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SATISH: I am 50 years old. For post-retirement monthly income I am planning to park Rs 1 crore lump sum to avail monthly SWP later. Should I park this lump sum in one or divide 50 K each in two or three and more and then keep withdrawing 0.5 per cent from each as SWP? Which will be a better option?
Retirement Corpus needs safety and liquidity along with growth as it has to last a long time.
As your complete requirement is not very clear I will mention some numbers to give you an idea and you can plan based on your actual requirement.
Let’s say your monthly expense requirement in Rs 50,000 per month i.e. 6 lakh per year. This is an amount for the first year, but with inflation, it will increase each year.
Depending on your risk profile, the Retirement Corpus needs to be invested after prioritising the 3 parameters of safety, liquidity and growth.
If you have a low-risk profile then invest in safe investments like Debt funds or Fixed deposits. Risk is Inflation will eventually start reducing your corpus.
If you can handle moderate risk then divide the corpus e.g. Keep 75 per cent in growth (with some safety) funds like the Balanced Advantage/Hybrid funds and rest 25 per cent in safe investment such as Debt funds or Fixed deposits from which you can withdraw for monthly expenses.
In your case Rs 25 lakh in safe investment will help manage approximately 4 years of expenses.
The remaining Rs 75 lakh invested in Balanced Advantage funds will continue to provide growth. So if we assume it grows at 8 per cent every year, plan to withdraw 5 to 8 per cent of your fund and move it into safe investments.
This way you can plan to have approximately 4 years of expenses in safe investments and give the remaining corpus an opportunity to grow to management and stay ahead of inflation.
The above is just a simple view of looking at the Retirement corpus and managing your expenses, but beyond this there are many other aspects that need to be considered also, such as your health related requirements, your lifestyle requirements, additional goals/responsibilities towards family and life expectancy as you plan for retirement. This will provide you a more accurate and realistic insight into the retirement plan.
Advice you to approach a Certified Financial Planner to provide a comprehensive and customised guidance/plan to you.
Anonymous: Hi, i am 52years old, wanted to retire early, following are my investments, MF - INR 65L, Equity - INR 22L, 3 houses, one is self-occupied, other 2 houses valued at INR 90 L and INR 32L respectively, i have home loan outstanding of INR 12L, FD of INR 36L, PF INR 32L, monthly expenses requirement is INR 1 L, kindly help me to plan my early retirement. Thank you in advance for your reply on my question.
As there are many things to consider for an early retirement, one of the first is to start thinking about it in a more realistic manner.
An early retirement is not necessarily stop working life, but think of it as a more comfortable schedule that provides you opportunities to relax and pursue your passion and interests and live life on your own terms.
You may or may not undertake an activity which can be monetised, meaning which provides you some sort of income -- not necessarily to cover your living expenses in whole/part. So do give it some thought of how you intend to keep yourself occupied once you retire from your 'current schedule'. Will you generate any source of income or will you incur/require more expense?
At current age of 52, an early retirement even if we consider at 55 years of age, is still a long life ahead. I will make a lot of assumptions in my response -- such as life expectancy of another 30 years, average return of 8 per cent on all investments for future etc -- as these are not known from your query.
Are the 2 real estate properties earning any kind of rent that can be considered as income?
There are too many variables that go into the calculations for retirement which are specific to each individual and their circle of life.
Generic solution: You have a currently accumulated investments valued at INR 2.65 Cr (all investments less loan).
Current monthly expenses is INR 1 Lac, over which inflation needs to be applied each year (depends on lifestyle and composition of items of expenses).
So if your cumulative investments appreciate at average 8 per cent annually, and your monthly expense increases at 6 per cent annual inflation, your current accumulated investments are just about enough to manage expenses for next 30yrs (excluding tax implications-- refer below).
Points to consider:
1. Inflation in real world is more than 6 per cent (depends on the individual)
2. Liquidation of investments e.g. Real estate attract expenses/fees and tax on capital gains as it will be lump sum
3. PF post retirement will earn interest only for 3 years, so you need to plan to re-invest the amount
4. Interest income on FD attracts tax at slab rate
5. Withdrawal of amount for monthly expense from your investments will attract tax on capital gains (MF and Equity)
I strongly recommend you connect with a Certified Financial Planner for personalised guidance and prepare a plan that will take into consideration your risk profile and overall investment management towards the retirement. Benefits will include a more tax efficient plan which will consider your requirements and ensure retirement goals are achieved and if there is a shortfall -- what alternatives you need to consider.
Hope this is helpful and all the best for the future.
Saket: Please advice on my portfolio. I'm 50 years old married freelancer with no children so end up doing investments through STP's. Right now I have 1 crore in ICICI Aggressive Hybrid, 1 crore in HDFC Balanced Advantage, 50 lakh PMS with ICICI Contra, 50 Lakh PMS with Abbakus. 30 Lakh HDFC Mid Cap. 30 Lakh Oswal Business Cycle. Apart from that I have 20 lakh in PPF. Please advice.
Your portfolio is a mix of investments across MFs, PMS and PPF.
Assuming PMS is all equity, the asset allocation reflects approximately an 80:20 ratio in Equity:Debt respectively, which seems fine.
As your objectives or goals are not available, it would be difficult to indicate if they suit your profile.
Most of the MF schemes mentioned are fine with a good track record. The exception is the Business Cycle scheme: this is a new scheme and being sectoral it will attract very high risk; it’s approximately 10 per cent of your portfolio value so continue if you understand the risk.
Alternately you can consider a Flexi-cap or Multi-cap MF scheme that are well diversified and for a 7+ years of time horizon.
PMS services: If your experience with the PMS services are good and they meet your expectations for returns, then do continue.
PPF: Plan to utilise it as a tax efficient instrument to withdraw funds at the time of retirement. Continue to contribute max possible and complete lock-in period of 15 years and keep extending the account with contributions. Over the next 10-15 years you can accumulate a good corpus which will be completely tax free for withdrawal.
An observation/suggestion as its not indicated: As you are freelancer please plan to have at least 6-9 months expenses in an investment which has high liquidity and safety e.g. FDs as your emergency funds. In extreme eventualities like the pandemic or a personal crisis, this fund can support the immediate needs.
As you are going to be moving towards your retirement in a decade or so, I recommend you contact a Certified Financial Planner who can add value to your portfolio and provide a personalised evaluation and guidance taking into consideration your family profile, goals and requirement of the future while assessing risk and tax efficiency.
Neeta: I bought an apartment in Delhi in the year 2002 for Rs 5 lakh (own funds) Plus Rs 15 lakh bank loan for 15 years at interest rate of 10 per cent. Now want to sell it for Rs 199 lakh. Please advise on following: 1. How to work out cost of acquisition considering interest paid on bank loan and expenses incurred from time to time to upkeep the flat around Rs 5 lakh. I don't have bank interest certificate. 2. What will be capital gains tax calculation if I sell it now with both options old v/s new? Please advise.
At the high level this should help you.
1. Cost of acquisition can include the purchase price and the cost of improvement, so the upkeep expenses to maintain the property cannot be considered, but if you made any form of addition/alterations to the property then you can include it.
The interest paid on loan is eligible for tax benefits; it cannot be included in the cost of acquisition.
2. Old Rule: Using the CII for calculations indicate Capital gains of Rs 130 lakh, the capital gains tax (20 per cent on difference after indexation) works out to be approximately Rs 26 lakh. Note exact dates of purchase/sale will determine the CII values to be used, assumed FY2002-3 and FY2024-25 for now.
New Rule (2024 budget): Capital gains = difference of sale and cost price i.e. Rs 179 lakh, tax of 12.5 per cent on it is approximately Rs 22 lakh.
Note: You can add/reduce the cost/sale price with expense incurred in transacting the property e.g. brokerage.
Options to save tax on the Capital gains amount
1. Reinvest in another residential property within 1 year prior and 2 years after sale date or construct within 3 years after sale date.
2. Invest in NHAI bonds – it has lock-in period and the interest earned is taxable.
Please contact a CFP or a Tax consultant for further guidance.
Deepak: which mutual fund is best at present for long term gain?
There are many Mutual Fund schemes that are doing well depending on what factors you consider to evaluate them for.
So rather than look for the best (which can change over time and other conditions/factors), I recommend you look for consistency in a MF scheme.
Consistency will help remove the bias and fear of being/not being the best and provide a more solid approach towards investing and staying invested in the MF scheme.
Also when deciding on the MF scheme, do consider the investment goal, time duration of the investment and risk you are willing to associate to your investment. These can help you narrow down on the MF category/scheme.
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