Financial planning: Funds required to meet goals

Plan of action  

Retirement is quite sometime away but risk exists on life and health. Leisure and travel expense can be met out of recurring income. Rs 6 lakh of disposable surplus every year for the next 25 years, until retirement, can be placed in the following proportion:
Investments may be carried out in a systematic investment plan of balanced (equity and debt) of Rs 25,000 per month over the next 25 years. This shall help create a corpus of Rs 75 lakh at cost ( Rs 236 lakhs in value terms if growth is aimed at 8 per cent per year). This shall help her for her retirement in full.

Medical insurance be purchased for Rs 3 lakhs which shall cost a bare minimum of about Rs 7,000 per year. No claim bonus will help in later years.

A sum of Rs 1.5 lakh be parked every year in a PPF yielding 7.60 per cent per year. Over 20 years, this shall translate into a future value of Rs 70.6 lakh. This money can be used for buying an immediate annuity plan which shall fetch lifelong income.

 A sum of Rs 1.5 lakh can be saved in a short term debt fund for 5 years growing at 7.5 per cent per year which can be withdrawn every five years to meet expenses — vacation and foreign travel.
The EPF accumulation presently with funding at same pace, earning 7.6 per cent per year and gratuity at retirement will fetch her about Rs 0.85 crore at retirement.
Bank deposits may be converted into tax-free bonds upto Rs 50 lakh immediately, maturing 12 years from date.

(i) Longevity has been projected at 80 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.

(L. Ravindran is a certified financial planner and managing director of Wealthmax Enterprises Management Pvt Ltd. Readers can send their queries to ravindran.manipal@gmail.com)