I am Gulshan, aged 42. My wife, aged 39, is a home-maker. We have two children, aged 12 and seven. I worked abroad for some years and am now settled in India. I decided not to take up employment but lead a retired life with my savings.
I have a corpus of Rs 1.1 crore, which I have invested in equity, mutual funds, fixed deposits and in savings account.
I stay in my own house, which is worth Rs 40 lakh. My monthly expenses work out to Rs 35,000, including the fuel cost for my car. I am investing in systematic investment plans in four schemes the total outgo is Rs 25,000.
My concerns are:
The cost of higher education for my daughter and son may cost Rs 5 lakh each (present value). I may require a similar amount for their marriages. How much do I need to save monthly to reach the target taking inflation into account?
I hold a life insurance traditional endowment policy with a sum insured of Rs 5 lakh that is likely to mature in the next couple of years. Do I need any other insurance?
For health benefits, I have taken a mediclaim policy with sum insured Rs 2.5 lakh to cover all my family members.
After the children's education and weddings, I wish to have pension until I am 75-80.
What will be the pension we – my wife and I – require if our requirement is 50 per cent of the current expenses? How much do I need to save for the purpose?
I bought land few years ago and that is currently worth of Rs 20 lakh.
I have decided not to take up employment even if we find it difficult to meet our needs. Please take note of this and suggest a plan.
Current assets are as follows: I have invested in several mutual fund schemes with mixture of large and flexi cap funds to the tune of Rs 75 lakh. (see chart)
We have direct exposure in equity market to the tune of Rs 8 lakh. I with my own research I intend to make Rs 1-2 lakh per annum from the equity market. You can accommodate Rs 1 lakh as income while calculating the requirement.
I have deposited Rs 25 lakh in one of the nationalised bank. This deposit is likely to mature at the end of this year. Where should I deploy the amount upon maturity?
Current savings account balance is Rs 2 lakh, which is likely to meet our expenses for the next couple of months.
Solution
Asset allocation is paramount, especially for someone planning retirement in early forties.
As your non-earning years are several, you need to deploy the funds conservatively. Failing to do so may leave you with lesser money at a later date.
Going by your current standard of living, there is ample scope for expenses to increase as your children grow up.
As you have already made up your mind not to work anymore, you should try to balance your life by cutting unwarranted expenditure.
Asset allocation
Your investment is tilted towards equity. This may not be in the best interest of a person looking at a fixed monthly income. At the current juncture what is required is higher exposure to debt and the exposure should it be as high as 70 per cent of the corpus.
For instance, out of your Rs 1.1 crore, you need to invest at least Rs 75 lakh in fixed instruments to earn an interest of Rs 5.8 lakh.
With interest in most banks at 7 per cent, you ought to park Rs 55 lakh between deposits and post office monthly income scheme (maximum permitted is Rs 6 lakh) and the rest in fixed deposits in companies with at least AA investment rating.
As there is a possibility of interest rates increasing in a year's time, park your deposits for tenure of not more than two years at present.
A point worth noting is that bank fixed deposits of up to Rs 1 lakh is covered by insurance. Hence deploy your deposit in different banks.
Taking into account the Rs 1 lakh profit from equity shares, the total income after tax will be Rs 5.8 lakh.
So you need to structure your goals and start saving accordingly.
Goals
Education: For your daughter's education the present value of Rs 5 lakh inflated at 6 per cent (the same will be used for all calculations) will be Rs 6.3 lakh. To accumulate this amount you need to save Rs 10,330 a month for the next 48 months and should earn an interest of 12 per cent compounded annually (for all future calculations the same interest is considered).
For your son's education, in another eight years the present value of Rs 5 lakh will be Rs 8 lakh if inflated at the same rate.
To reach the target you need to save Rs 5,100 for next 96 months.
Marriage: As your expenses may exceed your income, you can postpone the accumulation for this goal by four years. Once your daughter's higher education target is met you can start saving for marriage.
Assuming you plan for her marriage in 10 years – when she reaches 22, the present value of Rs 5 lakh will be Rs 9 lakh. You need to save Rs 8,700 for 72 months to reach the target.
If your son is getting married at 26, your requirement at that point of time will be Rs 14.3 lakh. You can start saving Rs 3,460 from 2014 for 168 months to reach the target.
Pension: You have stated you will require 50 per cent of the current monthly expenses as pension. This amount, currently Rs 17,500 a month, will be Rs 50,000 if inflated for next 18 years.
To have this sum as pension for the next 20 years from the age of 60, you ought to have a saving of Rs 1.2 crore and it should earn an interest of 2 per cent over and above the inflation.
If you earn less than this, your corpus will get exhausted early.
If so, you can at that point consider selling the plot or alternatively resort to reverse mortgage of your house for the rest of your life and leave the other assets as estate to your legal heirs.
To transfer the assets to your legal heirs it may be advisable to write a will clearly indicating all details.
Conclusion
The systematic investment plan adopted by you has to be stopped immediately if you wish to execute the plan mentioned above, which is aimed at cutting cost. To meet the shortfall in your monthly income, consider fixing regular targets and booking profits on your mutual fund investments, after exhausting the balance in your savings account.
To protect your corpus you need to take medical insurance for at least Rs 10 lakh. The current medical insurance of Rs 2.5 lakh is too low.
The maturity proceeds of your life insurance policy can be earmarked for any shortfall in corpus for education or marriage of your daughter.
No comments:
Post a Comment