Meenakshi, aged 48, is single and wanted to ensure she retires when she turned 60. Her goals were limited. She had enough resources and cash flow from her point of view.
But she was a bit apprehensive on her financial condition towards satisfying her needs and wants. Her assets and cash-flow statement are listed below (see table).
At her age of 48, at first look this seems to be a reasonably sound net worth. The value of land parcels will only be known when she sells. Being single, she felt uncomfortable holding such land parcels. She felt that her relatives were expecting some ‘goodwill’ out of every sale of land. This increased the uncertainty factor in the net worth calculation. To please her relatives she felt she had an emotional binding to do what they expected.
Her expenses, at the time of planning, were ₹60,000 per month. On a relative scale, for a middle-class woman this definitely is above average. But she was not willing to compromise on her lifestyle. In addition to this, being an avid traveller, she would incur ₹2 lakh every year when her travel plans resume.
We analysed her risk profile, and the results showed her appetite in “balanced” category. She was able to appreciate long-term investing and the risks associated with that.
Review & recommendations
1. Emergency fund should to be maintained as fixed deposits for ₹7.2 lakh
2. Medical emergency fund to be maintained as liquid funds would be for ₹10 lakh. Being taxed only at redemption, these funds would help her in tax efficiency.
3. Her high priority goal was retirement at her age of 60. At current cost, her expenses in the first month of retirement would be ₹1,35,131 at 7 per cent inflation. She wanted to plan for her retirement corpus with a life expectancy of 90, post retirement inflation of 7 per cent, and expected return of 8 per cent.
4. To ensure adequate financial assets are in place to aid retirement life, salary income, provident fund accumulations (PPF and EPF) and previously held mutual fund investments were stringed together. This should provide her a corpus of ₹2,71,36,851. But her retirement corpus requirement would be ₹4,26,46,779. She was advised to invest ₹57,000 per month through systematic investments in equity mutual funds till her retirement age of 60.
5. She was advised to invest ₹10 lakh from cash in hand towards her “post retirement hobbies fund” in equity mutual funds.
6. If she continues her employment, she would be able to comfortably reach her goals of retirement, health and vacation needs by way of financial assets assuming she adopts the above-mentioned suggestions.
7. She was also advised to exit her real estate assets in a phased manner and accumulate in financial assets.
8. She will be using these sale proceeds partially to fund education needs of her relatives’ children and to other needy group over the next 10-12 years. This will help her manage her time post retirement. She was advised to establish a charitable or private trust to manage the activities if she plans it as a continuous activity.
9. She also wanted to contribute to the society in building social infrastructure at her hometown with her income in future. Ensuring adequate liquidity by way of optimum exposure to financial assets would help her to stabilise her post retirement life. She would be devoid of liquidity issues and emotional issues mentioned earlier. By consolidating her immovable assets, she would be in a position to provide for her nobler goals. This would in turn help her to spend time on such activities without having to carry the burden of liquidating immovable assets at short notices.
The writer, Founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI