I am 51 years old. My wife is non-working and i have 16 yr old kid. As a single earner, my take home salary is about 80k per month. At present, my home loan left is 1 lacs. No other loan. I have FDs worth 17 lacs. This is my emergency fund. I also have around 20 lacs of PF balance. I have sufficient term insurance policy and family medical policy. I can save around .3 lac per month with 10% annual increase for next 3 years. In mutual fund have 80 lakh.I have the following challenging goals and i need advice on how these can be ahieved: 1. Retirement pension monthly for survival at 60k per month with inflation accounted, for 30 years. 2. After 2 years, my kid will need total of around 30lacs spread out in 4 years for higher studies.
Ans: Current Financial Snapshot
Age: 51 years
Wife: Non-working
Child: 16 years old
Take-Home Salary: Rs 80,000 per month
Outstanding Home Loan: Rs 1 lakh
Emergency Fund in FDs: Rs 17 lakhs
Provident Fund Balance: Rs 20 lakhs
Mutual Fund Investments: Rs 80 lakhs
Monthly Savings Capacity: Rs 30,000 with a 10% annual increase for the next 3 years
Insurance: Sufficient term and family medical policies
Key Financial Goals
Retirement Corpus for Pension: Rs 60,000 per month, inflation-adjusted, for 30 years starting at 60.
Education Fund for Child: Rs 30 lakhs in total, spread over 4 years, starting in 2 years.
Goal 1: Building a Retirement Corpus
Current Scenario:
You are nine years away from retirement.
You will need Rs 60,000 per month for 30 years. This amount will need to grow with inflation.
Strategy:
Existing Mutual Funds: Your Rs 80 lakh in mutual funds is a solid foundation. Continue these investments.
Monthly SIPs: Your ability to save Rs 30,000 monthly, with a 10% increase each year, will help bolster your retirement corpus. Prioritise equity-oriented funds with a mix of large-cap and multi-cap funds.
Asset Allocation: Consider a 60:40 equity-to-debt ratio. Increase debt exposure as you approach retirement.
Inflation Protection: Shift part of your portfolio to instruments with inflation-beating potential, like equity funds.
Action Plan:
First 3 Years: Maximise SIPs in equity funds. Gradually shift gains to safer debt funds.
Last 6 Years: Gradually move to balanced funds or conservative hybrid funds.
At Retirement: Consider setting up a Systematic Withdrawal Plan (SWP) to generate monthly income.
Goal 2: Funding Your Child’s Higher Education
Current Scenario:
You need Rs 30 lakhs in 2 years for higher education.
The amount is spread over 4 years.
Strategy:
Debt Instruments: Given the short timeframe, focus on low-risk, debt-oriented funds or FDs for this goal.
Existing FDs: Part of your Rs 17 lakh emergency fund can be reallocated towards this goal, provided your emergency fund remains sufficient.
Laddered Approach: Spread the Rs 30 lakh requirement over 4 years by allocating funds to short-term FDs or debt funds maturing each year.
Action Plan:
Year 1: Allocate Rs 10 lakh to a low-risk debt fund or FD.
Year 2: Reassess and move another Rs 10 lakh into a similar fund.
Years 3 and 4: Use the remaining Rs 10 lakh for the final installments.
Optimising Your Savings and Investments
Emergency Fund:
Current Allocation: Rs 17 lakhs in FDs is secure but consider moving a portion into a liquid fund for slightly better returns.
Maintain Liquidity: Ensure Rs 10-12 lakhs remain easily accessible.
Provident Fund:
Current PF: Rs 20 lakhs should remain untouched to grow until retirement.
Strategic Usage: Post-retirement, consider using the PF as a safety net or for larger one-time expenses.
Home Loan:
Repayment: With Rs 1 lakh left, consider repaying this soon to free up cash flow.
Future Income Considerations
Monthly Pension:
SWP from Mutual Funds: This can provide a regular income post-retirement.
Reverse Mortgage: Consider this as a backup plan if required.
Inflation Protection:
Equity Allocation: Maintain some equity exposure even during retirement to counter inflation.
Estate Planning:
Will and Nomination: Ensure you have clear estate planning in place. Nominate beneficiaries for all investments.
Risk Management
Insurance:
Life Insurance: You have sufficient term insurance, which is excellent.
Health Insurance: Ensure the family medical policy covers potential future needs adequately.
Final Insights
Balanced Approach:
Your current investments provide a strong foundation. Focus on maintaining a balanced approach with both growth and security.
Goal Alignment:
Ensure each rupee is working towards a specific goal. Whether it's retirement or your child’s education, every investment should have a clear purpose.
Regular Review:
Your plan should be revisited annually. Adjustments will ensure you stay on track to meet your goals.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
