When To Shift Retirement Corpus To Safer Products

Ranjeet Singh, 52, email

I have most of my retirement savings in mutual funds (MFs). I plan to work for another 7-8 years. I am comfortable with some risk, but I am worried about a major market fall. Should I change my asset allocation now or closer to my retirement?

As you have a few years until retirement and the market has corrected recently, you can continue to invest in equity MFs. When the market enters a bull run, consider moving a portion of your investments into hybrid funds in the last 5 years and another portion into debt funds in the last 2 years before retirement.

After retirement, maintain 40-60 per cent of your corpus in equity and with the remaining amount in debt funds, fixed deposits (FDs) and other low-risk options, depending on your risk appetite and the corpus. You can achieve this allocation through a combination of equity MFs, hybrid funds, and debt investments.

Suhel Chander, CFP®, Handholding Financials

Ashok Singh, 50, email

I currently spend Rs 1 lakh a month. I have around Rs 1 crore across MFs, Employees’ Provident Fund (EPF) and FDs, and Rs 70 lakh of my net worth is in my house. I expect to retire at 58 and want to fund my daughter’s wedding with Rs 25 lakh in three years. How should I balance retirement planning with this obligation?

The information provided is insufficient to give a very specific answer, as you have not shared the break-up of your Rs 1 crore in financial assets or the monthly savings you channel towards investments. Your Rs 70 lakh house should not be considered a part of your retirement corpus. It will not generate retirement income unless you are willing to sell it and move to a lower-cost home or earn rental income from it.

You should have three goals. First, have an emergency reserve equivalent to 6-12 months of expenses in liquid products to have access.

Second, your daughter’s wedding expense of Rs 25 lakh could rise to Rs 30.62 lakh in three years, assuming 7 per cent inflation. If Rs 27 lakh is already available in FDs or low-risk investments, earmark it for the wedding. Avoid equity investments for this three-year goal. Diversify large FD balances, as the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance covers deposits up to Rs 5 lakh per depositor per bank.

Third, your monthly expenses could rise to Rs 1.72 lakh by age 58, due to inflation. You will need a retirement corpus of Rs 3.43 crore at a 6 per cent withdrawal rate.

Your Rs 1 crore could grow to Rs 2.14 crore in eight years at an assumed annual return of 10 per cent. If Rs 27 lakh is allocated to the wedding, the remaining Rs 73 lakh could grow to Rs 1.56 crore. Both amounts fall short of your retirement target.

You should prioritise retirement investments while increasing contributions, consider working beyond 58, reduce wedding spending if necessary, and treat your house as a contingency asset.

Uma Suhel Chander, CFP®, Handholding Financials

Sushma DEsai, 44, email

I have Rs 25 lakh in FDs and Rs 40 lakh in MFs. My spouse, two school-going children and ageing mother are dependent on me. I have an employer-provided life insurance. Should I buy a separate term plan and with how much cover?

Yes, you need an independent term insurance plan as employer-provided life insurance may end when you change jobs or retire, and the coverage may be insufficient to cater to your dependents.

Assuming a monthly income of Rs 1.5 lakh. A common rule of thumb is to have life cover worth 15-20 times your annual income, which translates to Rs 2.7-3.6 crore. Considering your financial obligations, a cover of Rs 1.5-2 crore may be a practical number.

The human life value (HLV) method offers another estimate. Assuming 16 working years until retirement at 60, annual income of Rs 18 lakh, personal expenses of Rs 5.4 lakh (30 per cent of income), a present value factor of 11.2 and existing assets of Rs 65 lakh, your estimated HLV is Rs 75 lakh. After accounting for children’s education, your spouse’s financial security and your mother’s expenses, your total protection requirement could reach Rs 1.5-2 crore.

Hina Shah, CFP®, Luhem2 Wealth