I am 44 and employed in a public sector bank with gross salary of Rs 56,000. My wife is a teacher in a government school, earning a net salary of Rs 22,000. We have a son aged 11. My mother is aged 75.

As my wife is posted 500 km away from my posting station, I am staying alone and incurring double establishment expenditure. Due to my other interests, I am thinking of taking voluntary retirement. In case of voluntary retirement I will get a monthly pension of Rs 20,000 and retirement benefits of Rs 30 lakh.

My assets are two residential houses with market value of Rs 90 lakh with loan outstanding of Rs 15 lakh and one residential plot with market value of Rs 20 lakh. I have fixed deposits for Rs 8 lakh and investment of Rs 15 lakh in gold.

My family is living in one house, the other house is let out on a rent of Rs 8,000 a month. The current value of this house is Rs 60 lakh.

As we live in mid-sized city, our monthly expenditure is Rs 25,000, and expected life expectancy is 75 years. After retirement, I will stay in my own house. As education loans are available easily, I prefer to take a loan for my son's higher education.

If I take voluntary retirement, out of my benefits I wish to settle housing loan Rs 10 lakh (currently my EMI is Rs 10,000). However, my wife's EMI of Rs 7,000 on second home loan may continue for another 10 years.

We don't have any health insurance because our medical expenses are reimbursed. Even on the life front our cover is very minimal.

My queries are:

If I take voluntary retirement , will my pension and my wife's salary be sufficient till our life expectancy.

2. We have not invested in equity and all our investments are in real estate. Is it okay to invest in mutual fund schemes?

3. Is it good to meet my son's educational expenses through a loan?

Sunil Goyal

Solutions: In India not many individuals have social security benefits. With poor retirement corpus, such people struggle for their day-to-day expenses. In your case, as both are employed in pensionable jobs, meeting your monthly needs should not be a difficult task, even if you opt for voluntary retirement, going by your current expenses.

However, you need to have proper asset allocation to meet the shortfall in future.

Education: Meeting higher education needs through loans may be a better idea if you wish to enjoy the tax benefits under section 88 E. But if the parent's incomes are taxed in the 10 per cent slab, the advantage will be minimal if the interest out go is less than Rs 50,000. Your wife's taxable income will be far lower to enjoy higher tax benefits.

If you borrow for engineering studies, your interest outgo will be definitely lower. If you prefer to take voluntary retirement, it is wise to ensure that you have limited, or better still nil, liability. Even if you opt for retirement, your family income works out to be higher than your expenses. So it is better to start saving for your son's education rather than taking loans.

You may require Rs 6 lakh for a engineering course. Inflating it at 7 per cent, you would require at least Rs 10.6 lakh after seven years.

If you structure your payment in four instalments you need to save Rs 6,100 a month till your son enters the final year, and it should earn a return of 12 per cent. This strategy is more prudent than meeting the higher education needs through loans. If due to some reason you still prefer to take education loan, then this accumulation can be utilised to meet any other incidental cost.

Retirement: Your income and expenses will not match your requirement at the age of 60. The monthly expenses of Rs 25,000 will be Rs 69,000 by the time you turn 60. As you have 15 long years to meet your target, it may be prudent to invest in equity through mutual funds. Even with a conservative return of 10 per cent, your retirement benefits of Rs 20 lakh can grow to Rs 83 lakh. At 60, once you deploy the accumulation in safer debt instruments, the money can help you to meet the shortfall between your pension incomes and expenses.

All your immovable assets can be left as estate to your son.

Insurance: Once you retire you need not have any life insurance. However, as your wife is going to earn for another 10 years, you need to take a life cover for her.

It is better to buy term insurance cover for 10 years for Rs 30 lakh and for this your annual premium outgo will be Rs 4,390. Once you hang your boots, medical expenses can dent your retirement corpus. Hence it is better to take health insurance (family floater policy) for Rs 5 lakh.

Investment strategy: Your current asset allocation is not ideal. Most individuals who were overweight on real estate in the last decade may have made multi-fold returns. But it will be a difficult task to achieve similar returns in the coming years. So it is better to follow an asset allocation comprising equity and debt.

If you are not going to buy gold ornaments for your family members, it is better to restrict the exposure to less than 10 per cent of your portfolio.

Queries can be sent to financialplanning@thehindu.co.in

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