This week Financial Plan

I am 52, while my wife is 45. We are government employees and our retirement age is 60. I will be eligible for a pension of Rs. 50,000 with variable DA. My wife is a subscriber of the GPF scheme. At retirement, she will receive Rs. 25 lakh.

We don’t have a child but are planning for it, which may entail a medical cost of around ?15 lakh initially. We wish to construct a house in our plot. My wife’s employer has provided a medical policy that covers both of us. Besides, we have floater policy for ?2 lakh. Please suggest an appropriate portfolio to meet all the goals, which includes peaceful retirement and our child’s education and marriage.

BalaKrishnan

It is very important to be reasonable in setting goals. You already own a house worth ?1 crore. If you wish to construct a bigger one by borrowing ?50 lakh, it may come in the way of realising other goals, since you are left with just eight more years of service. If you construct a house of 1,000 sq. ft at a unit cost of ?2,500, you need ?25 lakh. If your wife borrows 80 per cent of the cost, that is, ?20 lakh and at 10.5 per cent for 15-year term, the EMI will work out to ?22,100.

Education: Since a major part of your wife’s income goes towards servicing the home loan, you need to save for the child’s future.

It may be too early to predict how much you may need for his/her education, but let’s assume a cost of ?4 lakh. If the present value is inflated at 7 per cent, in 2032, it will be ?12.6 lakh. If you save ?3,570 every month and if it earns a return of 12 per cent (same value considered for all goals), at retirement, it will amount to ?5.7 lakh. If you continue to invest the sum for seven more years, you can target ?12.6 lakh.

Marriage: The present value of ?15 lakh will be ?71 lakh after 23 years. If you save ? 20,100 every month till retirement and redeploy the same till her marriage, at 12 per cent return, you can meet the target.

Retirement: For all practical purpose your retirement needs will arise only when your wife retires. The present household expenses of ?25,000 will grow to ?69,000 when your wife retires. By that time, your pension will be ?63,000, if it were to increase at 4 per cent annually. If inflation continues to remain high, even with your variable DA, you will face a shortfall of ?10 lakh, factoring in the ?25 lakh she will receive for the retirement fund to sustain till your wife turns 80.

To bridge the gap, you need to accumulate ?10 lakh in the next 15 years, for which you must save ?2,000 every month.

Increase your medical cover when you are healthy. Buy term insurance for a value that equals your liabilities.

The writer is an investment advisor and founder, myassetsconsolidation.com. Send your queries tofp@thehindu.co.in