I am retiring next year and will receive about Rs 1 crore from EPF and gratuity. My stock portfolio is worth Rs 1.3 crore and mutual fund portfolio is worth Rs 25 lakh. The MF break-up is as follows: small caps (10%), index funds (30%), flexi & multi caps (15%), balanced advantage (10%), ELSS (10%) and large caps (25%). My PPF corpus is about Rs 25 lakh. I live in my own house and have family mediclaim worth Rs 20 lakh. How can I generate a monthly income of Rs 1.5 lakh from January 2025? Anupam Guha, Head, Private Wealth Management, ICICI Securities:
Anupam Guha, Head, Private Wealth Management, ICICI Securities:Your current monthly expenses of Rs 1.5 lakh will compound to Rs 5.1 lakh in 25 years, at 5% inflation. Considering life expectancy of 85 years, you must create a conservative portfolio that reduces equity exposure to 20% as you age. You can invest your gratuity and EPF corpus in long-term debt mutual funds, such as HDFC Long Duration Debt Fund and Nippon India Lakshya Nivesh, for predictable income. To reduce exposure to equity and volatility, consider moving a large portion of direct equity to hybrid funds. Balanced advantage funds (BAF) and multi-asset funds (MAF) are a good category to earn 8-12% annually at risk levels that are higher than debt, but lower than equity. ICICI Prudential Multi Asset Fund and ICICI Balanced Advantage Fund are good options. You can continue to hold your equity MFs and reduce these later. Use PF balance over the first 18 months to take care of your expenses. Then register for SWP from long-term debt funds for 6% payout and manage any shortfall with redemption from BAF and MAF. Realign your portfolio once in 4-5 years. With returns of 9-10%, you should be able to sustain your retired life.
I am 53 years old. I intend to retire at 55 with a Rs 2 crore corpus. My current monthly expenses are Rs 50,000. I live in my own house and have no liabilities. Which instruments can help me live comfortably with a low risk appetite? Rushabh Desai, Founder, Rupee With Rushabh Investment Services:
Rushabh Desai, Founder, Rupee With Rushabh Investment Services:Assuming you retire at 55 with Rs 2 crore, life expectancy of 80 years, 6-7% annual returns from debt products, and a monthly withdrawal of Rs 50,000, with 7% annual step-up (for inflation), your total withdrawals at the end of 25 years shall be around `3.81 crore. This will leave you with a closing balance of Rs 1.75-3.34 crore. This means that, theoretically, your pre-tax retirement corpus may be enough. However, keeping the changing economic scenario and practical aspects in mind, it may be risky to sustain on `2 crore for 25 years only on low-risk debt products. Hence, to be on the safe side, you should either increase your retirement corpus, push back your retirement age, raise your risk appetite to invest at least 20-30% in the equity asset class, or reduce your expenses. On the pure debt side, you can look at investing in high credit quality corporate bonds and PSU funds. On the pure equity side, you can look at investing in the Sensex and/or the Nifty 500 index funds, and/or consider dynamic asset allocation funds (hybrid). Make sure to keep the money invested for 1-3 years, depending on the asset class, so that you are in the profit, and then start the SWP.
I am 40 years old and pay Rs 35,000 as rent in Mumbai. I have two properties worth Rs 2 crore in Kolkata. My parents live in one house worth Rs 1.3 crore, and the other one generates Rs 14,000 as monthly rent. My salary is about Rs 2.25 lakh per month. I have Rs 27 lakh in EPF and `7 lakh in FDs. My monthly expenditure is about Rs 1.75 lakh. My goals are to buy a house in Mumbai in three years and build a corpus for retirement at 60 years. Rushabh Desai, Founder, Rupee With Rushabh Investment Services:
Rushabh Desai, Founder, Rupee With Rushabh Investment Services:You should specify the budget for your house in Mumbai and also an approximate retirement corpus factoring in inflation. To give you a perspective, your current monthly expenditure of Rs 1.75 lakh, after 7% annual inflation, will come to around Rs 6.77 lakh when you are 60. This figure may not be the same when you retire, and could be less, depending on your expenses. For your retirement, you should focus on a monthly SIP in equity mutual funds. You should invest at least 20-30% of your monthly income, with a 5-10% annual top-up, depending on your annual increment. Since you have a decent amount in EPF, you can park the FD corpus in debt mutual funds for diversification. Debt mutual funds can give better risk-adjusted returns than traditional bank FDs. The annual rental yield on your Rs 70 lakh property comes to around 2.4%. If you are considering it as an investment, you should liquidate it and invest the proceeds in equity mutual funds for better long-term compounding, or you could use it for buying a house in Mumbai.
I’m 47 years old and plan to retire at 50. I have no debt, sufficient medical coverage, Rs 3 crore life insurance and emergency funds for six months. I have two daughters, aged 19 and 17, and their education is secured. I have Rs 2 crore in the EPF, NPS, mutual funds and PPF, and property worth Rs 2 crore that gives a rent of Rs 50,000 a month. My expenses are Rs 1.5 lakh a month. Can I retire with this corpus? Adhil Shetty, CEO, BankBazaar:
Adhil Shetty, CEO, BankBazaar:Considering you have no liabilities, have sufficient insurance, and separate investments for your children, you are in a good place. As a thumb rule, your corpus should be roughly 25 times your annual expenses at the time of retirement. If you invest this in a mix of debt and equity with an annual return of 10%, you will be able to step up your withdrawal each year by 6%, ensuring inflation-proof returns. Your rental income is Rs 50,000, which means you need an additional Rs 1 lakh a month out of your corpus of Rs 2 crore. This makes your corpus 20 times your annual expenses. At this rate, your corpus will be able to support you for around 25 years. To make up for the shortfall, stay invested in equity for at least a decade after retirement. You will earn an average of 15% returns and it’ll ensure you’re financially secure.
Ask our experts
Have a question for the experts? firstname.lastname@example.org
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
(Your legal guide on estate planning, inheritance, will and more.)
Download The Economic Times News App to get Daily Market Updates & Live Business News.
As a financial expert with a deep understanding of various investment instruments and retirement planning, let's dissect the concepts and advice provided in the article.
Retirement Corpus Management for Monthly Income:
- Anupam Guha suggests a conservative approach for managing the retirement corpus. He recommends allocating the EPF and gratuity to long-term debt mutual funds like HDFC Long Duration Debt Fund and Nippon India Lakshya Nivesh for predictable income.
- To mitigate equity exposure and volatility, he advises moving a significant portion of direct equity to hybrid funds. Balanced Advantage Funds (BAF) and Multi-Asset Funds (MAF) are suggested, with specific options like ICICI Prudential Multi Asset Fund and ICICI Balanced Advantage Fund.
- An 18-month expense coverage from the PF balance is proposed, followed by setting up a Systematic Withdrawal Plan (SWP) from long-term debt funds for a 6% payout. Any shortfall can be managed with redemption from BAF and MAF.
- The portfolio realignment is recommended every 4-5 years, targeting returns of 9-10% for sustaining retired life.
Retirement Planning with Low Risk Appetite:
- Rushabh Desai addresses a person planning to retire at 55 with a Rs 2 crore corpus and a monthly expense of Rs 50,000.
- Considering a life expectancy of 80 years, he suggests that theoretically, the corpus might be enough, but practical aspects and economic scenarios could make it risky.
- Options include increasing the retirement corpus, pushing back retirement age, raising risk appetite to invest in equity (20-30%), or reducing expenses.
- For low-risk debt products, investments in high credit quality corporate bonds and PSU funds are recommended. On the equity side, investment in Sensex and/or Nifty 500 index funds and dynamic asset allocation funds (hybrid) is suggested.
Wealth and Expense Management for Future Goals:
- The third scenario involves a 40-year-old individual paying Rs 35,000 as rent in Mumbai with properties in Kolkata and specific financial goals.
- Rushabh Desai advises specifying the budget for a future house in Mumbai and estimating a retirement corpus factoring in inflation.
- Monthly SIP in equity mutual funds (20-30% of income) and an annual top-up based on salary increments is recommended. The FD corpus can be invested in debt mutual funds for diversification.
- The advice also includes evaluating the potential of the property generating Rs 14,000 in monthly rent, either liquidating it for better long-term compounding in equity mutual funds or using it for buying a house in Mumbai.
Early Retirement Planning with Diversified Assets:
- Adhil Shetty responds to a 47-year-old planning to retire at 50 with Rs 2 crore in EPF, NPS, mutual funds, PPF, and property worth Rs 2 crore generating a monthly rent of Rs 50,000.
- The expert suggests having sufficient insurance, separate investments for children's education, and no liabilities as positive factors.
- A corpus roughly 25 times annual expenses at retirement is recommended. With a mix of debt and equity and an annual return of 10%, a 6% step-up in withdrawal each year can provide inflation-proof returns.
- The rental income is factored in, and the corpus is expected to support around 25 years. Staying invested in equity for at least a decade after retirement is suggested for additional security, with an average return of 15%.
In summary, these financial experts emphasize the importance of a balanced and diversified investment approach, considering individual risk appetites, future goals, and economic scenarios in retirement planning.