Q. I am now 50 and have decided to retire within a few months due to health reasons. Currently, I have accumulated a corpus of Rs 2.8 crore. I have Rs 1.53 Cr in PPF, Rs 18 Lakh in PF, Rs 56 lakh in equity mutual funds (45% in quant small-cap fund, 35% in quant active fund, 15% in quant mid-cap fund, and 5% in MO S&P BSE Enhanced Value Index fund). I also have Rs 50 lakh in hybrid funds (60% in conservative hybrid funds, 20% in conservative asset allocation FOF, 10% in balanced advantage fund, and 10% in aggressive hybrid fund). Furthermore, I have Rs 3.65 lakh in NPS and a savings account balance of Rs 1.7 lakh.
I expect a corpus of about Rs 1.5 crore in the future from the sale of a property, FD, and PPF proceeds after my parents’ demise. I currently own a house in Mumbai worth Rs 2.5 crore, which can yield about Rs 60,000 monthly rent. However, I am willing to shift to a cheaper house in a tier-II city if needed.
I hold a family floater medical policy of Rs 1.2 crore, including a top-up plan, and a life insurance policy of Rs 50 lakh. Is it advisable to continue the life insurance policy as my son is currently employed?
My total monthly expenses, conservatively estimated, are around Rs 70,000. Additionally, I may require extra funds for yearly travel plans, house renovation in the future, my son’s marriage, etc. Will I be able to sustain my retirement comfortably, considering inflation, for another 35 years?
Response: Assuming an inflation rate of 6% and an annualised return of 8% from your investments during your post-retirement phase, your existing investments should comfortably last for 35 years and beyond. However, with more than 50% of your portfolio being invested in PPF, your portfolio lacks the ability to deliver regular payouts for sustaining your post-retirement expenses.
While you have not disclosed the maturity date of your PPF A/c, the balance in your PPF A/c shows that you have extended your PPF account for block period(s) of 5 years, after the original maturity period of 15 years. If yes, then make partial withdrawals from your PPF account to the extent possible and then close the account after the completion of the existing block period of 5 years. Distribute the closure proceeds of the PPF A/c equally between government bonds and high yield fixed deposits (with monthly payout option). Also distribute your PF proceeds in the same ratio. This will create a fixed income corpus of about Rs 1.72 crore, which should create a monthly interest income of about Rs 99,800, assuming an average annualised return of 7%. This should comfortably meet your post-retirement expenses while maintaining a buffer for meeting your home renovation expenses, annual travel expenses, son’s marriage, etc.
For opening high-yield bank FD, you can consider scheduled banks like Suryoday Bank, Unity Bank, Utkarsh Bank, Fincare Bank and Equitas Bank, which are offering FD yields of 8% and above. For central government bonds, you can consider the ones maturing in February 2061 and June 2063 with yields in the range of 7.25-7.30. You can purchase these bonds from the secondary market through the RBI’s Retail Direct Platform or the various stock broking platforms. Apart from being backed by a sovereign guarantee, purchasing these CG bonds would ensure the receipt of booked yields as returns throughout your post-retirement life and beyond, till their maturity dates.
Coming to your mutual fund portfolio, I would first suggest you to redeem your existing mutual funds units invested at least a year ago. The rest of the mutual fund units can be redeemed as and when they complete 1 year of investment. Redeeming equity or equity oriented mutual funds within 1 year of investment attract short-term capital gains tax of 15%. Distribute the proceeds equally between large cap, flexicap and multi-asset funds. You can consider Parag Parikh Flexi Cap Fund and/or Quant Flexi Fund for the flexicap category; ICICI Prudential Bluechip Fund and HDFC Top 100 Fund for the large cap category; and Quant Multi Asset Fund or ICICI Prudential Multi Asset Fund for the multi-asset category.
Flexicap schemes have the flexibility to invest across market capitalisations and segments, without any SEBI imposed caps, to manage market risk and exploit opportunities arising from changing valuations and other technical/fundamental factors. Similarly, multi-asset funds invest in at least three asset classes, i.e., equity, debt and commodities without any SEBI-imposed caps. Thus, multi-asset funds would provide greater asset class diversification than your existing hybrid funds. Make partial redemptions from your equity portfolio and invest the proceeds in your fixed-income portfolio, as and when the monthly interest payouts fall short to meet your monthly expenditures.
Coming to your health insurance plans, you should continue with them irrespective of the employment status of your son. As the primary objective of a life insurance plan is to take care of your dependents’ expenses in your absence, you can discontinue your life insurance policy after your retirement as you already have an adequate post-retirement corpus to meet your dependents’ expenses in your absence.
An edited version of this article was published in The Economic Times Wealth on April 22, 2024.