I am a 36-year-old chartered accountant and my wife is 30. My dependents are my daughter who is three and my mother (66). I am planning to pre-close my existing home loan of Rs. 13 lakh and buy a new house in Mumbai for Rs. 80 lakh with a loan of Rs. 60 lakh. My monthly contribution to EPF is Rs. 4,000.
My wife may stop working in a few months’ time. In such a scenario, would I still be able to meet all my goals?
We often advise readers to make pre-payment on their home loans only five years after getting the loan. Since your house has been let out, you should not close the loan now. For the property which is rented out, you can deduct the entire interest, paid from your gross income. Hence we suggest you reduce the loan amount for the new house and not pre-close the old loan. This way, even if your spouse stops working, you can reach all your goals.
Education: It is not a great idea to buy insurance products for education goals. In the children’s plan that you have taken, the payout will begin when she turns 18 and the subsequent instalments would be paid every two years. Such a plan will not meet the education cost entirely as the payout is spread over six years as against four years for many profession courses. Besides, the premium for the money-back policy is quite high. Ideally, you should have bought four policies that would mature every year from the time your daughter turns 18 to meet the education cost. In such a case, your premiums would have been cheaper by 20-30 per cent.
The education cost of Rs. 25 lakh will become Rs. 69 lakh after 15 years, if inflated at 7 per cent (same rate considered for other goals). To meet the target, you ought to save Rs. 13,800 every month and it should earn an interest of 12 per cent (same rate considered for other goals).
For her marriage, the present cost of Rs. 15 lakh will be Rs. 62 lakh later. Earmark your money-back plan for this goal and deploy the funds received so that you can generate returns of 10 per cent. Along with maturity bonus, this corpus will be Rs. 20 lakh. To meet the shortfall, you need to earmark all the endowment policies for this goal. The shortfall will then be minimal, which can be addressed as your income increases.
Retirement: The present annual expenses of Rs. 2.4 lakh will be Rs. 10.6 lakh by the time you retire . To receive such an income till you turn 80, at retirement, you should have a corpus of Rs. 2.1 crore and it should earn one per cent over and above inflation.
If your current EPF contribution along with that of your employer’s increases by 5 per cent every year, at retirement you will have Rs. 90.6 lakh. EPF rates are assumed to continue at 8.5 per cent. If you withdraw Rs. 5 lakh and invest it in equity and if it delivers a return of 15 per cent, you may not face a shortfall. If you don’t invest Rs. 5 lakh in equity, you ought to save Rs. 9,300 every month till retirement.
Insurance: You need to take a term insurance policy for Rs. 2 crore.
The writer is an investment advisor and founder myassetsconsolidation.com. Send your queries to email@example.com