PLanning Whiz- July 2020

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Geojit’s Investment Analyst, Gibin John, helps an NRI couple with their retirement planning. Based on the information provided he advises them on how they can utilize their current savings and make wise investments to accumulate a suitable retirement corpus.

I am a 50-year old NRI and my wife is 47. We have two daughters both married. We are running a business and earning an average monthly net income of ₹ 250000 per month. Our monthly expense is₹ 150000. Now we are planning to settle in India within five years. My biggest worry is whether the amount that we have accumulated until now would be sufficient to meet the post-retirement expenses. Our investments are, NRE FD – ₹70 lakhs, NRO account- ₹12 lakhs, residential house value approximately 1 crore. We have two apartments worth ₹40 lakh and ₹50 lakh. These apartments are currently on rentals and fetching monthly rent of total ₹14500 each. Also, we have a plot worth ₹ 30 lakh.

We are already done with major goals in life. Now we want to know whether our existing savings are enough to meet the retirement period expenses. The expected post-retirement cost of living is ₹ 60,000 per month. Please check our existing financial position and advise us on a suitable retirement plan.

Gibin John, a certified financial planner replies:

We have always seen people starting their retirement planning very late. There are two reasons for this. One, they never realise the need for planning for retirement at an early age, and second, because they are too busy working towards achieving family goals, they forget about their own life. So, once they are done with all responsibilities, it will be too late to plan for retirement corpus and the retirement income generation goes for a toss.

In your case, you have done reasonably well. After completing all your goals, now you have decided to plan for your retirement, at the age of 50. Actually, retirement is also as important a goal as other goals since after retirement it is difficult to continue to work and earn money for maintaining the same standard of living as during the working period. In the working years, one can achieve goals by depending on loans or financial assistance from other sources. But post-retirement, these facilities may not be there since it would be difficult to repay the obligations. So everybody should give priority to the retirement goal as well.

In your case you have been working abroad for past many years and achieved most important goals. Now you want to know whether the balance amount, after completing all goals, is sufficient for retired life.

You are expecting a monthly expense of ₹ 60000 per month post-retirement. For getting this amount adjusted for inflation of 4.5%, you need to create a corpus of₹ 1.90 crore. After considering the rental income of ₹ 35000(considering 4% growth p.a) during the retirement period the required corpus will come down to ₹ 1.40 crore.

Currently, you have a liquid balance of ₹ 82 lakhs in the NRO and NRE accounts. From this amount, you should set aside a minimum of ₹ 5 lakh for emergency requirements. We are left with a balance of ₹ 77 lakh which is not sufficient to meet the post-retirement expenses. For filling the shortfall, either you have to sell the property or invest the current surplus amount wisely. Our advice is to invest your existing surplus amount of ₹ 1 lakh every month in debt mutual fund or in NRE RD. Assuming your investment generating a return of 5.5%, you can create a corpus around ₹ 69 lakh. We assume that the existing investment of ₹ 77 lakh also fetches the same return then the amount will become ₹ 1 crore at the age of 55. So you can create a retirement corpus of ₹ 1.69 crore. This way you can create the retirement corpus without selling any property.

It is good that you decided now to plan for retirement. Planning for retirement is as important as planning for any other family goal.

Finally, one more thing. You should take family floater health insurance with coverage of at least ₹ 15 lakh. This will protect your investments from depletion due to unexpected medical expenses.

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