Redeploy surplus in early years of retirement

I am working in a public sector bank. I will retire in April 2015. At retirement, I will get Rs 25, 000 as monthly pension and a retirement benefit of Rs 45 lakh. My net salary is Rs 45,000 and monthly expenses are Rs 35,000, including savings of Rs 15,000. My current savings are a monthly recurring deposit (variable amount of Rs 10,000) started last year yielding 9 per cent and maturing in April 2015. The maturity amount will be around Rs 8 lakh. I have been investing a sum of Rs 5,000 monthly in two MF equity schemes since May 2011. I own a flat at Kochi, where I will settle after retirement. I have two daughters.

We are planning to get our elder daughter married next year, for which I have saved enough. My insurance policy of Rs 5 lakh will mature next year and it can be utilised for my retirement. My liability at the time of retirement will be a car loan EMI of Rs 2,000 a month and the loan will be repaid by 2019. I have mediclaim for Rs 3 lakh and the premium outgo is Rs 10, 000. I have gold worth Rs 8 lakh. Are my investments sufficient to lead a peaceful retired life? After retirement, I may require Rs 20,000 a month. I am hale and hearty but my wife is suffering from thyroid problem. We expect to live till 80 years based on our family history.V.R. Ramakrishnan

Saving for a peaceful retired life is indeed a daunting task, given that high inflation can eat into your corpus. This is further complicated by volatile markets.

Budgeting is an important tool. It can determine your expenses as well as your income and can help you reconcile the two.

In your case, you have your employer's pension, which can take care of your monthly needs to a large extent. However, variable dearness allowance, which is part of your pension will not grow in line with inflation rates and can lead to shortfalls.

If you invest the retirement benefits of Rs 45 lakh and earn tax-adjusted return of 6 per cent, you can comfortably meet the shortfall.

To achieve this, it is essential for you to budget monthly expenses and invest the surplus in the early part of retired life to meet any short fall in the latter years. Consider this: if your pension is growing at the rate of 2 per cent every year against an inflation of say 7 per cent, you will encounter a shortfall of Rs 20 lakh from the age of 71-80.

Your pension and returns from investments will generate a surplus till your age of 70. If you redeploy this surplus, you will be able to meet your monthly needs till you turn 80.

If your wife outlives you, she can still manage with your pension and investment returns. In fact, she can even leave an estate for heirs.

To protect your retirement corpus increase your mediclaim to Rs 5 lakh. Look out for schemes that offer incremental risk cover at 5 per cent of the sum insured.

Invest the insurance maturity proceeds in balanced schemes of mutual funds in a phased manner. This will help you meet any increase in your standard of living.

I am 32 and planning to get married within a few years. My current net salary is Rs 49,000. My parents depend on me. Recently, my mother bought a flat in Bangalore and I stay in that house, for which I pay a rent of Rs 15,000. She invests the same in a five-year recurring deposit at 10.25 per cent. After meeting household expenses of Rs 25,000 and rent, I have a surplus of Rs 9,000. From this, I contribute Rs 4,000 towards systematic investment plans in four mutual-fund schemes. For my marriage, I require 35 g of gold and Rs 3-4 lakh.

My current investments are Rs 1.5 lakh in fixed deposits. My PF balance stands at Rs 2.5 lakh (beside a monthly deduction of Rs 3,500 towards PF, I save Rs 3,500 in voluntary PF). My equity investments have fallen 60 per cent. Please suggest investment avenues to build a sufficient corpus. I am planning to retire at 50, and at the time of retirement I may need a monthly income equal to Rs 35,000 in present value. I expect my income to increase at 6 per cent annually.Suvadeep

Predicting expenses after marriage is difficult because the number of members increase. Lifestyles, too, may change. However, if you live a well-budgeted life, managing finances will be easy.

After marriage, we assume that your expenses will likely go up by Rs 5,000-8,000. If your salary grows at 6 per cent, the future incremental expenses can be taken care of.

Retiring at 50 should not be an issue, provided you nourish your portfolio with proper asset allocation.

But you need to make provision for children's education, their marriage and your retirement.

For calculation, we have presumed a present value of Rs 8 lakh for education and Rs 10 lakh for marriage.

To receive a monthly income with present value of Rs 35,000, you need a corpus of Rs 1.5 crore at retirement.

Your EPF, VPF and also employer's contribution must be increased by 5 per cent every year. At an interest of 8.5 per cent, at 50, your accumulated value along with your present balance will be Rs 83.5 lakh.

You will have a shortfall of Rs 10 lakh for your retirement kitty .

If you manage to save Rs 1,500 a month and earn a return of 12 per cent, you can reach your retirement corpus. After retirement, to manage with this corpus you should earn an interest of 2 per cent over and above inflation to lead a comfortable life.

From the current surplus of Rs 9,000, if you earmark Rs 8,000 for your children's goals and manage to earn a return of 12 per cent, you can meet the target. For this invest in HDFC Equity and IDFC Premier Equity.

Recurring deposits of Rs 15,000 at 10.25 per cent will be Rs 11.69 lakh at maturity. Preserve this as emergency fund for your parents .

If you want to take a mediclaim for your parents, you can consider Max Bupa. For a sum insured of Rs 2 lakh each, your premium outgo will be approximately Rs 54,000. To meet your marriage expenses, use FD proceeds and utilise your current investment in equity.

send your queries with contact number to >fp@thehindu.co.in

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