I am 34 and work for a private company. My wife is 32 and our daughter three. My parents are dependent on me. I receive an annual incentive of ₹1-lakh. I used last year’s incentive toward home loan pre-payment. I have invested ₹36,000 in an unit-linked insurance plan (ULIP) for three years. Its present value is ₹22,000. How much term insurance do I need? I want to retire at 50 with a

₹25-lakh corpus and fund my daughter’s education and wedding.

B S Sabarikumar

With limited monthly surplus, aged parents and a child, it may be difficult to reitre at 50 unless your monthly income increases. Your lower monthly household expense of ₹13,000 shows your conservative lifestyle. To meet all goals, you need to have a surplus of ₹31,770. But you will have a shortfall of ₹14,850. If there is an increase in your standard of living or your family size expands, this will be higher. In the first five years of the home loan tenure, you will enjoy higher tax benefits. So avoid pre-payment and instead utilise the incentive to build long-term wealth.

Education: For an engineering course, you will need ₹4 lakh going by present value. Inflated at 7 per cent annually, you will need ₹11 lakh for four years of education when your daughter turns 18. You need to save ₹2,200 every month for the next 15 years. It should earn a return of 12 per cent (same rate considered for all goals).

Marriage: You may need ₹15 lakh at current prices. After 20 years, you will need ₹58 lakh (7 per cent inflation). For this, you ought to save ₹5,860 every month for the next 20 years. Earmark your insurance and current SIP portfolio proceeds for this goal. Sell your ULIP and invest the proceeds in a mid-cap fund.

Insurance: It is surprising that you have not bought a health policy for your parents, but have covered yourself beyond the group policy as well. Buy a ₹90-lakh health cover for your parents.

Retirement: If you work till 58, your monthly shortfall will come down by ₹14,000. At retirement, your monthly household expenses will be ₹66,000 , assuming 7 per cent inflation. To receive such income, you should have a corpus of ₹1.55-crore at retirement and it should earn a return at least one per cent above prevailing inflation to sustain till you’re 80. To accumulate this, you ought to save ₹9,400 every month for the next 24 years, including your EPF.

The writer is an investment advisor and founder of myassetsconsolidation.com. Send your queries to >fp@thehindu.co.in

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