Avoid new house at retirement

I am 60 and retired recently. My wife, 55, took voluntary retirement recently too. My daughter is employed and likely to marry in a few months. We are eager to buy a spacious house before that. Should we pay capital gains tax if I sell my old flat?

My wife and I are in good health. Is our medical cover sufficient?

Srinivasa Murthy

As both of you receive pension, you would perhaps not be dependent on your retirement settlement amount until you turn 72. But that does not mean you can use it to buy a house. Do not use more than ?30 lakh for buying a bigger house. You should retain some cash (deposits) for emergencies. Although your pension currently exceeds your monthly expenses, it may not increase in line with inflation.

You are likely to encounter a shortfall after 12 years.

Your wife should invest a portion of her income in a recurring deposit and another portion in mutual funds. This strategy will help you meet any future shortfall until you are well beyond 80.

House: If you wish to use the entire retirement corpus for buying a house, you will be left with a surplus of ?10.5 lakh. But you can still manage for the rest of your life.

But the basic flaw is that you bought a small flat just a few years ago; if you had bought land instead, it would have appreciated more. Since you are planning to buy a house priced higher than the sale price of your flat, you need not pay capital gains tax.

Daughter’s marriage: Spending ?5 lakh from your current surplus will not hurt your finances.

Medical insurance: Increase the cover by another ?3 lakh.

Investment strategy: Since you have a monthly surplus of ?13,000, invest at least ?4000 through the SIP route in a purely large-cap fund. If this investment delivers 10 per cent returns, after 10 years, your corpus will be ?8.2 lakh. This will prove useful for future medical emergencies, if any.

The writer is a financial planner and founder, myassetsconsolidation.com. Send your queries to fp@thehindu.co.in