Financial Planning. Sunshine plan for sunset years

For many of us, a big dream is to enjoy the sunset years without having to worry about financial commitments. This can be achieved if you plan and invest in appropriate asset classes early on. Hyderabad-based Chandrakumar who is retiring in August, has managed to mop up a fairly sufficient corpus to meet the needs of his immediate family, post-retirement.

His son and daughter are married and settled abroad, and Chandrakumar has no other financial commitments. He and his wife Padma, who took voluntary retirement as a teacher, reside in a flat they own jointly.

Investments

Chandrakumar started investing in mutual funds in the early 2000s, and has been able to accumulate ₹70 lakh, in various equity mutual fund schemes. His investment in fixed deposit schemes of banks is currently worth ₹50 lakh and will be due for renewal next year. He has opted for cumulative deposit, and the current interest rate is 8.5 per cent. Chandrakumar has also invested in physical gold, currently worth ₹18 lakh. .

Being a government servant, Chandrakumar is entitled to a monthly pension of ₹15,000 beginning September. His current monthly expenditure for a family of two is about ₹30,000. He wants to plan his finances for the next 15 years.

Beginning September, he will have a deficit of ₹15,000 every month. He wants to reapportion his investment to get a monthly income to bridge the gap.

Reallocation

Given that Chandrakumar’s investment in gold is currently not fetching him any income, he can consider re-allocating ₹15 lakh out of the ₹18-lakh investment into the Pradhan Mantri Vaya Vandana Yojana. Launched in July 2017, the scheme provides senior citizens steady cashflows to meet their expenses post-retirement. At the current interest rate of 8 per cent, Chandrakumar should receive a monthly payout of ₹10,000, which can partly meet his monthly expenses. The investment has a lock-in of 10 years, and the maximum investment is capped at ₹15 lakh.

Having invested in equities early on and having reaped the benefit of the buoyancy in the stock market over the past 18 years, Chandrakumar can move a portion of his mutual fund investment into debt instruments which can offer regular cash flows. He can consider the Senior Citizens Savings Scheme (SCSS), introduced by the Central government in 2004, to provide guaranteed returns every quarter to meet the liquidity needs of senior citizens.

He can invest up to ₹15 lakh in the scheme, which has a five-year lock-in and currently offers an annual interest of 8.3 per cent. That should give him ₹10,375 every month. From the Vaya Vandana and SCSS schemes, Chandrakumar will get an additional monthly income of ₹20,375, which should help him bridge the gap between pension and monthly expenses.

Assuming a 6 per cent annual increase in his expenses and pension income, he will have an annual shortfall of ₹10,000 in 2024, going up to ₹1.62 lakh in 2032. With his FD investment of ₹50 lakh coming up for renewal next year, he can opt for the monthly payout option. Assuming an interest rate of 8 per cent, that should add ₹4 lakh every year, or ₹33,333 every month. This will help him lead his retired life without having to dip into his investment corpus.

Chandrakumar has a family floater health insurance policy with sum assured of ₹4 lakh. Given the steep increases in healthcare costs, it may be prudent to increase the cover to ₹10 lakh. He can take a super top-up cover for ₹6 lakh, which will cost about ₹4,000 a year. The premium could increase in the future, but Chandrakumar’s surplus can take care of that.

The retirement corpus is adequate to meet Chandrakumar’s expenses for three reasons — pension income post-retirement, early investments and a simple lifestyle.

Any unprecedented increase in expenses will require revisiting the financial plan.

The writer is co-founder, RaNa Investment Advisors.

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