My latest Financial planning article in The Hindu Businessline
For retirement income, would it be appropriate to draw monthly interest from investments?
If I invest Rs 20 lakh from my retirement benefits to refurbish my flat, I may get Rs 18,000 as rent. Is that reasonable enough?
Would it be advisable to sell my house for Rs 1.2 crore and reinvest the same in two flats on the outskirts of the city and to earn better income? I can move to rented premises.
– A. Venkatesan
Leading a peaceful retired life requires careful planning and must not be postponed till you are very close to retirement.
By buying two flats you can stay in one apartment and can let the other one out for Rs 15,000. This can help you to meet your monthly needs.
But from an emotional and psychological standpoint it is always better to stay in the same place post retirement. With a familiar neighbourhood and set friends, you will feel more relaxed. Our suggestion would be to not sell the house to buy two flats.
Just by fine tuning existing investments, by and large, you can lead a comfortable life. If there is a shortfall in the later part of your life, you can reverse mortgage your flat for monthly inflows.
Your current monthly expenses include your daughter’s school fees. But once you retire, and your daughter completes school, education expenses are likely to fall. Assuming you need Rs 25,000 at present to lead comfortable life, at 58 the same will be Rs 32,800, if inflation is at seven per cent.
If the rental income grows annually by 5 per cent, at retirement it will amount to Rs 12,500. We also assume that that your wife’s pension would grow at a rate of 3 per cent.
If you deploy the retirement benefits of your wife and yours in an investment that gives 7 per cent returns, you will receive a monthly income of Rs 35,000, which is higher than your needs. The only worry is that as the inflation keeps increasing, monthly expenses at 70 will be Rs 73,000. So, if you redeploy at least a sum of Rs 30,000 at 8 per cent return, after 10 years it will amount to Rs 55 lakh.
The overall portfolio will be worth Rs 1.15 crore and it will take care of your needs till you are 85.
For your daughter’s education, if the current FD of Rs 25 lakh grows at 10 per cent, at the end of five years it will be worth Rs 40 lakh. Utilise Rs 15 lakh for your daughter’s education and plough back the rest for retirement.
At retirement, close the home loan with the maturity proceeds of your insurance policies.
Invest the current monthly surplus of Rs 25,000 in a portfolio and do ensure it generates at least 10 per cent returns. This will give you a sum of Rs 14 .7 lakh. The maturity proceeds from your PPF investments will be Rs 5.5 lakh. Use these sums to meet any shortfall in your daughter’s education or marriage.
With just four years to retire, take a health insurance policy separately for your entire family.
source : http://www.thehindubusinessline.com/money-wise/financial-planning/article5010238.ece