Pramuk, who hails from Pune, is keen to plan his finances. He wonders if he could retire now or accept the extension of employment offered by his current employer. Pramuk, aged 60, would like to prepare for his retirement too. His wife, Ritu Kumari, aged 58, retired this year.

The couple would like to make provision for a monthly expense of ₹50,000 with adequate medical fund, considering their health issues. Their son works in Bengaluru and is planning for higher studies next year; their daughter is getting married this year.

Pramuk wants to allocate ₹40 lakh for daughter’s marriage and ₹20 lakh towards son’s education. Pramuk is expecting ₹60 lakh in the next couple of months as part of family settlement from his parents. They also want to gift their son to buy a property in Bengaluru from this expected inheritance.

Pramuk was offered employment extension for another five years as consultant with a consolidated pay of ₹90,000 per month. He underwent angioplasty three years back and is doing well now with regular medications. Ritu suffers from rheumatoid arthritis and has been on medication for the last five years. They are spending ₹6,000 per month on regular medications and check-ups.

They both have a moderate risk profile and do not want to increase their equity exposure to more than 30 per cent of their financial assets at any point in time. They both understand the risks involved in managing investments, taxation, and inflation in the long term. They live in their own apartment which is 15 years old. Ritu has two insurance policies, due for maturity in 2026. She will receive ₹12 lakh from these policies and already has premium for both.

Review and recommendations

After a review of the resources available with Pramuk and Ritu, this was the financial plan drawn up for them.

1.      An emergency fund of ₹10 lakh out of fixed deposits has been set aside. This includes 12 months’ monthly expenses and a reserve medical fund. This amount, along with interest, will be retained in fixed deposits.

2.      Pramuk’s company-provided health insurance has the option to continue the health cover for the family of two with premium to be paid by Pramuk from next year for a sum insured of ₹10 lakh. It was recommended to them to avail this benefit with premium payment by self. Ritu was advised to opt for super top-up cover of ₹25 lakh with deductible of ₹5 lakh. This costs approximately ₹50,000 per annum from next year.

3.      Pramuk was advised to accept the employment extension as this will help the family to build additional wealth. The extended time may also help Pramuk in getting himself prepared for a relaxed retirement life.

4.      They have decided to sell direct equity portfolio and part of Ritu’s EPF maturity will be used towards daughter’s marriage expenses.

5.      It was advised to opt for an educational loan for son’s higher education and that can be paid by him after getting into new job with higher pay. This will also help him to manage his expenses and get tax benefits.

6.      Retirement is their high priority need. If Pramuk decides to retire now, he needs ₹1.45 crore to be invested in a portfolio of 30 per cent in equity and 70 per cent in fixed income. Equity will be used to fund his expenses at a later stage and the fixed income portfolio will help him to manage his expenses for the next 10-15 years.

7.      If he plans to retire at the age of 65, he needs to invest ₹1.1 crore now at an expected return of 9 per cent compounded annually with 30 per cent allocation to equity. This investment will help him to get ₹1.7 crore at the age of 65, which will be sufficient to manage his retirement expenses at an expected inflation of 6 per cent per annum and expected return of 8 per cent per annum from his age 65. Assumed life expectancy for both is till age 90.

8.      It was advised that Pramuk continue his employment for the next 5 years and opt for early retirement if his health does not permit him to continue at any point of time in the near future.

9.      It is very difficult to arrive at a corpus for health needs as these expenses are very unpredictable. If they want to allocate ₹10,000 per person per month adjusted for inflation from retirement of Pramuk till life expectancy of Ritu, they need to have ₹68 lakh when he retires. This corpus will help them to manage any expenses not covered by medical insurance in case of hospitalisation, nursing care, rise in medical insurance premium when they age, and other unpredictable expenses in future.

10.  They also need to provide for house renovation and their social travel and other expenses after retirement. This can be partially funded from Ritu’s expected life insurance policy maturity fund. They also need to allocate ₹10-15 lakh towards their son’s wedding expenses in the next couple of years.

11.  Considering their family situation, it was advised to give not more than ₹25 lakh to their son to buy a house in Bengaluru from the expected family settlement. He can opt for a housing loan and his savings to fund the house purchase.

12.  Their financial assets are sufficient to cater to their needs at this moment. As life is dynamic and throws up many surprises, it was advised to continue the employment and save/invest the surplus to prepare them for unexpected expenses in future.

13.  It was also suggested that they draft a will to distribute their wealth in the way they want to allocate to both children.

Though the available corpus may seem adequate to have a comfortable retirement life, unforeseen needs due to emotional attachments and ill health may pose challenges. This could drain the corpus substantially and hence it was recommended to continue with employment as long as Pramuk’s health permitted.

Moreover, he was also not sure of how to spend the retirement life as he had no clear plans on where he would want to settle down. There could also be shocks with reduced interest rates on the fixed income side and huge volatility on the equity side. Hence, it is always preferred to over-achieve the corpus, which could act as a ‘margin of safety’ — to borrow a term from the legendary Warren Buffett. 

The author is a SEBI Registered Investment Adviser (