Don't rely on insurance alone to meet goals ::Business Line

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I am 39 years old and my dependents are my wife who is 33, 12-year-old son and an 8-year-old daughter. My mother, 74, stays with us and receives pension of Rs 7,000. I plan to retire at 58.

I have the following goals, all in present value.

I need Rs 15 lakh for my son's graduation in 2017 and Rs 10 lakh for his post graduation in 2021.

For my daughter's graduation, I would require Rs 10 lakh in 2021 and Rs 10 lakh for her post graduation. I wish to create a corpus of Rs 12 lakh for her marriage by 2030. For her marriage, we have 30 sovereigns of gold and 2 kg silver.

My take-home pay is Rs 95,000 and I receive an additional Rs 4 lakh as yearly incentives. My earnings are expected to grow yearly by 10 per cent. I have endowment and money back policies with sum assured of Rs 17 lakh (maturing in 2029) for which I pay a premium of Rs 90,000. My rental income is Rs 9,000.

I have family health insurance for Rs 15 lakh and my annual premium is Rs 25,000. My monthly expenses are Rs 69,500 inclusive of my insurance premium.

Two home loan EMI of Rs 26,000 and children's education and medical expenses are also included in this.

My monthly surplus increased only recently .

My monthly EPF and VPF contribution is Rs 9,000 and balance is Rs 5.5 lakh. My SB account balance is Rs 2 lakh and direct equity exposure is Rs 2 lakh.

How should I plan for my children's education and marriage goals?

How much do I need to save for my retirement , considering I live till 80?

— Sudarsan

Insurance is not the right primary vehicle to reach long-term goals.

You need to revisit your risk appetite for better asset allocation, as and when your surplus increases.

It does not mean going aggressively after risky assets such as equity. But reasonable exposure will help you reach the goals faster.

Based on your age, we suggest you invest at least 50 per cent of the investable surplus in equity. Since you are already overweight on real estate, you can build a portfolio with asset allocation of 50:40:10 in equity, debt and gold respectively . With such a portfolio, you can achieve a return of 15 per cent, 8 per cent and 10 per cent respectively. The portfolio return of 11.5 per cent can be achieved.

EDUCATION

Your son's graduation being a short-term goal, you need to allocate higher amounts for the same. The present value of Rs 10 lakh inflated at 7 per cent (same assumption used for all calculations), you require Rs 14 lakh in 2017 and you need to save Rs 17,300 for the next 60 months.

The target year for your son's post graduation and daughter's graduation being the same you need Rs 18.4 lakh for each of the goals. You ought to save monthly, a sum of Rs 19,600 for next 108 months. For your daughter's post graduation, save monthly, a sum of Rs 6,700 for next 156 months.

Most of your insurance policies are getting matured closer to your daughter's marriage. Earmark the maturity proceeds for the goal. The present value of Rs 12 lakh will be Rs 40 lakh in 2030.The maturity proceeds from the insurance will be Rs 34 lakh if the plan continues to declare bonus at current level. For the shortfall do save Rs 900 a month for next 216 months.

RETIREMENT

The present monthly expenses of Rs 2.4 lakh will be Rs 8.1 lakh when you turn 58.

To meet your monthly expenses till your life expectancy you should have a corpus of Rs 1.53 crore and it should earn inflation adjusted return of one per cent. The current EPF balance and future savings of self and employer will be Rs 86 lakh provided the EPF maintains its interest rate at 8.5 per cent. After factoring EPF, you will face a shortfall of Rs 67 lakh. To reach the target you need to save monthly a sum of Rs 9,400 till you retire. Since you contribute Rs 13,500 towards EPF, further contribution for retirement kitty can be routed through MF equity large-cap funds.

INSURANCE

Take term insurance for Rs 1.25 crore, to protect all your goals. While buying, split the policy into Rs 75 lakh for ten years and the balance till you retire. After meeting all your needs, you will be left with annual surplus of Rs 1.1 lakh. Invest the same in debt instruments. Since you plan to construct a house in a plot that you own, use the proceeds to meet the shortfall.