My recent financial planning article in The Hindu Business Line.
I am 52, and have a pensionable Government job with medical facilities at C.G.H.S post-retirement. My wife is 48 and will work till 2016. We live in a joint family with my parents, but they are financially independent. My daughter is 24 and my son is in the third year of his MBBS course. He could pursue a post graduate degree later. For his future practice we have allocated some space.
Our new flat will be ready by 2018 and I expect to let it out for at least Rs 15,000.
I have accumulated enough gold for my daughter’s marriage.
Suggest changes that may need to be incorporated in my current portfolio, so that I can reach all my goals.
— R Krishnan Kumar
Since you are in a pensionable job and don’t need to save separately for your retirement, you can meet most of your goals.
The only concern is that since your home loan liability will extend beyond retirement, your EMI will suck away the surplus from your pension income. Since your son will also be in the early part of his working career and will also have to service the education loan , repay your home loan at retirement.
With your short-term liquidity you can meet his fourth year college expenses. From the fixed deposit proceeds, earmark Rs 2.5 lakh for this purpose.
For his post graduation, accumulating Rs 75 lakh will be a challenge. Even if you earmark all of your GPF (by withdrawing), PPF investments, sales proceeds of your existing flat and Rs 5 lakh from your mutual fund portfolio, you will have only Rs 29 lakh. If you take a maximum loan of Rs 30 lakh, you will still have to borrow Rs 16 lakh to meet the education cost.
Since your wife is also going to stop working, you not be eligible for a personal loan either. If possible check out colleges where the tuition fee is a lot lower.
Earmark Rs 15 lakh from your mutual fund portfolio to take care of the expenses. Wait for a market rally and sell your holdings in the balanced funds and shift the proceeds to fixed deposits.
As a part of tax planning, gift Rs 15 lakh from your mutual fund proceeds to your daughter now. If she invests the sale proceeds in fixed deposits later, the tax incidence will be based on her income slab and it may be beneficial for you.
Your current monthly expenses of Rs 20,000, will be Rs 32,100 at retirement, assuming an inflation rate of 7 per cent.
Even if you get Rs 15,000 as rent, you will still need to pay Rs 7,000 from your pension for the next 8 years. Instead, commute your pension for the outstanding loan amount or one-third.
If you opt for commutation, your pension will be Rs 34,000 and along with the rental income, you can meet your monthly expenses. If your pension rises every year by three per cent, at 73 your income will fall short of your expenses. Hence, save the surplus in your early retirement years to meet the shortfall in your later years.
For any increase in expenses your pension plans and ICICI Pru plan maturity proceeds may come in handy.