I am 62 and live in Pune. I own a flat in Mumbai. Its present value is Rs 1.3 crore. It has been let out for Rs 30,000 a month. This is my primary source of income. I have FDs for Rs 15 lakh with a monthly interest option and shares worth Rs 2 lakh. My monthly expenses are Rs 25, 000. This includes provisions made to meet annual health insurance premium of Rs 16,000 for a sum insured of Rs 5 lakh. My wife and son are covered by a separate policy for Rs 3 lakh with annual premium of Rs 11,000.

I do intra-day trading in equity and earn Rs 5,000-10,000 a month which I use for miscellaneous purposes.My daughter is married and my son is in his final year of MBA.

I want to know if it is wise to sell my Mumbai flat as I feel the property market there is getting saturated. I am thinking of buying another property in Pune. How should I plan my investments to meet my monthly needs?

—P.R. Joshi

Real estate is one asset class where we have no reliable long-term record. Hence it is difficult to identify when markets would near saturation. By and large growth within the city limits will be far lower than the outskirts. So returns on such property will be low.

The average inflation has been 6.5 per cent over the past decade. If you wish to manage your monthly household income with rental receipts alone, it may be very challenging.

Your present annual living cost of Rs 3 lakh will be Rs 5.9 lakh, in ten years, inflated at 7 per cent.

Since you have settled in Pune, it may not be bad idea to sell the Mumbai property. If you do so, invest the capital gains in new property worth Rs 50 lakh. The balance needs to be invested in financial instruments that yield post tax returns of 8 per cent so as to meet your living costs till you reach 80.

Of the proceeds keep a few lakh rupees as cushion for your trading activity and trade within that limit. Surplus from interest income of earlier years compulsorily needs to be deployed for future consumption.

I will retire in 2024. My wife is working. We have a son studying in intermediate second year. Post retirement, I plan to work as a consultant. Based on my family health record, I may live till 75.

Earnings: Presently our joint net pay is Rs 6.5 lakh annually and our monthly expenses are Rs 25,000.  

Savings: We have Rs 13 lakh which we plan to use for our son's education. 

Investment: I have taken an insurance policy for Rs 1 lakh in my son's name and it will mature soon. There is also a money back policy for Rs 50,000. I have taken ULIPs for Rs 50,000 and have invested Rs 20,000 in a few mutual fund schemes.

Assets: I own a 3-BHK flat with a liability of Rs 8 lakh. The loan would be repaid by 2024.

 Retirement: Our post retirement benefits including PF and leave encashment would be approximately Rs 20 lakh each (my wife will retire in 2027).

I wish to know whether we can lead a peaceful life with our retirement benefits.

Remo 

Post retirement, monthly needs drop by 20-30 per cent.

Even so, with your projected retirement benefits, you will find it difficult to meet your monthly needs.

Since you are planning to work as a consultant post retirement you can potentially meet the shortfall .

The current annual living expenses of Rs 3 lakh, inflated at 7 per cent, will be Rs 6.75 lakh in 2024. After deducting 30 per cent from your annual living cost, you will need Rs 4.73 lakh a year.To meet such a target at retirement, you need to have a corpus of Rs 45 lakh. Your retirement benefits and investments should earn a return of 1 per cent over and above the inflation.

If you work as a consultant for five years to meet your annual living cost, your need will be only for ten years. So, with a lower retirement kitty, you can manage for the rest of your life.

Suppose you outlive your life expectancy, you may encounter a shortfall.

So, once your son's educational needs are over, you need to save the surplus for your retirement. At 75, if you wish to live without being financially dependent on your son , use the reverse mortgage route. This will take care of your monthly needs.

To protect your retirement kitty , buy a health insurance policy for Rs 10 lakh, four years before your retirement. Even if you have any pre-existing aliments, at retirement you will still get protection.

Sureshpartha@thehindu.co.in

comment COMMENT NOW