Recently, we got the opportunity to prepare a financial plan for ‘P’, 54, who is looking to retire by 59. His family members are his wife ‘A’, 50, and twin daughters, 24.
His goals are listed below:
- Daughters’ wedding in 2020 at a current cost of ₹30 lakh each
- Gold gift to daughters’ at the time of their wedding — ₹10 lakh each
- Retirement at age 59 with a corpus to manage his expenses of ₹50,000 per month
- A house in his hometown Thanjavur for ₹50 lakh when P retires
His assets and cash flows are listed in the tables.
Low risks
During discussions, P revealed that he had twice lost his job during his career and that affected his savings.
He struggled during those phases for regular monthly expenses.
This experience made him stick to a moderate lifestyle and risk-averse savings for a long period. He wants to be doubly assured of having enough money for his post-retirement phase.
His wife wants to visit historic places in India. As they had been spending money for the kids’ education, house purchase and other expenses so far, she wants to have a simple but fulfilling life post P’s retirement.
‘A’ has some knee-related health issues and P is obese for his age and not very healthy.
The following steps were recommended to the family:
- Immediately opt for health cover with a sum insured of ₹10 lakh
- Maintain an emergency fund of ₹3 lakh. This needs to be built from his rental income in the next 3-4 years before his retirement
- Wedding expenses to be reduced to ₹50 lakh in total; any additional expenses could be funded by the daughters’ income. P was advised to use fixed deposits and the expected life insurance maturity proceeds due in the current year
- Gold gift: Restrict the gold gift to what they have accumulated so far. Any addition could be made from the daughters’ salary till they got married
- Retirement expenses to be reduced to ₹38,000, equivalent to the current expenses, as they are not in a position to afford retirement expenses of ₹50,000 at current cost.
- The retirement corpus needed for P to retire at 59 for a lifestyle with a monthly expense of ₹38,000 is ₹1.73 crore.
- Build a supplementary corpus to support them for regular medical expenses and other needs post-retirement
- Build a vacation fund for their travel plans post-retirement
They want to sell their land near Chennai and use the fund to buy a retirement home in Thanjavur. We advised them to invest the sale proceeds of the land towards retirement. P’s EPF is expected to fetch him ₹71.82 lakh when he retires, taking into account both his employer’s and his own contribution.
P was advised to invest ₹50,000 per month towards retirement for the next four years in large-cap equity mutual funds. P’s expected corpus from his MF portfolio is ₹39.55 lakh when he retires.
Along with an expected land sale value of ₹65.5 lakh on or before his retirement, he is expected to accumulate a corpus of about ₹1.77 crore. This corpus would aid him towards a decent retirement with monthly expenses of about ₹50,000 at age 59 (equivalent of current expenses of ₹38,000).
Shifting base
He can sell his Chennai house and buy a house in Thanjavur if he wants to relocate post-retirement. Generally, people are more comfortable in a place where they have lived for many years. Moving to other cities post-retirement is stressful due to various factors. They can decide this based on their daughters’ place of living, post their wedding.
P can invest ₹1.5 lakh per annum for the next four years in the Public Provident Fund (PPF). The PPF corpus expected at retirement, ₹30.84 lakh, needs to be maintained as a health fund to support any regular medical expenses such as doctor’s visits, prescription costs and support needs.
P and A will be able to undertake domestic travel till his retirement from his annual income. If they have to continue their travel plans post his retirement, they would need ₹15 lakh at retirement for 12 annual travels at a cost of ₹1.2 lakh per annum. With the current income and surplus, they will not be able to accumulate this corpus.
Hence, they were advised to restrict their travel expenses based on their annual rental income. P can save ₹3 lakh per annum and any additional amount possible for the next four years which could be used as a surplus fund post-retirement.
The writer is a SEBI-registered investment advisor at Chamomile Investment Consultants