I am 42 years old and my wife is 37. Our combined salary is Rs 40,000 per month. My son is studying in class eight. I live in my own house and had taken a loan for its construction. Our current outstanding mortgage amount is Rs 10.65 lakh which will be repaid by 2021. My monthly EMI is Rs 9,100.
Our monthly expense is Rs 25,000. It includes home loan EMI, LIC contribution of Rs 1,300 with sum insured of Rs 1 lakh for self (maturing in 2018), spouse (2019) and son (2026) and school fees of Rs 1,300.
Till recently, our surplus was spent in meeting my MBA expenses and my wife’s Ph.D degree costs. From next month, we will have monthly a surplus of Rs 10,000 and it is likely to increase once she completes her higher studies.
My future requirements are: Rs 10 lakh (in present value) for my son’s higher education in 2017 and Rs 5 lakh for his marriage in 2025.
We wish to save for our retired life and we expect to live till 75.
Our PF balance is Rs 4 lakh. My monthly EPF contribution is Rs 900 while that of my wife’s is Rs 930.
What should I do to achieve my goals with the present level of income? How much investment should be made in equity, debt funds and gold? .
My family is not covered by any health policy. I have a cover for Rs 1 lakh from my employer.
— Kannan
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Those with limited income need to strike a balance between inflows and expenses. It is always a challenge to create a healthy surplus with limited income and when inflation rages unabated.
EDUCATION
Of all your goals, education is a relatively short-term target for which you need to divert your entire surplus .
If Rs 10 lakh is inflated at 7 per cent, it will be Rs 14 lakh in 2017. Since two of your insurance policies are maturing over the next few years which can cater to around 28 per cent of your needs.
For the balance amount (Rs 10 lakh), you need to save monthly a sum of Rs 13,350. Since you have a limited surplus currently, save Rs 8,850 for the first two years. Later, increase it once your surplus is enhanced.
Your son’s marriage needs can be the last priority till you reach other goals. You can earmark his LIC policy for this goal.
RETIREMENT
Your monthly household expenses appear to be well managed. But it may go up once your income levels increase. Hence for calculation, we have considered your household expenses as Rs 15,000.
If the current monthly expenses are inflated at 7 per cent, at 58 your monthly household expenditure will be Rs 44,200. Considering the age difference between you and your wife, we have planned our calculations till she turns 80.
To receive an amount equal to your monthly expenses at retirement, you should have the corpus of Rs 1.05 crore. This amount should earn an inflation adjusted return of one per cent.
If the EPF contributions by you and your wife increases by 5 per cent every year and if the fund continues to deliver a return of 8.5 per cent at maturity total balance will be Rs 47 lakh. This includes your current EPF balance.
To meet the shortfall, you need to save a sum of Rs 9,984 for the next 192 months and it should earn 12 per cent return.
You can start accumulating for this goal once your surplus improves.
ASSET ALLOCATION
You should make a distinction between savings and investment.
Saving in insurance will inculcate discipline, but the returns delivered may lag inflation. Instead of saving in insurance alone, you should consider equity oriented mutual funds.
From here on invest 70 per cent in equity, 20 per cent in debt and the rest in gold.
Your contribution to EPF and insurance already accounts for over 20 per cent of your assets.
Start with investments in large-cap mutual fund schemes such as Franklin India Bluechip, HDFC Top 200 and ICICI Pru Focused Bluechip.
The current health insurance is inadequate; take a floater policy for Rs 3 lakh.
For family protection, take a term insurance for Rs 50 lakh.
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