Express Clinic

Profession: Recently Retired

Annual income Rs 16.20 lakh

Status amp; goals

Sushil Joshi has recently retired from a company where he worked for 35 years,and his wife Aarti is a home-maker. They have two children,both married and well-settled. As he is a retiree,there is material change in his income,as he would have to support himself through his savings. He has bought a car by taking a bank loan,and only a few instalments remain . He,however,is intent on buying a new car. An analysis of Sushils present situation and his goals raises a few fundamental questions: Would the funds saved up by Sushil in his working years be sufficient to last for his wifes and his lifetime? Would he be able to maintain the same level of lifestyle as he had before retirement,or would he have scale down his lifestyle? What would he do if a medical emergency came up? Would be able to afford the best in class medical facilities for his wife and himself? Can he afford expenses such as a long foreign holiday in a few years now that he has finished with all his major responsibilities in life?

Needed:

A financial plan that can augment his savings and help him live comfortably and meet goals to the extent possible

Basic expenses PA Rs 13.5 lakh

Emi on car loansPA Rs 7.5 lakh

Net worth excluding value of primary residential home

Rs 2.96 crore

Medical Corpus: 2013 Considered as immediate,as medical exigencies can arise all of a sudden and especially so in the case of senior citizens

Medical Inflation usually assumed 12,not applicable in this case as need is immediate

Current Value: Rs 5 lakh for each individual i.e. total 10 Lakh for Sushil amp; Aarti taken together

Currently,both Sushil and Aarti are not covered by any life or health insurance policy

current Investments:

Primary House Current Value:

Rs 2 crores approximate

Equity Stocks and Shares: Rs 25 lakh

Equity Mutual Funds: Rs 20 lakh

Bank FDs: Rs 2 crore

PPF: Rs 50 lakh

Savings accounts: Rs 1 lakh

Findings amp; Recommendations

Retirement: This is the question that is the topmost in Sushils mind. At the current level of investments,his equity mutual funds,equity stocks and shares ,PPF investments and his fixed deposits are sufficient to cover his retirement goal. As he has garnered sufficient net worth,it is clear that this corpus would ensure he continues to enjoy his current lifestyle till his wifes and his lifetime.

Emergency Fund: There is adequate liquidity in the form of savings bank accounts and Bank fixed deposits. He has enough liquid assets to take care of any abrupt monetary needs. Emergency funds,in case of retirees would be generally maintained for sudden events such as medical exigencies or accidents or sudden demise. In this case sufficient fixed deposits are available for the same. He needs to ensure that at least Rs 10 lakh worth of fixed deposits are linked to his savings account,so that access to the funds is easier in case of an emergency.

Health Insurance: Both Sushil and Aarti do not have any kind of health cover for themselves,as they had a company provided health cover during employment. However,at this age,they should not take any health insurance because health insurance for this age group might prove a costly proposition and claim settlement may be a challenge as well. As they have ample investments,they would be better off keeping aside some funds as a provision for medical needs.

Life Insurance: Sushil does not have any life insurance cover. However,the need for insurance is substantially mitigated considering the size of assets he has. His current assets are sufficient to take care of his expenses and goals. Therefore,as such there is no such need for life insurance. As there is no financial dependence on Aarti,there is no need of life cover for her as well.

Investments: At an overall level,Sushil and Aartis investments are sufficient to cover their goals,their cash flows have to be planned to replace loss of income due to retirement. In addition,most of their assets 68 per cent are concentrated in fixed deposits. It is recommended to move some portion from fixed deposits to debt oriented mutual funds so as to get the benefit of diversification and also to achieve tax-efficiency at a portfolio level. In retiree portfolios,two things are critical. First,fixed income investments such as FDs should be laddered,to reduce reinvestment risk. Second,a portion of the portfolio should be allocated to inflation beating assets such as equity,which is the case in this portfolio. However,it is crucial to ensure that the equity portfolio is managed professionally.

Liabilities: Current car loan,whose monthly EMI is Rs 60,000 per month is not a concern as this would be paid off completely within this year. There are no other liabilities for the Joshis

Other Goals: Their other goals viz. New Car Purchase and Foreign Holiday can also be easily met through current level of investments.

Conclusion

The Joshis have been prudent and have judiciously garnered sufficient investments to meet all their goals,especially Sushils retirement. What is needed to be done is to rebalance their portfolio and ensure regular cash flows from investments to replace Sushils income,according to an asset class mix basis necessary level of risk as well as diversification,as suits them.

Plan By vishal dhawan

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