Nearing Retirement

Client's Case

Sunil Bhatia, 50 years, married with two children, son 19 years in college, daughter 17 years starting college next year, works at engineering company, Rs 12 Lakh income, lives in own house with no loan, PF balance of Rs 15 Lakhs, have life insurance already, No other savings except Rs.5 lakhs of NSC maturing next year.

Our Recommendations

• Start with identifying your goals:

  • Retirement – medium term goal in next 5-10 years, but you need to support yourself for about 20 years post-retirement

  • Children’s education – short-term goal for both children

  • Children’s wedding - medium-term goal for both children

• Prioritize your goals: Your retirement is very close, so retirement planning should be a priority for you. You must generate a source of income that will support you in addition to the PF benefits that you might get. Your PF balance is at present Rs. 15 lacs and you are contributing an additional around Rs. 1 lakh every year to PF. This will give you a corpus of about Rs 47 Lakhs in the next ten years assuming the 8% return. You will need additional savings of around R. 70 lakhs at retirement to take care of your current lifestyle till age 80.

You are at present spending about Rs.60,000 per month on you and your wife of which at least Rs. 20,000 is discretionary. Try reducing this by about Rs. 10,000 and put this in a balanced mutual fund. At a return of 10% over 10 years this will give you an additional Rs. 20 lakhs at retirement. To fill the gap of Rs. 50 lakhs you might have to consider taking out a reverse mortgage on your own home. This gives you the opportunity to earn a regular pension while continuing to stay in your home while you are alive.

• Healthcare planning: Important that you ensure your health-care costs are taken care of. Buy health insurance or a mediclaim policy today because the later you buy, the more expensive it will become and pre-existing conditions will not be covered.

• Goal – Education for children: Your son is already in college and your daughter is entering college next year. Ensure that you have planned to fund their education or post-graduate specialization. You can also get education loans from various nationalized or private sector banks. You can also use part of the NSC’s maturing next year to fund this goal.

• Goal – Marriage for children: This goal is going to appear quickly in medium-term, around the same time that you are retiring. Think about how much you want to spend for their respective weddings. Invest a majority of your NSC’s (Rs. 4 lakhs) maturing next year into a balanced mutual fund that should give you a return of around 10% over the medium term and will not attract long term capital gains tax. You can hope to get Rs. 8-10 lacs in about 8 years about the time you will need money for the weddings.

• Will and estate planning: You are at an age where your family size is complete and you have already accumulated assets. Therefore please execute a will. You should identify who your beneficiaries are, as well in what proportion they will benefit. Please get this will registered. This can save your successors lots of trouble later on.

• Life insurance: Please review your existing life insurance policies to see when they mature and what the sum assured amounts are. Do they adequately cover the needs of your financial dependants in case of your absence?

(A complete financial plan involves more detailed analysis and recommendations. The Financial Planning page has two free sample financial plans, financial plan1 and financial plan 2  for you to download. Names and other personal details have been changed in above story and sample plans to maintain confidentiality of our clients)