I am 44 and work as a director in a software company. My wife is a home maker. My son is studying in class ten. My mother is 74. I wish to repay the share loan in next two years from the dividends that I receive and also from the proceeds after my chit fund policy, which is valued at Rs 5 lakh, matures . My salary will increase by 25 per cent for the next few years.
If I renovate my old house I am likely to get a rent of Rs 8,000.
How do I allocate funds to meet my goals? I hold 25 per cent stake in the company and will continue to receive dividends post retirement.
- Kandan (name changed on request)
It is not advisable to retire early when you have liabilities to service.
Currently your company is small in size and hence there is a possibility of fast-paced growth. With a small shareholder base, higher dividend payout is feasible.
But make provisions for at least two years’ expenses.
Your current monthly expenses of Rs 25,000 excluding rent will be Rs 37,500 at 50 and at 60 it will be Rs 73,800, if inflation is 7 per cent.
Unless your company’s dividend payout increases by 7 per cent every year, it will be challenging to sustain this income alone.
Due to the inflation your pension of Rs 8,000 from your policy will amount to be a significant sum when you are 60.
HOUSE
Buying a house with a loan of Rs 1 crore means that your EMI will be Rs 1,10,500 if you borrow for 15 years at an interest of 10.5 per cent. If you renovate the house with a loan of Rs 12 lakh (10 years) your monthly commitment will be Rs 16,200.
Even if your salary increases by Rs 25,000 per annum, post-tax it totals up to Rs 20,000 only. It means your monthly surplus including the rental income will be Rs 99,000 after availing tax benefit. Hence, meeting EMI payments will be a tough task.
Instead, sell the plot and utilise the proceeds to build the house. For a loan of Rs 45 lakh your EMI will be Rs 50,000. With such a strategy, you can generate higher surplus.
EDUCATION
For your son’s education utilise the dividend income once the share loans are repaid in two years. From your fixed deposits, set aside Rs 2 lakh as a emergency fund since you have an aged parent at home. Since your borrowing cost is 12 per cent and return from fixed deposits is much lower than that it is prudent to part-pay your loan.
If you are going for early retirement, it is advisable to have a separate health policy and it will come handy once you move out of company cover.
(The author is CEO, myassetsconsolidation.com)
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