Financial Planning- Sept 19th :: Business Line

   

��

-->

I am 49 years old and self-employed. My wife is 41. I wish to continue running my business till I turn 65.

My sons are aged 20 and 17. I want to send my children overseas for studies and also plan to buy separate flats for them.

Further, I need a monthly income of Rs 30,000 (present value) excluding rental income, after retirement.

Is my saving enough to finance all my goals?

- Abhay Parge

With your current surplus and some additional borrowing, you can reach your goals including children’s education and retirement.

Since you have not disclosed the nature and prospects of your business, we have not factored your future incomes in our calculation.

Your elder son’s expenses, being just a year away, it will be impossible for you to accumulate Rs 40 lakh with a surplus of Rs 39,000. The only way to finance the goal is by taking a loan from a bank.

Only a handful of banks offer loans up to even Rs 30 lakh. Take a loan with a 10-year option.

For a loan of Rs 30 lakh your EMI will work out to Rs 42,090. Your repayment will commence one year after completion of his course or 6 months after he secures a job, whichever is earlier.

In the mean time you can pay the interest component of the loan. Once your children become financially independent they should meet the loan liability.

For the balance Rs 10 lakh, opt for a home equity loan for which you may have to shell out an EMI of Rs 15,228, if you borrow at 13.5 per cent for 10 years.

For your younger son too, you can follow a similar strategy to meet the goal.

Since your property has no liabilities attached to it, raising a loan may not be an issue.

It’s good that you have savings in a PPF account. Your current monthly expense of Rs 30,000 will be Rs 88,500 by the time you are 65, if inflation is 7 per cent. To get such an income at retirement, you should have a corpus of Rs 1.91 crore and it should earn one per cent over and above the inflation rate.

If your current accumulation in PPF continues to grow at 8.5, at 65, it will amount to Rs 24 lakh. If the maturity proceeds of insurance are reinvested for one year, at retirement it will amount to Rs 27 lakh. To meet the shortfall of Rs 1.4 crore you ought to save monthly, a sum of Rs 24,400, for the next 16 years. Your investment should earn 12 per cent return.

You need to take a little more risk and invest 50 per cent of your savings in equity mutual funds to generate higher returns.

Your medical cover is on higher side. If you are in good health reduce the cover by 15 lakh to increase your surplus as a result lower premium outgo.