I am 48 years old and plan to retire by 2030. My yearly expenses are around Rs 20 lakh including education of my two kids. Major future expenses will include: Rs 1-crore corpus for higher education and around Rs 30 lakh for the medical needs of my mother.
My current investments include MF portfolio of Rs 2.5 crore with 90% in equity schemes; about Rs 2 crore of fixed deposits; about Rs 60 lakh in PPF & PF and stocks worth Rs 50 lakh. I also have monthly SIPs worth Rs 1.4 lakh in mutual funds. I don’t have liabilities at present.
I am assuming my yearly expenses to be around Rs 20 lakh which may go up to Rs 40 lakh with inflation over the next 30 years. How should I plan for my retirement after 2030? I expect my current portfolio to grow from Rs 5 crore to about Rs 7 crore by 2030. Will this be sufficient to live comfortably till 2065?
With a few tweaks to your existing portfolio and assuming an inflation rate of 6%, your existing portfolio should comfortably outlast you. My first suggestion would be to sell your stocks, unless those are high conviction ones, and invest them in equity mutual funds. Assuming a 10% annualised return, your equity portfolio should grow to about Rs 5.35 crore at the time of your targeted retirement age. My second suggestion would be to route your monthly SIPs solely to equity mutual funds. Assuming the same annualised returns, these SIPs should increase your equity portfolio to Rs 7 crore at your retirement age.
You can distribute your existing equity portfolio and incremental SIPs among flexicap, large cap index and aggressive hybrid fund categories in equal proportion. You can consider the direct plans of ICICI Prudential S&P BSE Sensex Index Fund and HDFC Index Fund – S&P BSE Sensex Plan for the large cap index category; PGIM India Flexi Cap Fund and Parag Parikh Flexi Cap Fund for the flexicap category; and Kotak Equity Hybrid Fund and ICICI Prudential Equity and Debt Fund for the aggressive hybrid category.
Coming to your fixed income portfolio, I would suggest you to park Rs 1.75 crore in the FDs of scheduled banks like Suryoday Bank, Unity Bank, Utkarsh Bank, Jana Bank and AU Bank, which are offering FD yields of 8% and above for 2-3 years tenures. Your FD corpus should take care of your emergency fund requirements, higher education needs for your children and your mother’s medical needs. You can continue with your PPF & PF investments, even after retirement.
Once you complete 55 years of age, maintain at least 60% of your portfolio in high yield fixed deposits with monthly payout options. A post-tax return of 6% from these FDs should generate an annual interest income of Rs 33.30 lakh, which should be adequate enough to generate your targeted post-retirement income.
The rest of your post-retirement portfolio should remain invested in equity mutual funds for continued wealth creation. You can redeem from your equity fund portfolio to replenish your fixed income portfolio, as and when required, for dealing with inflation in your post-retirement expenses.
While your retirement planning seems to be on track, do ensure to have adequate life and health insurance. Also ensure to have a pure term insurance planning covering 10-15 times of your annual income. You can consider these private sector life insurance players — ICICI Prudential, HDFC Life, Max Life, Tata AIA, PNB Metlife and Bajaj Allianz Life — for purchasing term plans.
While you have not mentioned about your health insurance covers, do ensure to have a health insurance cover of at least Rs 1 crore, with a base health cover of Rs 5 lakh and super top-up cover of Rs 95 lakh. You can consider Niva Bupa or Aditya Birla health insurance companies to avail bigger health cover at very low premiums.
An edited version of this article was published in Economic Times on Dec 11,2023