I was recently quoted in Economic Times WEALTH (5-11 February 2024) in the Q&A section where a panel of experts answers readers’ questions related to various aspects of their personal finances.
The exact question and the answer –
Here is the text version of the query and the reply –
Question: I’m a 46-year-old woman with no dependents. I have retired from my mainstream job but I have intermittent income. My investment portfolio consists of listed equity of around Rs 15 lakh, equity mutual funds of Rs 2 crore, PMS equity of around Rs 50 lakh and gold bonds for around Rs 15 lakh. I also have PPF investments of around Rs 25 lakh which I continue to contribute to and an NPS corpus of Rs 7 lakh in which I continue to put around Rs 50,000 per year. There are a couple of LIC policies due to mature within the coming 10 years. I have a health insurance cover of around Rs 15 lakh. My monthly expenses are around Rs 1,25,000. However, I need an additional Rs 6 lakh for travel every year. Is my portfolio sufficient to take care of my expenses till I die (85-90 years life expectancy)? If I receive some additional funds as a lump sum, where should I put them?
Your current portfolio size is about Rs 3.12 crore (not including LIC money or additional funds that you will get). In this, about 84-85% is equity allocated while the rest is in debt/gold. This is a high-risk portfolio which can be very volatile in sharply moving markets. And given that you have chosen to (semi) retire and not have consistent active income, this isn’t the best suited asset allocation for you unless some other important data points are missing.
Looking at your core expenses of Rs 15 lakh per year, this corpus is about 20x times the expenses but if we also include your travel expenses of additional Rs 6 lakh, this corpus is only 15x. While these are just thumb rules for broad hygiene check, even if one does detailed retirement planning calculations, this ratio of current expenses to corpus size is risky. The details of your intermittent income (or LIC payouts) aren’t available and it is assumed that you primarily rely on portfolio for expense management. So, there is an urgent need to have a serious relook and if possible, rationalize your expenses as here, we are talking about 40-45 years of portfolio longevity.
Another issue is that most of your money is invested in either equity or long-term debt (PPF, NPS). So, there is no short-term debt bucket from which you may withdraw for regular expenses. Ideally, in a similar career/semi-retired life situation as yours, it is advisable to have a bucket of short-term debt instruments with at least 3 years’ worth of expense money parked.
Regarding the lumpsum amount that you are about to get, I suggest increasing your debt allocation first. It can be in a mix of decent debt funds, bonds, FDs etc. Your equity allocation is already high and hence this view.
Also, details of your MF portfolio aren’t available but if your portfolio has a high allocation of mid-small caps, then you should consider reallocating to increase exposure to largecaps.
While you have a solid asset base with reasonably large equity allocation, I strongly suggest you get in touch with a fee-only investment advisor and have your case deeply analyzed given the current expense levels and that you are in a way, in post-retirement phase voluntarily and but with a long life expectancy runway. There is a need for proper risk management in your current portfolio allocation. You don’t want to run out of money before you run out of years. This may sound harsh but it is better to cross the river (i.e. make portfolio/expense course corrections) at the start than later.
You may also want to increase your Rs 15 lakh health insurance coverage, if not immediately then in a few years’ time given the medical inflation these days.