Planning Whiz – January 2021

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    Geojit’s Investment Analyst, Gibin John, helps a middle-aged couple, who have been investing for many years with their financial planning. He advices them on how they can meet their future goals like their daughter’s marriage, retirement, vacation etc.

    I am Dhanesh Raj. My age is 50 and my wife’s age is 44. I am working in a private firm and I am planning to retire at the age of 58. We have 2 sons and one daughter. One son is married and staying separately. Second son has just started his career as a manager in a private company and daughter is studying MBA final year. My monthly salary is Rs 80,000 and rental income is Rs 27,000. Monthly expenses are around Rs 35,000.

    We have three houses out, of these two houses are let out on rent of Rs 15,000 and Rs 12,000. Other investments include mutual fund investments of Rs 5,25,000, shares of Rs 12,00,000 bank fixed deposit Rs 10,00,000, land worth Rs 40 lakh and gold ornaments worth Rs 30 lakh.

    One of our goals is daughter’s marriage after three years. Expected cost for this goal is around Rs 40 lakh, where along with our gold investment, we would require additional amount for Rs 10 lakh. Currently I am planning to retire at the age of 58 and I want to know if I can make sufficient corpus to meet my goals and if there is an option to retire at the age of 55? Also require Rs 2 lakh every year for vacation for 10 years after retirement.

    Gibin John, a certified financial planner replies:

    Dear Mr. Dhanesh,

    Your current age is 50 and you are planning to retire at the age of 58. You have invested well during your career and many of the important goals have been achieved. Now we can analyze whether the corpus which you are left with is    sufficient to meet the future goals like daughter’s marriage, retirement, vacation etc.

    Your current salary income is Rs 80,000 and   rental income is Rs 27,000. Therefore, your total monthly income is Rs 1,07,0000. Your monthly expense is Rs 35,000 and the balance surplus is Rs 72,000. This amount you can invest towards goals.

    Firstly, you have to create an amount for meeting the contingency requirements. You have not  mentioned about the savings account balance or any other liquid funds in the letter. In such case, you have to create a new fund for this purpose by  using existing surplus amount. Ideally everybody has to keep an amount equal to three to six months expense as emergency fund to meet   unexpected financial emergency in the life. In your case this amount is Rs 2 lakh. You can create this amount by saving Rs 50,000 each for next four months.

    Your immediate goal is your daughter’s marriage after three years. You already have some gold ornaments which can utilize for marriage purpose. The additional amount required for the marriage is Rs 10 lakh. Since this is an important short-term goal, you may earmark your existing fixed deposit of Rs 10 lakh for this purpose. You may consider the accumulating interest amount from this fixed deposit also for this goal, if the cost increases due to inflation at the time of the marriage, then this interest accumulation will help you to cover excess cost.

    Another important goal is your retirement. Your actual retirement age is 58 but you are exploring the possibility to retire at the age of 55. Currently you are getting rental income of Rs 27,000. Here we assume that the rent will grow by 5% and you will continue to get this income during your entire post retirement period. If we consider this income, you will require an additional corpus of Rs 65 lakh to meet the post retirement expenses. Excluding the rental income this amount will be around Rs 1.65 crore. You may accumulate this fund in the next 8 years by investing Rs 53,000 per month in debt oriented mutual fund or in recurring deposits. But to accumulate this amount in next 5 years, that is by age of 55, you need to invest Rs 93,000 per month. Investing this amount in the existing financial situation is not possible due to insufficient funds. But if you invest Rs 53,000 every month till 55 years, then there will be a shortage of Rs 30 lakh in the retirement corpus. You can make up for the fund deficit by selling existing investments like land, mutual fund and shares.

    Along with creating this retirement corpus you need Rs 2 lakh every year for 10 years immediately after the retirement for vacation. For fulfilling this goal, you will require around Rs 34 lakh after considering inflation of 6% on this cost. If you  invest Rs 12,000 per month in debt oriented mutual funds till retirement, you can create a corpus for 3 or 4 trips. Analyzing your retirement and travelling expenses, for comfortable retirement, it is better to retire at the age of 58, however if situation demands to retire at the age of 55, you may have to sell some investment for fulfilling all goals.

    You have not mentioned about the health insurance. If you don’t have the insurance you should take a minimum of Rs 5 lakh coverage  insurance immediately.

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