Financial planning: Striking a work-life balance

Sundar, aged 39, under stress due to his employment, was desperate to quit. His wife, Nandini, aged 37, was not earning.

. Sundar wanted to set aside an emergency fund for medical needs. He also wanted to gradually liquidate a few investments to support his expenses till he got employed in a relatively less-stress job. He also was inclined to venture on his own as an alternative.

Sundar wanted to protect his commitment towards the education of his son, aged 11. . His net worth and annual cash flows are mentioned in the accompanying tables.

Goals

After a detailed discussion, the goals were redefined as follows. An emergency fund of ₹16 lakh was to be maintained. The housing loan was to be foreclosed in the next 5- 7 years. Sundar also wanted to accumulate ₹ 30 lakh at current cost for his son’s education that would fall due in 2026; at 10 per cent inflation, the cost worked out to about ₹ 53 lakh.

Sundar wanted to retire at his age of 50. The life expectancy for him and his spouse was up to age 90. The retirement expenses were found to be ₹40,000 a month. Considering 6 per cent inflation over the years, it amounted to about ₹76,000 a month at age 50; this warranted a corpus of ₹ 2.91 crore at retirement.

As Sundar wanted to settle in his home town, we suggested that he dispose both the houses in Bengaluru. With the proceeds, he could buy a farmland and a house in his home town for a comfortable retired life.

In addition to the retirement corpus, Sundar wanted to build a wealth corpus of ₹2 crore to provide for his travel, health and other needs post retirement.

We assessed Sundar’s risk profile as ‘growth- oriented’. His current asset allocation was almost equally split between equity and debt including his RSU (restricted stock units) holdings.

He was saving regularly in a ratio of 60:40 in equity and debt. We recommended the same allocation ratio for his future savings and investments.

Recommendations

We advised Sundar to tag ₹16 lakh of his fixed deposits as his emergency fund. Another ₹ 2 lakh can be tagged as a fund towards career growth. We recommended that Sundar invest ₹8 lakh and tag his current mutual fund holdings of ₹7 lakh to his son’s education. This would fetch him a corpus of about ₹ 26.5 lakh in six years. He was advised to invest ₹ 30,000 per month to manage the deficit — staying with large cap funds for the equity allocation and short -term funds for the debt allocation. Sundar could expect to generate a corpus of ₹ 2.2 crore from his current holdings of EPF (Employees’ Provident Fund), PPF (Public Provident Fund) and RSU and his regular contribution to PF and PPF. To fund the deficit in the retirement corpus, we advised him to invest ₹ 31,000 per month in 70:30 allocation in equity (using a combination of large- and mid-cap funds) and debt (through National Pension System).

Sundar had been investing ₹50,000 per month in his RSU through his voluntary savings and RSU allotments every year. As he did not plan to continue with the current employer, we recommended not to tag such savings. We advised him to increase his loan repayment by ₹ 25,000 per month. This will help him close his housing loan in 5.5 years, and save interest cost of about ₹ 10 lakh as well.

Sundar would have to invest about ₹10 lakh per annum to get another ₹ 2 crore as wealth corpus at his retirement. He was not in a position to commit this amount now. But with his earning potential, he would be able to invest later. The loan repayment and his son’s school fees will stop after six years. This should also help him accumulate the desired corpus.

We also advised Sundar to opt for ₹1.5 crore pure term life insurance for himself and ₹10 lakh health insurance for his family immediately.

Sundar’s disciplined savings and investments over the years made it possible to achieve his desired work-life balance.

The writer is an investment advisor registered with SEBI and Co-founder of Chamomile Investment Consultants, Chennai