Funds required to meet goals Rs 1.75 crore

Here, Dr Ravindran analyses your financials and lays out a roadmap for achieving financial goals.

Prakash,
36 years
Profession: Private employee
Dependents: Two

Where does he stand now?

Income          Rs 12.6 lakh
Expenses:     Rs 7.6 lakh
(includes household expenses)     
Net disposable
Income         Rs 5 lakh

Net worth
Asset     Value
Savings    Rs 15 lakh
Car           Rs 7.5 lakh
Gold         Rs 10 lakh
Total         Rs 32.5 Lakh

Financial goals (at current costs):
Expenses                                      At cost
Child’s education and marriage    Rs 55 lakh
Post-retirement expenses             Rs 120 lakh

Assumptions
(i) Longevity has been projected at 85 years; (ii) The retirement is planned at age 60; (iii) Cost of living grows at 8% per annum, while earnings on savings and investments grow at 10 per cent per annum (iii) Income is assumed to be growing at 8% in line with inflation.

Plan of action  

• Retirement is sometime away but risk exists on life and health. He should buy a term assurance with Rs 1.5 crore sum assured for 30 years with an annual premium of Rs 25,000. The disposable surplus of Rs 5 lakh can be invested in the following manner for the next 25 years:
• Invest Rs 25,000 a month in a systematic investment plan of balanced (equity and debt) over the next 25 years. This will help in creating a corpus of Rs 75 lakh at cost (Rs 236 lakh in value terms if growth is aimed at 8% a year). This will help him to plan for his retirement needs in full.
• Park Rs 1.5 lakh every year in a PPF yielding 8.1 per cent a year. Over 20 years, this will translate into a future value of Rs 75 lakh. This money can be placed in a debt fund from the age of 55-70 years and systematically withdrawn for later on needs in life.
• The EPF accumulation presently of Rs 10 lakh with funding at same pace, earning eight per cent a year  and gratuity at retirement will fetch him about Rs 1.25 crore at retirement..
• The PPF at maturity can be used to buy an immediate pension policy at retirement.
• Bank deposits may be kept at bare minimum levels to meet contingency requirement  for the next 15 years, in view of parents staying with them.
• Create a Will in favour of each of the spouse and ensure that all financial holdings have a nominee.