I am 35. My wife is a homemaker. We have two daughters aged 6 and two-and-a-half. After meeting my household expenses, I have a surplus of Rs 20,000. I have a piece of land on which I am planning to construct a house rent it out. The cost of the project is Rs 20 lakh, for which I may take a loan for Rs 15 lakh. I wish to meet the EMIs through my rent. My current investments are in chit fund — of Rs 6,000 a month — and the maturity value is Rs 3.0 lakh. I have SIPs in two MF schemes for Rs 4,000 each and Rs 1,000 in PPF.

I look forward to creating Rs 1 crore by the end of 15 years for both my daughters' education and marriage (Rs 25 lakh for each goal). Where should I invest and how much should I invest? Is there any other better option than SIP?

After meeting the education and marriage needs I wish to save for retirement. My current monthly expenses are Rs 10,000. I may retire in 23 years. Based on my family history, I may live up to 80 years.— Dharmender. N

Solutions: With your current surplus, all goals are feasible if your expenses are in line with future income. As you have said that you wish to pay your home loan EMIs with your rental income, we have not factored the instalments in our calculation. However, we feel that your anticipated rent of Rs 15,000 will be a little short of your EMIs for Rs 15 lakh. If you borrow at 10.5 per cent for 15 years, your EMI will Rs 16,581.

However, if there is an increase in the interest rate at the time of borrowing, it may further reduce your surplus. We suggest that with the maturity proceeds of the chit fund you should reduce your liability with a higher down payment.

Education: It's always better to assign a goal for all your savings. To reach a corpus of Rs 25 lakh in 11 years for your elder daughter's education, you need to save Rs 9,200 a month and the money should earn a return of 12 per cent. We suggest you earmark your current savings in mutual funds towards this purpose. However, you need to increase monthly savings by Rs 1,200 to reach the target. For your younger daughter, you can have a corpus of Rs 25 lakh if you save every month Rs 5,800 for next 264 months at 12 per cent.

Marriage: We assume that you have 18 and 22 years respectively for your elder and younger daughters' marriages. If you wish to accumulate the sum in 15 years, you need to save more and your current surplus is not sufficient. Alternatively, if you save based on the goals, you can comfortably reach the target.

For your elder daughter you should save Rs 3,300 for the next 216 months. For her sibling you need to save Rs 1,950 for 264 months. In both the cases you should ensure that you earn a return of 12 per cent to reach the goal.

Retirement: Your current monthly household expenses of Rs 10,000 (Rs 1.2 lakh) inflated at 7 per cent at your retirement in 2034 will be Rs 5.7 lakh per annum. At retirement you should have a corpus of Rs 1 crore and it should earn an inflation adjusted return of 2 per cent for the kitty to sustain till you reach 80. If you save Rs 6,850 for the next 276 months and it earns 12 per cent, you will be on course to attain the target.

As you are the breadwinner of the family, it is better to protect all your goals with a term insurance. Take a risk cover for Rs 1 crore. The annual premium outgo will be Rs 13,300.

Investment: Equity as an asset class has beaten inflation in the longer run time and again. So saving through SIPs is the best option. However, you can structure your portfolio with an asset allocation pattern of 70:20:10 in favour of equity, debt and gold.

I am retiring this month. I will receive a monthly pension of Rs 8,000 for life. I will be covered under the employer group medical for Rs 2 lakh till 70.

Are my savings and the retirement benefits sufficient to take care of my monthly needs of Rs 15,000 till 85? I am single and plan to bequeath estate to my nephew. If I have a surplus, I would like to travel.

I own a flat worth Rs 1 crore, my current outstanding in PPF is Rs 16 lakh. I have invested Rs 15 lakh in shares. I will receive Rs 18 lakh as my retirement benefits.— Sangeetha (Name changed on request)

Solutions: With your current savings you can lead a comfortable retirement life without investing in risky assets such as equity and real estate. Pension income itself will accounts for more than half of your monthly requirements. With interest rates ruling at a high, investment in pure debt will help to meet the shortfall. However if you live past 80, you may face deficit in your monthly income.

Current monthly expenses of Rs 15,000 inflated at 7 per cent will make your monthly requirement Rs 35,000 at 70, and at 80 it will be Rs 69,000.

Considering that your pension will grow 4 per cent annually, and by deploying all your current investment in debt (Rs 49 lakh — PPF, shares and receivable retirement benefits) and if it earns a post-tax return of 7 per cent you will receive a monthly interest of Rs 28,600. To meet the shortfall it is better to start a SIP for Rs 5,000 from your current monthly surplus. If it earns a return of 10 per cent at 75, you will have a corpus of Rs 20 lakh as a cushion.

It is better to protect your savings by buying additional health insurance for Rs 3 lakh with an option to increase the sum insured every year by 5 per cent.

Mail your queries to >financialplanning@thehindu.co.in

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