Financial Planning :: Business Line

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I am 41, employed in the IT sector. My wife, 37, is a homemaker. I have two sons, aged 11 and 3 years. My parents stay with me, but are financially independent. After meeting my expenses and investment commitments, I have a good surplus, which but generally leave it idle in my savings bank account. I buy three shares of TCS every week. I wish to retire at the age of 50. I expect to live up to 85. I don’t want to sell any of my houses and want my sons to inherit them. I have no liabilities.

— J. Ganesh

You are overweight on real estate. Despite this, you have managed reasonably good diversification in your portfolio. However, you need to have tax efficient instruments in your portfolio, improve the utilisation of monthly surplus and have an asset allocation strategy in line with your risk appetite.

You are in the 30 per cent tax bracket, but you are investing in bank fixed deposits. In the last few years several tax-free bonds were floated with good coupon (interest) rate, but you haven’t invested in any of them.

For your elder son’s education, you need Rs 17.2 lakh after 8 years, if the inflation rate is 7 per cent (same applied for all calculations). To reach the target, you need to save a sum of Rs 11,300 every month and it should earn 11 per cent return. Follow the asset allocation chart to earn the return target.

For your second child, the the cost of education will be Rs 27.5 lakh after 15 years. To reach the target, you ought to save a sum of Rs 15,060 a month for the next nine years, since you plan to retire at 50.

Although you have 16 long years to reach the target, save a larger sum in the next nine years and allow it to grow till 2029. At the time of marriage you will need Rs 14.7 lakh. Plan to reach a target of Rs 7.1 lakh initially, for which you need to save monthly a sum of Rs 3,700. After you manage this, allow it to grow at 11 per cent to reach the target of Rs 14.7 lakh.

Similarly, for your younger son save a monthly sum of Rs 3,000 for nine years to reach the target of Rs 5.7 lakh. Invest the maturity proceeds for the next 13 years to reach the target of Rs 22 lakh.

The present annual living expenses of Rs 3 lakh will be Rs 5.5 lakh when you turn 50.

Since you anticipate to live till 85, you need to have Rs 1.62 crore at retirement and it should earn a return of one per cent over and above the inflation rate to sustain till your life expectancy.

To build the corpus, earmark your direct equity investment and mutual funds . If the portfolio earns 15 per cent return, at retirement it will be worth Rs 68.5 lakh. If your current EPF balance and future contributions (including that of your employer’s) earn 8.5 per cent, you can reach a target of Rs 48 lakh.

If your debt investment earns tax adjusted return of 7 per cent, at retirement the accumulation will be Rs 25.2 lakh. Since you have good surplus, invest monthly a sum of Rs 30,000 for the next 9 years and if the investment delivers a return of 11 per cent you will have a corpus of Rs 55 lakh.

The total value of all the above investments will be Rs 1.97 crore, which is far higher than the required amount to meet your post-retirement expenses. The monthly rental can be kept as reserve to meet any emergency requirements. Take a separate health cover for Rs 10 lakh four years prior to retirement. This will help you to cover any pre-existing aliments at retirement.