Your financial plan

I am 32 years old and work for a software company. My wife, aged 28, is a home-maker. We are expecting a child later this year. Based on our family health histories, we may live till we turn 70. I wish to know if my risk cover is sufficient. Please suggest an appropriate asset allocation strategy to deploy my savings. I want to retire at 50.

Jagannath

When the family size is small, and you plan for long-term goals in advance, your monthly outgo will be lower due to higher compounding of returns on your investments. You have a plot, but you have not mentioned whether you bought it just as an investment or you plan to construct a house.

If you had taken a land-cum-construction loan and had built a house within three years, you could have converted the debt into a home loan and enjoyed tax benefits, which are otherwise not possible with a land loan.

Child’s education: You need to accumulate ₹15 lakh in the next 18 years, for which you need to save ₹2,225 every month, which should earn a return of 10 per cent.

Adopt an asset allocation strategy in the proportion of 50:40:10 respectively in equity, debt and gold with a return target of 12 per cent for equity and 8 per cent for debt and gold (same assumptions on returns for other goals). For post-graduation, to accumulate ₹40 lakh, you need to save ₹4,200 every month for the next 22 years.

To accumulate ₹40 lakh for your child’s marriage, you need to save ₹3,360 every month for the next 24 years.

Retirement: It is prudent to plan for a higher longevity. Otherwise, you run the risk of outliving your savings. Your present expenses of ₹25,000 will be ₹84,000 by the time you retire at 50.

To manage expenses till you turn 70, you need a corpus of ₹2.2 crore. But if you live till 85, you have to accumulate ₹3 crore and that should earn 1 per cent above inflation. Assuming that you live till 85, to be able to accumulate the requisite amount, save ₹49,650 every month. This sum includes your EPF contribution.

To reach all the goals, you need to cumulatively save ₹Rs 59, 700 every month. Utilise the balance surplus to save for future goals. As your monthly income increases, step up your contribution towards your child’s needs to reach the target in 18 years.

Build on the current investments and repay the land loan within five years. To protect your goals and liabilities, it will be ideal to have a term cover for ₹2 crore.

The writer is a financial planner and founder myassetsconsolidation.com. Send your queries to fp@thehindu.co.in

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