I am 35 years old and my monthly income is Rs 1.45 lakh. My wife is currently working but will resign shortly. We have a 4-year-old son and are expecting our second child this year. Our monthly household expenses are Rs 30,000. The EMI payment towards loans taken for flat and plot is Rs 27,050 and will be repaid in 8 years.
I have a flat worth Rs 40 lakh and also a few plots worth Rs 1 crore. I am planning to construct a house in any one of these plots and would rent it out for Rs 13,000.
My investments in fixed deposits and NCDs are worth Rs 6 lakh. I have taken a term insurance policy and also have group term cover for Rs 50 lakh.
We have health cover for Rs 5 lakh and that includes my parents.
My goals:
For my children’s school education and higher studies I need Rs 15 lakh and Rs 10 lakh each respectively.
For their marriage I may need Rs 20 lakh each, in present value. Is it wise to sell the plots to meet the children’s education and marriage needs?
Based on my financial strength, what would be the appropriate age for me to retire?
— Ram
Given your assets, together with your current surplus, you can retire at 45. Your current annual living cost of Rs 3.6 lakh will be Rs 7.08 lakh at an inflation of 7 per cent in 10 years. To receive such a pension for the subsequent 35 years, at retirement you should have a corpus of Rs 2.08 crore and it should earn a return of one per cent over and above the inflation rate. If your current investment in PF and PPF continues grow at the rate of 8.5 per cent and your mutual fund investments grow at the rate of 10 per cent, you will be within Rs 64.6 lakh of reaching your target.
To bridge this gap, you ought to save a sum of Rs 28,100 for the next 120 months and it should earn a return of 12 per cent.
Since you have not stated your monthly EPF contribution we have not factored it in our calculation. This future accumulation can be used as a buffer to meet any shortfall.
Even assuming that you construct a house after taking a home loan for Rs 35 lakh, you will be left with a reasonable surplus.
If you start saving Rs 25,000 a month for the next 10 years, you can accumulate a corpus of Rs 55 lakh and it can support your children’s marriage to the extent of 70 per cent.
After provisioning for all the goals, you will have a surplus of Rs 15,000 from your salary and another Rs 13,000 from rentals. This surplus may be helpful in meeting fee payments to the school where your children study.
If you have a shortfall in any of the goals, sell your plot or else leave it as estate to your children.
Set aside your fixed deposits for emergency.
Regarding your investments, don’t dabble with funds based on market condition. Have a steady long-term approach. Fix a return target for your investments and utilise the trigger option in the mutual fund schemes to book profits.
(The author is CEO, myassetsconsolidation.com)