Pension alone not enough for retirement

I am working in a bank and will retire in 2017. My wife is a homemaker, and we have two daughters who are yet to be married. My monthly pension on retirement will be Rs 30,000, and my current monthly household expenses are Rs 25,000. The elder daughter's marriage will be held in the next 6-9 months, for which I have made provisions. Our second daughter's marriage is being planned in another 18-24 months' time, for which I would require Rs 25 lakh. I have gold worth Rs 10 lakh, and I have a shortfall of Rs 15 lakh. My assets and liabilities are as follows.

Assets: I have a house worth Rs 50 lakh, and plots worth Rs 16 lakh. My direct investment in equity is Rs 2.5 lakh, and that in MFs is Rs 1.5 lakh. I am running systematic investment plans (SIPs) of Rs 2,500 each in Reliance (Vision and Growth), and Rs 2,000 in DSPBR Top 100. I have invested in unit-linked insurance plans (ULIP) to the tune of Rs 25,000 a year. Since I have paid for three years, I am contemplating withdrawing it. In addition, I have an endowment policy with a maturity value of Rs 6.4 lakh, and it will mature in 4.5 years. I have one more ULIP, for which I have paid a premium of Rs 60,000, and it has completed two years. I have a term insurance for Rs 15 lakh, and a health floater policy worth Rs 2.5 lakh to cover all family members.

Liabilities: Staff housing loan balance is Rs 65,000, car loan balance is Rs 2 lakh, and overdraft balance of Rs 7 lakh (I am paying only the interest). These can be set off against my retirement benefits consisting of Rs 15 lakh in PF and gratuity of Rs 10 lakh (present balance in PF is Rs 8.75 lakh).

My concerns: For my second daughter's marriage, I can sell the plot to meet the short fall. After my household expenses, liabilities and my investments, I don't have any surplus. Do I have to make any reallocations in investments or pre-closures for a comfortable retired life? — Joseph C.V.

You needn't shun equity altogether, even though you may be closer to retirement. Instead you should rebalance your portfolio, based on the change in risk profile. Managing retirement portfolio entirely with fixed income investments will lead to a shortfall in the latter part of your life, assuming higher longevity. Since you will receive a pension and your monthly expenses would be lower than the pension, you will face a shortfall only at the age of 66. Inflation is assumed to be seven per cent, and we have factored a two per cent annual growth in pension. It may be prudent for retirees or those on the verge of it to take the mutual fund for equity investments. Of the three SIPs, divest holdings in Reliance Vision and Reliance Growth. Instead, invest in Franklin India Bluechip and IDFC Premier Equity.

Investment: Liquidate your direct equity in favour of mutual funds (MFs) and along with ULIPs, allow the portfolio to grow at 10 per cent till you turn 66. Similarly, park retirement benefits of Rs 15 lakh after deducting your outstanding loans of Rs 9.65 lakh and insurance maturity proceeds to grow at 8 per cent till you turn 66, and then deploy it for your monthly income. If you deploy the surplus of the early years, you can sustain till you turn 75. Subsequently, you may need to sell the plots to meet the shortfall in monthly needs. Four years before retirement, increase your health cover to Rs 5 lakh to cover any pre-existing aliments.

I am working in a public sector company and will retire this month . I will get Rs 30 lakh as retirement benefits, and a monthly pension of Rs 30,000. I own a house, and my monthly expenses will be around Rs 25,000, including premium payments for a mediclaim policy of Rs 3 lakh. Recently, I got my only son married and so don't have any further responsibilities. After my death, my wife will be eligible for family pension of Rs 20,000. Please suggest the best way in which I can invest my retirement benefits. I think we will live till we turn 80 and my wife is a few years younger to me. Our family health history is good. I don't have any other investments. — Sudhakar Reddy

If you and your spouse live past 80 years, you will face a shortfall in meeting your monthly needs. In pension, dearness allowance will be a varying component and any increase will lag inflation. Generally, pensions grow at three per cent, which would be much lower than inflation (7 per cent).

Although you have retirement benefits of Rs 30 lakh, it may still not be enough. Since you have not invested in equity it is better sticks to debt alone.

Since banks are offering higher interest rates currently, lock your funds for a longer duration. You will face shortfall when you turn 80. If you live beyond 80, you can choose reverse mortgage. Increase you health cover by at least another Rs 2 lakh.

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