or increased expenses.
Is Your Retirement Corpus Sufficient?
Given that your rental income covers your current expenses, you already have a reliable source of income for retirement. However, real estate alone might not be enough to provide for unexpected expenses, healthcare, and lifestyle changes.

You should aim to build a retirement corpus that can sustain you comfortably even without relying solely on rental income. Here are a few key points:

Investment Growth: Grow your Rs 50 lakh cash corpus to around Rs 1.5-2 crores over the next 6 years. This will ensure you have a comfortable buffer.
Diversification: Ensure you diversify into actively managed mutual funds. Actively managed funds can outperform index funds and provide higher returns over time. Avoid keeping too much in low-return investments like FDs.
Final Insights
Focus on growing your current corpus through active investments in mutual funds.
Maintain liquidity in your portfolio to cover unexpected expenses.
Create a dedicated education fund for your son’s future needs.
Leverage your rental income, but ensure you have other investments for flexibility.
Avoid over-relying on real estate, as it may be difficult to liquidate when needed.
With proper planning and disciplined investment, you can comfortably retire at 55 without compromising your lifestyle.

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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Ans: Crafting a Retirement Plan for Financial Freedom
Your proactive approach towards retirement planning is commendable. Let's develop a comprehensive strategy to ensure a comfortable retirement at the age of 52.

Assessing Your Current Financial Situation
Asset Allocation
Evaluate your current assets, including investments, savings, and other holdings, to understand your financial position.

Identify areas for optimization and potential gaps in your retirement portfolio.

Setting Retirement Goals
Desired Retirement Lifestyle
Define your desired retirement lifestyle, considering factors such as travel, hobbies, and healthcare expenses.

Estimate your monthly income requirements to maintain your chosen lifestyle during retirement.

Calculating Retirement Corpus
Retirement Expenses
Factor in anticipated expenses during retirement, including living expenses, healthcare, children's education, and other financial commitments.

Calculate the total retirement corpus required to sustain your lifestyle throughout your retirement years.

Strategies to Achieve Retirement Goals
Optimizing Investments
Review your existing investment portfolio and reallocate assets to align with your retirement objectives and risk tolerance.

Consider diversifying your investments across various asset classes to minimize risk and maximize returns.

Retirement Savings
Maximize contributions to retirement accounts such as EPF, PPF, and voluntary retirement schemes to bolster your retirement savings.

Explore additional avenues for retirement savings, such as tax-efficient investment options and voluntary contributions to retirement plans.

Budgeting and Expense Management
Implement strict budgeting measures to control expenses and increase savings potential.

Identify areas where expenses can be reduced or eliminated to allocate more funds towards retirement savings.

Educating Children about Financial Responsibility
Financial Literacy
Educate your children about financial management and the importance of responsible spending and saving habits.

Encourage them to pursue higher education scholarships and part-time employment opportunities to lessen the financial burden on your retirement savings.

Benefits of Regular Funds Investing through MFD with CFP Credential
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Direct funds require active management and market knowledge.

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Benefits of Regular Funds Investing through MFD with CFP Credential
Working with a Certified Financial Planner ensures personalized guidance and expert advice.

MFDs provide tailored investment strategies aligned with your financial goals and risk profile.

Monitoring and Adjusting Your Retirement Plan
Regular Review
Monitor the performance of your investments and revisit your retirement plan annually to track progress towards your goals.

Make necessary adjustments to your investment strategy and savings plan based on changing market conditions and personal circumstances.

Conclusion
By implementing a holistic retirement plan that encompasses investments, savings, and expense management, you can achieve financial independence and retire comfortably at the age of 52.

Consulting a Certified Financial Planner will provide invaluable insights and guidance tailored to your specific financial goals and aspirations.

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Ramalingam Kalirajan  |7478 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 16, 2024

Asked by Anonymous - Aug 13, 2024Hindi
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I am 35 years old government employee earning 70k in hand after all deduction including tax and my room rent. I have two kids, 4 years old son and 2.5 years old daughter. I want to plan for retirement at the age of 50 years. Suppose i don't have any investment and any liabilities right now, monthly expenses is 50k. I also want to construct a house worth 80-90 lacs currently at my own land at the age of 50 years. Considering such scenario,how much corpus will i need to have at the time of retirement i.e. at 50 years old.
Ans: You are a 35-year-old government employee, earning Rs. 70,000 per month after all deductions. With a 4-year-old son and a 2.5-year-old daughter, your monthly expenses amount to Rs. 50,000. You plan to retire at 50 years of age and wish to construct a house worth Rs. 80-90 lakhs at that time.

Your scenario presents a clear goal: to ensure a comfortable retirement and the construction of your dream home. Let’s explore how you can achieve these objectives.

Estimating Retirement Corpus
Inflation Consideration

Effect on Expenses: Over the next 15 years, inflation will significantly impact your monthly expenses. Assuming an average inflation rate of 6%, your current monthly expenses of Rs. 50,000 will likely increase substantially by the time you retire.

Future Monthly Expenses: By the time you retire at 50, your monthly expenses could be around Rs. 1.20-1.30 lakhs, considering inflation. This is a critical factor in determining your required retirement corpus.

Life Expectancy

Post-Retirement Years: If you retire at 50, you may need to plan for at least 30-35 years post-retirement, considering the average life expectancy.

Longevity Risk: It's essential to ensure that your corpus lasts throughout your retirement. This will protect against the risk of outliving your savings.

Corpus Calculation

Retirement Corpus: To maintain a lifestyle with Rs. 1.20-1.30 lakhs per month, you may need a corpus of around Rs. 5-7 crores by the time you retire. This amount should cover your living expenses, medical costs, and other needs throughout your retirement.

Income Generation: Your corpus should generate enough income to cover your monthly expenses without dipping into the principal amount for as long as possible.

Planning for House Construction
Future Cost Estimation

Construction Costs: The house you plan to build currently costs Rs. 80-90 lakhs. However, construction costs will rise over the next 15 years due to inflation.

Adjusted Cost: By the time you are 50, the cost could rise to around Rs. 1.5-2 crores. It's essential to plan for this increase to ensure you have sufficient funds.

Separate Savings for House

Dedicated Fund: Set aside a separate investment for your house construction. This can be a mix of equity and debt investments to match the timeline of 15 years.

Systematic Investment Plan (SIP): Consider starting an SIP specifically for your house fund. This will allow you to accumulate the required amount systematically over time.

Investment Strategy to Achieve Goals
Asset Allocation

Balanced Portfolio: Your investment strategy should balance between equity and debt. Equity investments will help in wealth creation, while debt investments will provide stability.

Equity Exposure: Given your age and long investment horizon, a higher allocation towards equity is advisable. Equity can offer the growth needed to achieve your retirement corpus.

Debt Instruments: Include debt instruments for stability and capital preservation. This ensures that you can handle market volatility without significant stress.

Avoiding Index Funds

Active Management Benefits: Index funds, while cost-effective, might not offer the returns needed to meet your retirement goals. Actively managed funds, under the guidance of a Certified Financial Planner, can help you navigate market fluctuations better and potentially outperform index funds.
Regular vs. Direct Funds

Professional Guidance: Investing through regular funds with the help of a Certified Financial Planner (CFP) can provide you with valuable insights and personalized advice. Direct funds may save on costs, but the expertise of a CFP can help in achieving your financial goals more efficiently.
Building a Contingency Fund

Emergency Fund: Before you begin investing, ensure you have an emergency fund in place. This fund should cover at least 6-12 months of your expenses and should be kept in liquid assets like a savings account or a short-term fixed deposit.
Planning for Children’s Education
Education Fund

Rising Costs: The cost of education is rising faster than general inflation. You’ll need to plan for your children’s education expenses, especially for higher education.

Separate Investment: Set up a dedicated investment for your children’s education. This could be through a mix of child-specific mutual funds and debt instruments to match the timeline when funds will be required.

Insurance for Protection

Life Insurance: Ensure you have adequate life insurance coverage to protect your family in case of an unforeseen event. Term insurance is recommended as it provides a large cover at a low cost.

Health Insurance: Maintain a robust health insurance plan for your family. Medical costs are unpredictable and can significantly impact your financial plan if not adequately insured.

Generating Post-Retirement Income
Withdrawal Strategy

Systematic Withdrawal Plan (SWP): Consider setting up an SWP from your mutual fund investments post-retirement. This will allow you to withdraw a fixed amount regularly, ensuring a steady income stream.

Balanced Income: The SWP can be structured to provide the Rs. 1.20-1.30 lakhs per month needed to cover your post-retirement expenses.

Fixed Income Instruments

Stable Returns: Include fixed income instruments like debt funds, fixed deposits, and bonds in your post-retirement portfolio. These can provide stability and predictable returns, reducing the risk of capital erosion.
Final Insights
Ajay, your goals are achievable with a well-structured financial plan. The key is to start early, remain disciplined, and review your plan regularly with the help of a Certified Financial Planner. Focus on building a diversified portfolio that balances growth and stability. Ensure that you are adequately insured and have a contingency fund in place.

Planning for your retirement and house construction simultaneously requires careful consideration of inflation, future costs, and your risk tolerance. With a clear plan and the right guidance, you can enjoy a comfortable retirement and fulfill your dream of building a house.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Am currently 50...I dont hv job. .Iam invested in mmt but right now am 15% on my PF....I invested 19lacs on mkt. ...wht shud ido ?
Ans: You have made bold moves in investing Rs. 19 lakhs in the market. Being 15% down on your portfolio is concerning but manageable. Let us evaluate your current position and suggest actionable steps.

Key Concerns
Jobless Situation: Absence of steady income creates financial pressure.

Market Volatility: A 15% loss indicates exposure to high-risk investments.

Emergency Needs: Liquidity might be limited if all funds are in the market.

Long-Term Goals: Planning for retirement is essential at this stage.

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Investments in Market: Rs. 19 lakhs is a good corpus to build wealth.

Time to Recover: At 50, there is still time for strategic financial planning.

Aggressive Approach: Shows you are willing to take risks, which can be an advantage.

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Reassess Portfolio Allocation
Review your investments in mutual funds or stocks.

Shift a portion to balanced or hybrid funds for stability.

Reduce exposure to high-risk segments like small caps or sectoral funds.

Create a Contingency Fund
Set aside Rs. 3-5 lakhs for emergencies.

Use liquid funds or short-term fixed deposits for easy access.

Explore Income Sources
Find part-time or freelance opportunities to ease financial stress.

Rental income, tutoring, or consulting can supplement your needs.

Stop Panic Selling
Do not redeem investments in a downturn.

Hold onto quality assets for market recovery.

Diversify Investments
Avoid putting all money in equities.

Consider fixed income options like Senior Citizen Savings Scheme (when eligible), or debt funds.

Plan for Retirement
Evaluate the gap between your current corpus and retirement needs.

Use Systematic Withdrawal Plans (SWP) later for regular post-retirement income.

Monitor Regularly
Review your portfolio every 6 months.

Seek guidance from a Certified Financial Planner for rebalancing.

Final Insights
Your situation requires balanced risk-taking and income generation strategies. Preserve capital while focusing on gradual recovery. Discipline and informed decisions will help secure your financial future.

Best Regards,

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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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