A reader says, “I’m 48 years old, unmarried, and the only son of dependent parents. I work in a MNC IT firm and own two houses (in Mumbai and Bengaluru) and a car. I have term and medical insurance for the 3 of us”.
“Unfortunately, a big mistake I have made is having very little exposure to the equity market (almost negligible, only about 5 lakh rupees). There were other family emergencies during my 30s which needed my attention and took away a sizable chunk of my accumulation.”
“I have been the old school investor putting money in FDs mostly. As a family, we have over one crore parked in various FDs, and I have a sizable amount in my EPF. In all, my accumulation is about Rs. 1.7 crore. Physical family-owned gold is additional.”
“My household expenses are about Rs 30,000/- p.m. However, real-world inflation of 7-10% is scary and could erode my earnings. I was wondering if I could park Rs. 62.5 lakh out of my total accumulation in Index Funds for a period of the next18 years (when I turn 66), hoping it will turn into Rs. 5 crore at a 12% CAGR in 18 years. Simultaneously, I plan to park the balance of Rs. 1 crore in fixed income to fetch hopefully 6% over that period. I somehow want to compensate for the lost opportunity and time over the last few decades.”
“Please, can you elaborately advise if this is prudent, considering I will be retired in a decade or 12 years and might have 30% exposure to my accumulation in equity? Do you think it’s wise for me to have so much exposure to the equity market through Index Funds after age 55-60?”
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First, Let us do a retirement planning exercise using the freefincal robo advisor tool with these numbers.
- Current monthly expenses that will persist in retirement:30,000 (this seems quite low even if you exclude expenses for your parents; please double check)
- Annual expenses that will persist in retirement: 30,000 (I have included this to account for health insurance premiums and other annual expenses).
- Your age at the end of the current year is 48
- Age you wish to retire 60
- Years to retirement 12
- Total average monthly expenses (annual/12) 32,500
- Post-tax return expected from equity investments % 10.00
- Post-tax return expected from current taxable fixed income % 6.50
- Rate of return expected from current tax-free fixed income % 7.50
- Value of current equity investments ( stocks and equity mutual funds) 5,00,000. This will grow to Rs. 15,69,214 at retirement.
- Value of current taxable fixed income investments (FD, RD, bonds, etc.) 1,00,00,000. This will grow to Rs. 2,12,90,962 at retirement.
- Total Value of current tax-free fixed income investments (PPF + EPF etc.) 70,00,000. This will grow to Rs. 1,66,72,457 at retirement.
The total corpus required to generate inflation-protected income until age 90 via a bucket strategy* is Rs. 2.51 Crores (subject to inputs sent to us and assumptions made above).
* See for example: How much do I need to retire in 2024?
Your current investments should grow to close to Rs. 4 Crores. So, you are all set for retirement except for the asset allocation issue. The robo-advisor tool estimates that you would need about 18% to 20% equity when you retire at 60.
So you can start investing aggressively (with fresh investments) in a Nifty 50 index fund from now until retirement and build this allocation. You do not need to transfer money from your fixed-income instruments to equity now.
“I want to compensate for the lost opportunity and time over the last few decades.”
There is no need for compensation or lost opportunity as you are on course to achieve a sufficient corpus at retirement. So, leave your current investments as is and start investing in equity.
Other considerations:
- Double-check your expenses. Review your retirement plan with fresh inputs and assumptions each year.
- Ensure you have robust health insurance for yourself and your parents.
- Aim to continue working part-time after retirement. This will support your retirement corpus and also help keep you engaged and healthy.
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Now watch Let's Get Rich With Pattu தமிழில் (in Tamil)!About The Author
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Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 14 years of experience publishing news analysis, research and financial product development. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice. Connect with him via Twitter(X) LinkedIn YouTube Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (Published by CNBC TV18) for DIY investors. 
This book helps you ask the right questions and find the right answers. It also includes nine online calculators to create custom solutions.
(2) Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want. 
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say! 
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