Hi, my age is 40, I want to retire by 50 with Rs. 2 Crore of Corpus, Right Now i have Rs. 17 lacs in PF, Rs. 5 Lacs in NPS, Rs.1 Lacs in PPF and Home loan Completed this year. I have one LIC policy of Premium of Rs. 24000 Yearly. Now I don’t have single saving in my saving account. my monthly expense is 35k. I want to start from Zero. My monthly on hand salary is Rs. 1.5 Lacs and i am ready to take risk for Higher return.
I have Jeevan Saral Policy starting from 2010 to still now and its mature on September-2023, I have checked and surrender the value comes to Rs. 6 Lacs, overall, i check and confirm only 5 to 6% comes in LIC Policy. Please advise only 5 years remaining for maturity. Also, in My monthly income i can easily save Rs. 1.05 Lacs if consider Rs. 45k Monthly expense. Issue is I am from Market since long 15 years and Right Now Market is very high so it’s advisable to start a SIP. or invest on safe place like FD & RD. Can I increase NPS contribution Rs 50 k to Rs. 1.50 lacs or invest in PPF account of Rs. 1.5 Lacs annually and also open a PPF account for daughter.
Ans: Building a Robust Retirement Plan: A Strategic Approach
Congratulations on completing your home loan! With no debts and a strong monthly income, you are in a great position to plan for retirement. Here’s a comprehensive strategy to achieve your goal of a Rs. 2 crore corpus by the age of 50.
Assessing Your Current Financial Health
Here’s a summary of your current financial standing:
Provident Fund (PF): Rs. 17 lakh
National Pension System (NPS): Rs. 5 lakh
Public Provident Fund (PPF): Rs. 1 lakh
LIC Policy: Surrender value Rs. 6 lakh
You have a solid foundation but need to optimize your investments to reach your goal.
Evaluating Your Current Investments
You have Rs. 6 lakh in an LIC policy with a return of 5-6%. Considering its low return, it might be wise to redirect this amount into higher-yielding investments. Surrendering it and reinvesting in better options could be beneficial.
Creating a Diversified Investment Strategy
Given your readiness to take risks for higher returns, a diversified approach is ideal. Here's how you can structure your investments:
Increasing Contributions to NPS and PPF
NPS: Increasing your contribution to Rs. 1.5 lakh annually can provide additional tax benefits and long-term growth. NPS is a good mix of equity and debt.
PPF: Maximizing your PPF contribution to Rs. 1.5 lakh annually ensures risk-free returns with tax benefits. Opening a PPF account for your daughter is also a good long-term strategy.
Investing in Mutual Funds
Starting a Systematic Investment Plan (SIP) in mutual funds is advisable despite current market levels. SIPs average out the cost over time, reducing market volatility risk. Actively managed funds can offer better returns than index funds due to professional management and strategic asset allocation.
Liquid Savings and Emergency Fund
Maintaining liquidity is crucial. Since you can save Rs. 1.05 lakh monthly, allocate a portion to build an emergency fund. Aim for 6-12 months' worth of expenses, i.e., Rs. 2.7 lakh to Rs. 5.4 lakh. This fund should be easily accessible, such as in a high-interest savings account or liquid mutual funds.
Tax Planning and Optimization
Maximize tax-saving investments to enhance returns. Utilize Section 80C benefits with investments in PPF, NPS, and ELSS funds. Consider tax-efficient investment options that offer higher post-tax returns.
Reviewing Insurance Coverage
You have term insurance for family protection, which is excellent. Ensure the coverage amount is adequate considering inflation and future needs. Health insurance provided by your company is beneficial, but consider a separate policy for comprehensive coverage during job transitions or retirement.
Rebalancing Your Portfolio
Regularly review and rebalance your portfolio to align with your risk tolerance and financial goals. As you approach retirement, gradually shift from high-risk equity investments to safer debt instruments to protect your corpus.
Financial Discipline and Monitoring
Maintain financial discipline by sticking to your savings plan. Regularly monitor your investments and adjust strategies as needed based on market conditions and life changes.
Retirement Corpus Calculation
Estimate the corpus required for a comfortable retirement by considering inflation, life expectancy, and desired lifestyle. Use retirement planning tools or consult a Certified Financial Planner for precise calculations.
Systematic Withdrawal Plan (SWP)
Upon retirement, implement a Systematic Withdrawal Plan (SWP) from your mutual fund investments. SWPs provide a steady income stream and tax efficiency, ensuring your corpus lasts longer.
Continuous Learning and Adaptation
Stay informed about financial markets and investment opportunities. Financial planning is dynamic; adapt your strategy based on changing economic conditions and personal circumstances.
Conclusion
Your financial health is solid with no debts and a high savings potential. By following a diversified investment strategy and maintaining financial discipline, you can achieve your goal of retiring with a Rs. 2 crore corpus by 50. Optimize tax savings, regularly review your portfolio, and adjust as necessary to stay on track.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
