Your Financial Plan

I am 35 and work in the private sector. My wife, 32, is a home-maker. My elder daughter is seven and younger, two. My home loan outstanding is ₹10 lakh at the rate of 11.4 per cent. Can I meet my retirement needs with EPF savings? Should I close my insurance policies?

G Sankar

To build wealth, you need to generate surplus by curbing unwanted outflows. Since interest rates have dropped, approach your lender for conversion. It may save you ₹1,300 a month. The conversion fees will be 0.5 per cent of the outstanding loan.

To meet all your goals, you need to invest ₹37,500 a month. However, you can start investing ₹28,000 a month and increase it by 5 per cent every year. Once you start receiving rent, increase the investments.

Education: Invest ₹6,900 a month for the elder daughter. Step it up by 5 per cent. The portfolio should earn 12 per cent return. Similar returns are assumed for all goals. For younger daughter, invest ₹4,600 a month.

Marriage: For your elder daughter, invest ₹4,900 per month for the next 18 years to accumulate ₹50 lakh. For the younger daughter, invest ₹3,500 for the next 23 years.

Retirement: It is difficult to reach retirement goal with EPF savings, which earns 8.5 per cent return. At retirement it will account for ₹1.02 crore. Current monthly expenses of ₹20,000 will be ₹94,800 if inflated at 7 per cent. To meet the target you need ₹2.6 crore and it should earn 1 per cent over and above the inflation. To meet the shortfall of ₹1.6 crore, invest ₹8,100. Stop future premiums and invest the monthly savings in mutual funds.

The writer is a SEBI-registered investment advisor and founder,

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