Financial Planning

Geojit’s Investment Analyst, Gibin John, helps a client working in a government school plan his life goals which include saving for the children’s education, building a house, and saving for retirement. Gibin John analyses the client’s current savings and helps him invest and plan ahead for his life. 

I am 49 years old, working in a government department. My salary is Rs. 62,000 per month and after all deductions my take home salary is Rs.52,000. I have two sons studying in 10th and 3rd standards. I was not able to save all these years as I had liabilities and now, I have repaid my debts and resolved other issues, I would like to invest for my future. I want to buy property and build a house worth Rs. 10-15 lakh. I need to save money for my children’s education and my life after retirement in 2030.

I have taken health insurance that offers a coverage of Rs.40 lakhs. I pay annual premium of Rs.32,000 towards it. My term insurance has lapsed. Now I have to take a new plan. Let me know which the best plan. Neither I nor my family members have severe health issues. As I am passionate about agriculture, I wish to buy one or two acres of land after retirement for this purpose. Please advise me on how to go about this.

Gibin John, a Certified Financial Planner replies:

In our rush to accomplish many goals during the working period of life, we often forget to save enough money for life after retirement. The situation you face is no different. Due to your past commitments, you were unable to save. You are now 49 years old and will retire from work in 2030. In the next seven years, you want to accumulate the necessary amount for the retirement period and buy a house worth Rs. 10 lakh. Also, need to save for children’s higher education.

You earn Rs. 62,000 every month and after all deductions have Rs. 52,000 in hand. Although you have not specified about the expense, let me assume that it would be around Rs. 25,000. If so, you have a surplus of Rs. 27,000 available for investments. It is advisable to choose non fixed income based investments rather than equity-oriented investments because your retirement is nearing, and you also require money for other life goals. If the Rs. 27,000 can be invested every month for the next seven years, you can accumulate a total of Rs. 29 lakhs at the time of retirement. Let us assume that you will get at least half of the current salary as a pension after retirement because you are working in government service. If so, then you should be able to manage your living expenses in post-retirement. And hopefully, after a few years, the children will be working, and they will contribute financially.

The higher education of two children comes after two and nine years, respectively. The letter did not say the amount you wish to set aside for your children’s education. It is believed that the reason for not mentioning the required amount, in particular, is because of the concern that the amount for all life goals can be accumulated during this period. Let us allocate Rs. 3 lakh for children’s education. To this end, Rs. 12,000 per month need to be invested in debt-oriented mutual funds. If you require more amount for children’s education, you may have to use the amount reserved for other life goals or take an education loan.

The second child has nine more years before he starts higher education. Considering 8% inflation, you will need Rs. 6 lakh for a course which is costs Rs. 3 lakh today. You have to set aside Rs. 5000 each per month for this purpose. Equity based mutual fund investments can also be considered for this purpose. If you choose equity-based investment, do remember to withdraw/ redeem the amount, and transfer it to fixed investments with less risk when you retire.

You want to construct a home for between Rs. 10 and 15 lakhs, and you intend to do this within the next five years. After deducting the amount for other life goals, you have Rs. 10,000 left for investing towards this goal. If this amount is invested for the next five years, it will earn you Rs.7 lakhs. Additionally, after two years, when you have saved the required amount for your eldest child’s education, the Rs. 12,000 be set aside for this purpose can be earmarked towards generating a corpus to build your house. If this amount is set aside for the purpose of housing for the next three years, you will be able to accumulate an additional Rs. 4,80, 000. And thus, over the next five years you will be able to accumulate Rs. 11.80 lakh from these two investments. With this amount, your dream to build a house will come true.

A total of Rs. 22000 was set aside for the purpose of building a house. After achieving this goal in five years, you have two more years in service. During this period, by continuing to invest this amount, you can accumulate Rs. 5.66 lakh.

A health insurance cover of Rs. 40 lakh is good. At a time, when health and medical expenses are soaring, higher coverage may come in handy in the future. If you want to continue this protection even during retirement, you will have to pay the current premium. Health insurance premiums are likely to increase in the future in line with inflation. If the current premium is assumed to be 6 percent inflation, the payment for 12 years after retirement can be made with Rs. 5.66 lakh. It is also advisable to set aside the amount accumulated after the completion of the house. You also need to take a term insurance of Rs. 50 lakh. For this, you have to find about Rs. 1600 rupees per month. If this amount can be found within the current cost of living, term insurance can be taken without affecting other life goals.

Contact STEPS, our financial planning division, to plan your financial future

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