I am 54 years ol. Having own house and some properties. My PF and Gratuity corpus is around Rs 90 lakhs. I have MF and SIPs corpus of Rs 110 lakhs. Insurance (all money back) for Rs 75 lakhs and expected to mature from 2027. Get rental income of Rs 20,000 per month. I have two sons one in final year UG and the other in 8th STD. If I wish to retire now and spend time with family, how can this be planned?
Ans: You are 54 years old and own a house along with some other properties. Your provident fund and gratuity corpus amount to around Rs. 90 lakhs. Your mutual fund and SIP investments have a corpus of Rs. 110 lakhs. Additionally, you have insurance policies (all money-back) with a sum assured of Rs. 75 lakhs, expected to mature from 2027 onwards. Your current rental income is Rs. 20,000 per month. You have two sons, one in his final year of undergraduate studies and the other in 8th standard.
You are contemplating early retirement to spend more time with your family. Let’s assess how you can achieve this goal while ensuring a financially secure future.
Evaluating Your Current Assets
Provident Fund and Gratuity
Corpus Strength: Your PF and gratuity corpus of Rs. 90 lakhs is a strong foundation for your retirement.
Utilisation: This amount can be allocated towards generating regular income, covering your post-retirement expenses, and meeting future goals.
Mutual Fund and SIP Corpus
Growth Potential: Your mutual fund corpus of Rs. 110 lakhs has the potential to continue growing, providing inflation-adjusted returns over time.
Strategy: Maintaining a well-balanced portfolio is key. Consider allocating a portion of this towards income-generating assets and another towards growth-oriented investments.
Insurance Policies
Money-Back Plans: Your money-back policies with a sum assured of Rs. 75 lakhs, maturing from 2027, can provide periodic payouts, adding to your income stream.
Future Planning: Once these policies mature, the proceeds can be reinvested to generate additional income or fund specific goals.
Rental Income
Steady Income: The Rs. 20,000 per month from rental income is a helpful source of steady income that can contribute to your monthly expenses.
Long-Term Stability: Ensure the rental income continues by keeping your property well-maintained and tenants satisfied.
Planning for Early Retirement
Monthly Expenses and Income Matching
Current Expenses: Assess your current monthly expenses and compare them with your income sources. Your rental income, combined with potential returns from your investments, should cover these expenses.
Income Generation: Post-retirement, you’ll need to generate income from your existing corpus. This can be achieved through systematic withdrawals from your mutual funds or opting for income-generating instruments.
Children’s Education
Education Costs: With one son in his final year of undergraduate studies and another in 8th standard, planning for their higher education is crucial.
Separate Fund: Set aside a portion of your corpus specifically for their education needs. This can be a combination of fixed deposits and debt funds to ensure safety and liquidity.
Health Insurance
Health Coverage: Ensure that you have comprehensive health insurance coverage for yourself and your family. Medical expenses can be unpredictable and potentially high in retirement.
Top-Up Plans: Consider top-up plans to increase your coverage, ensuring you’re protected from large, unforeseen medical expenses.
Investment Strategy Post-Retirement
Diversified Portfolio
Balance Growth and Safety: Maintain a diversified portfolio that balances growth (through equity) and safety (through debt instruments). This ensures that your corpus lasts throughout your retirement.
Regular Income: Opt for investments that provide regular income, such as debt funds or systematic withdrawal plans (SWP) from your mutual fund corpus. This will help manage your monthly cash flow needs.
Avoiding Index Funds
Active Management Benefits: While index funds may seem attractive due to lower costs, they may not always provide the returns required to meet your financial goals. Actively managed funds, guided by a Certified Financial Planner, offer the potential for higher returns, particularly when market conditions are volatile.
Direct vs. Regular Funds
Expert Guidance: Investing through regular funds with the help of a Certified Financial Planner (CFP) ensures you receive expert guidance and advice tailored to your specific needs. Direct funds might save on costs, but the value of professional insight can make a significant difference in achieving your financial goals.
Insurance Considerations
Reassessing Life Insurance Needs
Money-Back Policies: Since you have money-back policies, evaluate if these are still necessary given your current financial situation. You may want to focus on pure-term plans instead.
Surrendering Policies: If these money-back policies no longer align with your needs, consider surrendering them and reinvesting the proceeds in more growth-oriented options.
Ensuring Adequate Coverage
Life Insurance: Ensure that your life insurance coverage is adequate to protect your family in case of unforeseen events. Term insurance is a cost-effective option that provides substantial coverage.
Estate Planning: Begin thinking about estate planning to ensure your assets are distributed according to your wishes. This is especially important as your children are still young.
Building a Contingency Fund
Emergency Fund
Liquidity: Establish a robust emergency fund that covers at least 12 months of expenses. This fund should be kept in liquid assets, such as a savings account or short-term fixed deposits, to ensure quick access in case of emergencies.
Financial Security: Having a contingency fund in place will provide you with financial security and peace of mind, especially as you transition into retirement.
Final Insights
You have built a solid foundation with your provident fund, mutual fund investments, and rental income. Retiring early to spend time with your family is achievable, provided you maintain a well-balanced and diversified investment strategy.
Ensure that your children’s education and health insurance needs are fully covered. A Certified Financial Planner can help you manage and grow your investments, ensuring a stable and secure retirement. Regularly review your financial plan to adapt to any changes in your circumstances or goals.
By focusing on a disciplined approach, you can achieve your dream of early retirement while securing your family’s future.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
