All goals
in sight, early retirement possible
High savings means Shelars
will only need to realign existing resources and invest more in equity.
Santosh Shelar is 44 years
old and wants to retire by 55. For most people, early retirement is a pipe
dream because it seldom reconciles with their financial reality. For Shelar,
quitting early will not be so difficult despite the fact that 35% of his portfolio
is in real estate and 55% in debt.What will make this possible is the high
income and net worth, as well as high savings built over the years. If this
amount is deployed judiciously and exposed to equity, the Shelar family can be
assured of a secure financial future and can achieve all their goals without a
problem. To help them do so, financial adviser Pankaaj Maalde will prepare a
plan that they need to execute with immediate effect.
Existing financial status
Shelar is employed with an
MNC in Pune and stays in his own house with his wife Manisha and 14-year-old
son Shubham.Besides the self-occupied property, he has bought another house and
plot of land for investment, and gets a rental income of `3,000 from the second
house. He earns a monthly salary of `1.58 lakh, while his outgo is `78,342.
This includes monthly expenses of `22,250, `7,000 for son's education, `3,000
given to Santosh's parents, `11,292 given as insurance premium, and `34,800 as
EMIs for four loans--home, car, personal and credit card. Shelar also makes an
investment of `29,200 a month, leaving him with a surplus of `53,458.
Shelar's portfolio includes
debt in the form of fixed deposit, PPF, EPF and insurance plans, while equity
includes stocks and mutual funds. Maalde suggests that before Shelar starts
planning, he should repay two of his most expensive loans--personal and credit
card--worth `2.68 lakh with a part of his fixed deposit. This will free up EMIs
worth `12,480, which can be used to invest for goals.
Insurance portfolio
Shelar currently has an
online term plan, three traditional plans and two Ulips. He is also covered for
`60 lakh under his company's group insurance scheme. Maalde suggests that he
retain the traditional plans as their returns are likely to beat inflation, but
should surrender the Ulips and invest the proceeds in a diversified equity
scheme.Since he is adequately covered for life, he doesn't need to purchase any
more insurance. Manisha also doesn't need life insurance as she is not
employed.
As for health insurance,
Shelar has a cover provided by his company, but should still buy a `10 lakh
family floater plan, which will cost him `20,000 a year. He is also advised to
buy `50 lakh critical illness and accident disablity insurance plans, which
will cost him `32,000 a year. The additional premium can be easily sourced from
the surplus.
Road map for the future
Now, Shelar can start
planning for his goals by reallocating the existing investment worth `29,200,
investible surplus of `53,458 and the EMI amount of `12,480 saved by repaying
the loan.
He can start by building a
contingency corpus worth six months' expenses, which amounts to `4.2 lakh.
Maalde suggests he also keep a buffer amount of `1.5 lakh for his parents
medical emergency needs. This can be funded by his cash holding of `50,000 and
`5.18 lakh from his total fixed deposit of `34.36 lakh. Next, Shelar wants to
buy a car worth `10 lakh in one year's time. For this, Maalde suggests he take
`6.5 lakh from his fixed deposit and `3.5 lakh from his annual bonus this year.
Shelar also wants to plan
for his son's education, for which he needs `27 lakh in four years and `51.5
lakh in seven years. To achieve the former, Maalde suggests he allocate `20
lakh of his fixed deposit amount and invest it in a monthly income plan of a
mutual fund. For the latter, he should start an SIP of `40,000 in a balanced
fund to yield the desired corpus. As for his son's wedding, he has estimated a
need of `47 lakh in nine years. To achieve this, he can start an SIP of `15,000
in an equity fund and `3,000 in a gold fund.
Shelar also wants to take a
foreign vacation worth `7.35 lakh in five years. For this, he should start an
SIP of `12,500 in an equity fund for four years. Finally, for his retirement,
Shelar needs `2 crore in 11 years and Maalde has allocated his existing
resources, including second property and plot, EPF and PPF corpuses, stocks,
insurance plans and equity mutual funds. He should also start investing `5,200
in the NPS and all these investments will yield the desired sum in the given
time frame.
