Financial Planning- 25 Jan :: Business Line

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I am 59 and work for a public sector company. My retirement is just four months away. My wife is a home maker.

We have two daughters and both are married. My retirement corpus includes leave salary, gratuity and commutation benefits.

On retirement, I will get a pension with variable DA. My monthly expenditures are likely to keep increasing due to medical costs incurred in treating my wife. I am covered by my employer’s hospital facility, but do not have any health insurance policy.

How do I maintain the same standard of living with health issues? Also where should I invest the retirement funds?

— Tagore

With food and medical inflation rates in double digits, beating the same will be a challenge, especially for retirees, with investment in fixed instruments.

But with health issues affecting your spouse, investing in risky avenues such as mutual funds is also not easy. Even with your good retirement corpus, you will face short fall .

For instance, once you retire your income will be Rs 21,000, but your expenses will be Rs 50,000. But after five years assuming your pension grows at 4 per cent every year with variable DA, it will amount to Rs 25,500. But your expenses will likely to grow at 9 per cent and will amount to Rs 76,900.

The short fall will be Rs 51,000.If you deploy the retirement corpus at a post-tax rate of 7 per cent, there will be a short fall of Rs 16,000 every month.

Since you are opting for commutation of pension, restoration to actual levels will take 15 years. Hence, there will not be any jump in income.

Although your situation does not permit risk, you may have to take some risk given the situation you are in.

We suggest you construct a portfolio in the proportion 70:30 in debt and equity.

If your debt investment earns at 9 per cent and equity portion earns 12 per cent, you can earn a post-tax return of 9 per cent.

This will be the rate close to the inflation rate and hence there may not be any short fall in meeting your monthly expenses. But it will be a challenge to earn 12 per cent year-on-year in your equity mutual fund portfolio.

Opt for reverse mortgage of your property to meet the needs till your original pension level is restored.

Buy a health policy immediately to protect your retirement corpus.

Since you have not disclosed the ailments of your wife we suggest you take advice whether the medical expenses falls under Section 88 to avail tax benefits.

If you can avail yourself of any such benefit, utilise the savings for buying a health policy. Buying a health insurance policy can help you claim tax benefit under Section 80 D. This will bring down your tax outgo further.

(The author is founder, myassetsconsolidation.com)