Put off your retirement until you have enough

I am 53 years old and my wife is 48. I am a self-employed mechanical engineer and hence my monthly income varies.

My annual income is around Rs 8 lakh. I spent all my savings on my daughter’s marriage.

My son, aged 21, earns Rs 40,000 a month. My monthly expenses are Rs 30,000 and my EMI towards servicing a business loan is Rs 20,000. I live in my own house.

I plan to expand my business.

Last year, I took a business loan for Rs 8 lakh from a bank and am planning to enhance it a bit.

I recently sold my old flat for Rs 25 lakh, which I had bought for Rs 5 lakh in August 1997.

My questions are:

I am planning to book a flat in my son’s name. The cost will be Rs 50 lakh. Is it wise to utilise the proceeds from the sale of my flat for this purpose or should I settle my business loan with it?

Since my son does not appear interested in the business, would it be advisable to expand?

I have no investments for my retirement.

For my son’s marriage, I need Rs 10 lakh in 2018.

— Krishnasamy

While running a business it is always prudent to evaluate its future prospects before investing further. Evaluate your business and find out what its worth is at current valuations. Check if the business is scalable and the associated cost.

Since you have no retirement corpus, you may need to continue your business for a little longer.

For buying a flat it is better to take a housing loan. Your capital gains after indexation are Rs 12.5 lakh.

If you invest Rs 50 lakh in a new property, your capital gains will get offset against this.

If you let out the new flat, the entire interest paid can be adjusted as deduction. From the sale proceeds, settle the business loan.

For buying a new flat, take a joint loan with your son. Since you have higher income, in the sale deed mention your share as 60 per cent to avail higher deduction.

If you take a loan of Rs 38 lakh for a 10-year period, your EMI will be Rs 50, 200. Since you also receive rental income, loan eligibility will not be an issue.

Assuming you earn yield of 3 per cent, you can get a rental income of Rs 12,500 a month.

Marriage

After meeting your expenses and liabilities, you will have a surplus of Rs 38,000.

To meet the target of Rs 10 lakh, if you save monthly, a sum of Rs 12,300 and if it earns 12 per cent returns, you can reach the target in five years.

Retirement

Since you are starting late you need to postpone your retirement by a few years.

The current monthly expenses of Rs 30,000, if inflated at seven per cent will be Rs 59,000 when you turn 63. Your rental income should grow at 5 per cent.

At retirement, you should have corpus of Rs 71 lakh and it should earn inflation adjusted return of one per cent.

To accumulate such a corpus you need to save monthly a sum of Rs 31,000 for the next 10 years and it should earn 12 per cent annually.

But your current surplus will reduce when you make such investments. If you expand your business it will help to increase your surplus.

Mail your queries to > fp@thehindu.co.in

(The author is CEO, >myassetsconsolidation.com )

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