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How To Become

Your Own Financial Planner?

An exclusive Program To Develop The Skills To Manage Your Personal Finance

We believe by signing up for the initiative, you too endeavour to develop the skills needed to understand the nuances of personal finance and be money-wise.

Module V: Tested Ways To Retire Rich

Session 15: How We Helped Our Client Live A Blissful Retired Life

When you earn well and follow a prudent approach with budgeting, managing expenses isn't worrisome. But when you hang up your boots i.e. retire, handling many expenses can be a challenge with a regular source almost ceasing to exist.

Hence, it is important to save and invest wisely today, so that your golden years can be comfortable. Planning for retirement well in advance prudently is imperative.

Don't live under a belief: "I have enough time to save before I retire, so why rush?" You see, putting retirement planning off for another day can be your biggest enemy, if you wish to enjoy a blissful retired life.

 

Case study:

One of our clients, Mr Trivedi procrastinated planning for retirement until he turned 50. And then he realized that his savings wouldn't tide him through his golden years. So, let's take his case as an eye-opener, for you to wisely start planning for your retirement.


Case Study of Mr Trivedi

Name

Mr. Trivedi

Age

50 years

Retirement Age

60 years

Dependents

Wife

Life Expectancy

86 years

Income

Rs 87,000 per month

Expenses

Rs 62,000 per month

Monthly Surplus (a-b)

Rs 25,000 per month

(Note: Client named changed to protect privacy, and the data above is for illustration purpose only)

Mr Trivedi, a 50-year-old married individual, wanted to retire at his age of 60.

His spouse was the only member of his family dependent on him.

His monthly income was Rs 87,000 per month, while his expenses were Rs 62,000 per month. As a result, he was left with a monthly surplus to the tune of Rs 25,000 per month.

Mr Trivedi had a family history of living over 80 years; so they were assumed to have life expectancy of 86 years.

Mr Trivedi's assets and liabilities were as appearing here...

Assets & Liabilities

Sr No. Assets

Amount (Rs)

1 Equity Mutual Funds

8,75,000

2 Equity Shares

3,25,000

3 PPF

10,00,000

4 Gold Saving Funds

7,00,000

5 Residential Flat (Self-Occupied)

50,00,000

6 Land

30,00,000

7 Cash in Bank

2,70,000

Total

11,170,000

Sr No.

Liabilities

Amount (Rs)

1

Home Loan

15,00,000

(Note: Client named changed to protect privacy, and the data above is for illustration purpose only)

Mr Trivedi had more than 70% of his total investment portfolio in illiquid assets: Residential Flat and Land. Mr Trivedi had taken a home loan (EMI = Rs 20,000) for the construction of his residence in which he and his family stay.

He held some portion in equity through Equity Mutual Funds and Shares, which constitute 10% of his investment portfolio.

Besides these, he held a PPF account, opened when he was 30 years old, and it had been extended for 1 more block of 5 years. But the PPF account was to mature in next 2 months.

He also invested in gold via Gold Saving Funds.

And for contingency purpose, held some cash in the bank.

Here was Mr Trivedi's concern...

His assets were perceived to be insufficient to fund all his expenses during his golden years i.e. during retirement.

To live a comfortable retired life, the corpus required by Mr. Trivedi was: Rs 2.27 crore.

This is assuming...

Average inflation rate of 7% p.a.;

Rate of return on investment @ 8% p.a.; and

Mr. Trivedi wants to maintain the same lifestyle even post-retirement.

As he would have paid off his existing home loan by the time he retires, his total net expenses required, in current terms, during retirement is Rs 42,000 per month.

So, here's what we - PersonalFN - recommended him:

  1. View on land:

    His investment in land had grown for 5% p.a. in the last few years and not much growth was expected from this asset going forward. Further, land was giving him only price appreciation and no rental income.

    So, we advised him to sell the land and invest the sale proceeds in a constructed property which would fetch him some rental income, and consequently a better capital appreciation.

    He put our advice to practice, and the new property fetched him a rental income of Rs 4,000 per month, plus the property was expected to grow at 8% per annum. This new property was estimated to command a value of Rs 64.76 lakh at his retirement

  2. View on Equity Mutual Funds:

    Most of the funds he had invested in were good diversified funds. We advised him to consolidate his mutual fund portfolio, since he held many schemes with a similar investment mandate, didn't give him the added advantage of diversification. Equity Mutual Funds are expected to give him Rs 35.39 lakh at retirement, assuming a return of 15% p.a. on equity - slightly on the aggressive side.

  3. View on Equity Shares: 

    He held a good stock portfolio based on research recommendations. So, we advised him to continue holding it and use these stocks for retirement. Equity Shares were expected to give him Rs 13.14 lakh at retirement, assuming a return of 15% p.a. on equity - slightly on the aggressive side.

  4. Fresh Investment in Equity:

    We recommended Mr Trivedi to start a SIP of Rs 19,000 per month in diversified equity mutual funds and increase it by 5% every year for 10 years. He could increase his fresh investments by just 5% every year, as his salary growth was not expected to be very high going forward. Fresh investments in Equity are expected to give him Rs 62.79 lakh at retirement assuming a 15% p.a. return on equity.

  5. PPF Account:

    Mr Trivedi's PPF account was about to mature in the next 2 months. But we advised him to extend it for another 2 more block of 5 years i.e. total of 10 years. He was advised to invest Rs 7,000 per month before 5th day of every month till retirement. PPF account was expected to give him Rs 34.27 lakh at retirement assuming 8% p.a. return on PPF.

  6. View on Gold Saving Funds:

    Gold Saving Funds are good avenue to hedge the overall portfolio in times of economic uncertainty. So, we advised him to hold and invest further Rs 3,000 per month for 10 years. Gold Saving Funds were expected to give him Rs 19.29 lakh at retirement, assuming a return of 7% p.a. on gold.

    Mr Trivedi's accumulation until retirement

    Sr No.

    Source of Investments

    Amount              (Rs in lakhs)

    1

    New Property

    64.76

    2

    Equity MFs

    35.39

    3

    Equity Shares

    13.14

    4

    Fresh Investments in Equity

    62.79

    5

    PPF

    34.27

    6

    Gold Mutual Funds

    19.29

    Total

    229.64

    (Note: Client named changed to protect privacy, and the data above is for illustration purpose only)

    The new property will be valued at Rs 64.76 lakh in ten years, while it has contributed towards achieving Mr. Trivedi's retirement corpus goal. He need not sell this house; instead he will continue receiving rental income until such a time that his other investments run out and the rental income is insufficient to pay for his regular expenses. 

Finally, here are...

Key Learning's From This Case Study

  • Life expectancy has increased, and can have a bearing on your retirement needs.


  • Start planning for retirement now! Even if you have just started earning, even a small contribution can make a huge difference.


  • Save and invest regularly so as to live a comfortable retired life.


  • Land is an illiquid investment and does not give any rental income. So, invest in productive asset classes that can provide a regular source of income and compound wealth better.


  • Post retirement expenses can increase significantly due to higher chances of falling ill; so make a provision for medical expenses while planning for retirement.

Thank You For Participating!

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