The Sain family should liquidate one real estate asset and invest in aggressive hybrid equity funds, says Mumbai-based Financial Planner Pankaaj Maalde
Noida-based Sameek Sain, 40, and his wife Madhumita, 35, both engineers, want to stop working a couple of years before the usual retirement age. Both plan to retire at 55 and need to build a retirement corpus of nearly Rs 5 crore for their golden years. They are also planning to put together Rs 50 lakh for the education of their four-year-old son Sayonav and another Rs 15 lakh for his marriage. Besides, they want to go on a dream vacation in 2022, which will cost around Rs 5 lakh.
The couple brings home a combined monthly salary of Rs 2.39 lakh and also have assets worth Rs 1.54 crore, including two residential properties (Rs 54 lakh and Rs 40 lakh) and a commercial property (worth Rs 32 lakh), bank balance of Rs 1.5 lakh, Rs 21 lakh in EPF and PPF and an investment of Rs 6 lakh in equity mutual funds. They have an outstanding home loan of Rs 26 lakh for which they pay an EMI of Rs 27,000. Household expenses cost around Rs 66,000 while Sameek contributes Rs 10,000 a month to his dependent parents. The couple has purchased four traditional life insurance plans and pays a total annual premium of Rs 1.37 lakh. Plus, there is a family health insurance plan worth Rs 5 lakh for which an annual premium of Rs 30,000 has to be paid. The monthly outflow leaves a surplus of Rs 1.06 lakh.
On the plus side, they have already invested in equity mutual funds to grow their wealth and the healthy surplus can be invested wisely to fulfil in all long-term goals. On the other hand, the duo must make provisions for emergencies and do away with their home loan at the earliest. Over-reliance on real estate is not desirable either. As realty accounts for 72 per cent of their total investment, the family should sell their second home to repay the ongoing home loan and free up funds for goal planning (see table Inflow-Outflow). The financial road map given here is based on the information provided by the couple. We also assume that dual income will continue until Sameek's retirement.
Action Plans for Now
Contingency: They should have a contingency fund to cover all expenses for three months. The savings bank balance of Rs 1.5 lakh has been allocated for this, but it should be increased later to cover six months' expenditure. The money should be kept in ultra-short-term funds for easy liquidity.
Life insurance: As mentioned before, the family has already bought four traditional (LIC) plans, and these should be continued as part of the debt portfolio as the IRR of these plans is likely to beat inflation. As per the need-based theory, none of the spouses is adequately covered. Therefore, Sameek should get an online term plan of Rs 1 crore for 20 years, and his wife should purchase a plan worth Rs 75 lakh for the same tenure. Together, these will cost around Rs 25,000 a year.
Health and disability plans: The company where Sameek works provides a health cover of Rs 5 lakh for the entire family. However, one should not rely on employer-provided health insurance alone as it will not be valid when one leaves the job or retires. Therefore, on the top of the existing health policies, the couple should purchase a separate family floater plan for Rs 10 lakh sum assured, which will cost around Rs 20,000 a year. Sameek and Madhumita should also get accident disability covers of Rs 50 lakh and Rs 25 lakh, respectively, at a total cost of Rs 12,000 per annum.
Action Plans for Bigger Life Goals
Retirement: Both Sameek and Madhumita plan to hang up their boots at 55 and they will need a retirement fund of Rs 4.85 crore, assuming monthly expenses of Rs 60,000 in current value (after factoring 7 per cent inflation) and a life span of 80 for both. Their current investments in commercial property, mutual funds and LIC, as well as EPF and PPF balance, could help build a corpus of Rs 2.65 crore. For the rest, the couple is required to start a monthly investment of Rs 50,000 and put it in aggressive hybrid equity funds via SIP (see table Retirement Funding).
Son's education and marriage: The couple should start a monthly SIP of Rs 35,000 in aggressive hybrid equity funds to amass Rs 50 lakh in today's value (future value will be Rs 1.30 crore) by the time their son is 18 years old and ready for higher education. A marriage fund of Rs 25 lakh in today's value (future value will be Rs 1 crore) will be needed when Sayonav turns 25. To accumulate the desired corpus, they have to start a monthly SIP of Rs 22,500, again in aggressive hybrid equity funds, and invest Rs 2,500 per month in the government's gold bond schemes.
Dream vacation: The couple should start a monthly recurring deposit of Rs 15,000 for three years or park the amount in an ultra short-term fund to meet this goal.
As told to Renu Yadav
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