Vidyasagar, 35, approached us to plan for retirement and his son’s education.
He works in the hospitality industry. The high income at the beginning of his career helped him to buy property; He also closed the housing loan. His 32-year-old wife is a homemaker and his daughter is 4 years old.
His income has taken a hit during the Covid pandemic and he wants to ensure that his family’s lifestyle and his daughter’s education are not affected in the future. His mother lives with him, and all members of the family are reasonably healthy. His mother earns interest income of 3 thousand birr per year which is sufficient for her expenses.
His goals are prioritized as follows.
1. 13.25 lakh emergency fund to cover one year’s expenses
2. To cover most of the courses in India, the current cost of a college education for a child is 30 lakhs.
3. Pension at the age of 65 50,000 rubles per month. He is willing to work until 70 if necessary
4. He wants to build a medical emergency fund with 10 thousand birr
5. Wants to choose the right insurance coverage
We have assessed the risk profile to be ‘Balanced’. He did not know about many financial products. For the past six years, he has been focused on closing home loans. His father At the end of his term in 2020, he received ₹70 lakh as his share from his father’s estate. He settled his home loan balance and invested the balance in fixed deposits and mutual funds. Based on the advice of friends, he chose common methods. He was less certain about his investments. He did not know about the danger profile. He sought an expert advisor to gain better clarity on his goal-based investing.
Review and recommendations
1. Keeping the retained amount of 25 thousand birr for emergency fund and medical fund.
2. As he needs to accumulate ₹88,000 for his daughter’s education over the next 14 years, he is advised to invest ₹24,000 every month in a balanced mutual fund portfolio. Percentage in equity mutual funds.
3. The pensioner corpus had to accumulate ₹10.18 crore to manage the pension expenses at the current cost of ₹50,000 per month. When he retires at age 65, the cost, adjusted for 7 percent inflation, will be $3.8K a month.
4. Since the salary component does not have EPF, it is suggested to look at the combination of PPF and NPS into fixed income portfolio allocation. 1.5 lakh for the next 30 years by investing ₹1.5 million per annum, he can accumulate ₹1.44 crore in PPF for the next 30 years. The NPS will be used to build up ₹56.67 lakh over the next 30 years and is expected to return 8% on an annual contribution of $50,000 for the next 30 years. Current investments in mutual funds are also geared toward your long-term retirement goal.
5. Choosing long-term fixed income investments is essential when building retirement assets with tax efficiency and lock-in time. Fixed income products provide stability to the portfolio and bring discipline to the saving habit.
6. He should invest 10,000 in equity mutual fund every month to finance the shortfall in his pension corpus. At first, considering the cash flow, this can be difficult to manage. An early start can be beneficial in generating long-term compounded returns and managing portfolio risk. Alternatively, he can start investing ₹2,000 every month in an average mutual fund and go bigger when he is able to increase his monthly contribution for retirement savings.
7. To protect his family lifestyle and his daughter’s education in a need-based approach, he is advised to opt for an assured term insurance of Rs 2.05 crore. It is advised to opt for basic health coverage with 5 thousand Birr insurance and increase the premium in the next 3-5 years.
8. He should use his income growth to save to advance his lifestyle, daughter’s higher education and marriage goals, and other important retirement-related goals.
Disagreement on the current lifestyle is very important to convince family members about long-term savings and investments. Financial planning provides a step in the right direction to reach one’s goals comfortably. The first days of savings may bring the family a relatively tight budget compared to the days of “no savings”. But when the whole family believes in the importance of saving for future goals by providing the numbers, the environment at home will be comfortable to start the journey and walk. Financial planning is about creating good habits and pursuing long-term goals while providing for short-term emergencies. Financial security does not happen by accident; It should be carefully planned considering your own resources and limitations!