Vishal wanted to understand how he can manage his portfolio and start withdrawing funds for his regular expenses.

Vishal, 53, lives with his wife in Hyderabad. He lost his job last year and has not been able to find a suitable opportunity similar to his last served role with his previous employer.

Vishal and his wife lead a comfortable life, but their expenses are running quite high. Their lifestyle demands ₹1 lakh per month towards their living expenses, travel to their home town, and other ad hoc trips.

Both do not have adequate health insurance. The couple’s parents and relatives of extended families are 90 and above, and with reasonably good health, both expect to live beyond 90. They do not have children and are keen ensure maximum safety for their corpus to last their life time.

Currently, they get a rental income of ₹15,000 per month from their Coimbatore property. They have been trying to sell their land near Bengaluru for the past two years but not able to get the price they are looking for.

Vishal wanted to get a true picture of his financial position and to understand if he should opt for employment with lower income. His last drawn salary was ₹2.2 lakh per month, post all deductions and taxes. He is holding an offer for a consultant role for a consolidated pay of ₹7.2 lakh per year sourced through his friends.

Review and recommendations

After a review of the couple’s resources and needs, these were the insights and action plan shared with them to safeguard their future.

·        The couple need to opt for health insurance for sum insured of ₹10 lakh with a super top-up policy of ₹50 lakh immediately.

·        They also need to write a will to ensure how their wealth would be distributed in case of unfortunate events such as death and incapacitation.

·        After analysing the lifestyle of the couple, it was decided to keep ₹60,000 per month towards basic living expenses in Hyderabad. They are spending ₹2.4 lakh per year on travels. Additional ₹20,000 is non-discretionary spending which they do not want to compromise on.

·        When a retirement plan is drawn with ₹1 lakh per month with an expected inflation of 7 per cent and expected return of 8.5 per cent post tax for 42 years, they need around ₹3.82 crore. By selling the land, consolidating PF and MF portfolio, they have the funds to manage the lifestyle expenses. But this lacks many important aspects of retirement planning and income distribution.

·        There are a lot of economic assumptions, including their expected return, inflation, taxes, and life expectancy.

·        Providing for sudden health challenges and unknowns such as a pandemic may throw potential challenges in the way of portfolio management.

·        As the couple need to provide adequate corpus for managing various circumstances, retiring at this age may not be the right decision for Vishal. It would be desirable for Vishal to opt for the consultancy role, which was discussed, as also the impact of that earning on their lifestyle.

·        It was also suggested to exit from EPF as the returns are not tax efficient when the contributions are stopped.

·        The portfolio was realigned to suit their needs with a maximum of 40 per cent in equity and the balance in fixed income instruments based on their risk profile. It was recommended to set aside 12 months of living expenses in liquid assets.

·        Vishal was advised that when he sells the land, the sale proceeds should be reinvested considering his requirements.

Striking a balance between comfortable living in the present and preparing the finances to last longer to address longevity is not just the role of the financial planner. The investor also should understand how this is crucial to a sound retirement plan and peaceful living. It is more of co-creation where both the planner and the investor sit and understand the sacrifices needed to be made in the present, and the nature of challenges in the future. 

The author is a SEBI Registered Individual Investment Adviser (www.financialplanners.co.in)

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