When you are earning it's easier for you to manage your expenses through your monthly salary, but have you ever thought who will pay for your expenses once you stop earning. The answer to that is your savings and investment done in your earning period.

Investment done now will help you to live comfortably during your golden years i.e. retirement. So it becomes inevitable for you to plan for your retirement in advance.

But we have often-heard excuse from people for delaying retirement planning such as "I have enough time to go before I retire, so why rush?" Unfortunately, most of you fail to realise that postponing is your biggest enemy when it comes to retirement.

Same was the case with one of our client who delayed planning for retirement till he turned 50.Then he realized that he doesn't have much savings for his golden years.

Let's take his case to guide you how you can also plan for your golden years i.e. retirement.

Personal Details
Name	Mr. Trivedi
Age	50 years
Retirement Age	60 years
Dependents	Only Spouse
Life Expectancy	86 years
Income	Rs 87,000 per month
Expenses	Rs 62,000 per month

Personal Details

Mr. Trivedi a 50 year old married individual wanted to retire at the age of 60 years. His spouse was the only member of his family dependent on him. He was earning Rs 87,000 per month, while his expenses were Rs 62,000 per month. So his monthly surplus was Rs 25,000 per month. Mr. Trivedi had a family history of living over 80 years so they were assumed to have life expectancy of 86 years.
 

Assets
S.No.	Type of Assets	Amount (Rs)
1	Equity Mutual Funds	875,000
2	Equity Shares	325,000
3	PPF	1,000,000
4	Gold Mutual Funds	700,000
5	Residential Flat (Self-Occupied)	5,000,000
6	Land	3,000,000
7	Cash in Bank	270,000
Total		11,170,000
S.No.	Type of Liability	Amount (Rs)
1	Home Loan	1,500,000

Assets and Liabilities...

Mr. Trivedi had more than 70% of his total investment portfolio in illiquid assets such as Residential Flat and Land. Mr. Trivedi had taken a home loan (EMI = Rs 20,000) for the construction of residential flat in which he and his family was staying. 10% of his investment portfolio was invested in Equity via Equity Mutual Funds and Equity Shares. He had opened a PPF account when he was 30 years old and extended it for 1 more block of 5 years, and now the PPF account will mature in next 2 months. He had also invested in Gold via Gold Mutual Funds. The Cash in Bank was mainly kept for contingency purpose.

And here was Mr. Trivedi's Concern!

He was nearing retirement and he thought that his assets were not sufficient to fund all his expenses during his golden years i.e. post retirement period.

Retirement Corpus Required by Mr. Trivedi

Mr. Trivedi had current total expenses of Rs 62,000 per month and wanted to maintain the same lifestyle during post retirement period as well. As he would have paid off his existing home loan by the time he retires, so his net total expenses required in current terms during the post retirement period is Rs 42,000 per month. Assuming inflation of 7% and post retirement return of 8% he required a retirement corpus of Rs227lakh. (Use our: Retirement Calculator to calculate your retirement corpus)

PersonalFN recommended him the following:

1. View on Land: His investment in land had grown for 5% per annum in last few years and not much growth was expected from the same going forward. Further land was giving him only price appreciation and no rental income. So we advised him to sell land and invest the sale proceeds in constructed property which will give him some rental income and a higher expected growth rate in terms of capital appreciation to the property. And he indeed put our advice to practice by investing in a new property and gave it on rent, which fetched him a rental income of Rs 4,000 per month and the property was expected to grow at 8% per annum. This new property is estimated to command a value of Rs 64.76 lakh at his retirement.
    
2. View on Equity Mutual Funds: Most of the funds he had invested in were good diversified funds. We just consolidated his mutual fund portfolio as he had many duplicating schemes and they were not giving him any added advantage of diversification. Equity Mutual Funds are expected to give him Rs 35.39 lakh at retirement assuming a 15% return on equity.
    
3. View on Equity Shares: Hehad invested in good stocks on the basis of researched based recommendations, so we advised him to continue holding it and use these stocks for retirement. Equity Shares are expected to give him Rs 13.14 lakh at retirement assuming a 15% return on equity.(Download our: Equity Guide for FREE to know how to build a stock portfolio)
    
4. Fresh Investment in Equity: We recommended him to start a SIP of Rs 19,000 per month in diversified equity mutual funds and increase it by 5% every year for 10 years. He could increase his fresh investments by just 5% every year as his salary growth was not expected to be very high going forward. Fresh investments in Equity are expected to give him Rs 62.79 lakh at retirement assuming a 15% return on equity.
    
5. PPF: PPF account which was about to mature was advised to be extended for 2 block of 5 years i.e. total of 10 years. He was also advised to invest Rs 7,000 per month before 5th day of every month till retirement. PPF account will give him Rs 34.27 lakh at retirement assuming 8% return on PPF. (Download our PPF Guide for FREE to know all the details about PPF)
    
6. View on Gold Mutual Funds: Gold mutual funds are good way of investing in gold so we advised him to hold it and invest further Rs 3,000 per month for 10 years. Gold Mutual Funds will give him Rs 19.29 lakh at retirement assuming a 7% return on Gold.
    

Accumulation until retirement

S.No.	Source of Investments	Amount (Rs in lakhs)
1	New Property	64.76
2	Equity MFs	35.39
3	Equity Shares	13.14
4	Fresh Investments in Equity	62.79
5	PPF	34.27
6	Gold Mutual Funds	19.29
Total		229.64

New property will have value of Rs. 64.76 lakh at the time of retirement which has contributed towards achieving Mr. Trivedi's retirement goal. He doesn't need to sell this house at retirement but can continue getting rental income till the time he is about run out of his other investments and rental income is not sufficient to pay for his regular expenses.

Key learning's from this case study:
 

1. Start planning for retirement now! Even if you have just started earning, even a small contribution can make a huge difference.(See our Video: Time Value of Money & When to Start Investing to know the benefits of starting investment early)
    
2. Land is an illiquid investment and does not give any rental income; so invest only if you know the region in which it is located and is bound to deliver a high growth rate.
    
3. Post retirement expenses can increase significantly due to higher chances of falling ill; so make a provision for medical expenses while planning for retirement.
    
4. Due to medical advancement life expectancy has increased, so do not underestimate it.
    

If you too want to plan for your retirement but don't know how to start with it, then do not hesitate to call us on 022-61361200.You can also Schedule a Call with our investment consultant or even drop a mail at info@Personalfn.com and we will get in touch with you. We would be happy to plan your finances prudently to help you achieve your life goals.

If you have missed reading the previous case studies from this series, please click on the link below:

Case 1: How Mr. Raghu restructured his liabilities?
Case 2: How Mr. Ram's Dream Home became a reality
Case 3: How Mr & Mrs Raj planned for their Child Education & Marriage

Add Comments

Comments
bt40dk0aa@gmail.com Jan 07, 2015 Boom shkkalaaa boom boom, problem solved.
ram@airengroup.com Nov 05, 2013 Dear Adviser, I do nt agree with u r comment on Land (plot). Every place land value has givenabout 100% in five years. While  Flats are not appericiated that much. Kindly do a survey and letme know. Ram Airen ram @airengroup.com

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