I have been writing this blog for more than a month now and have come across many individuals, with different and unique financial situations. I also get pulled in for advice on how to deal with several financial issues. I think it will be a good idea to share some real life situations with my readers so that it helps them in their financial journey.
The first one that comes to mind is of a recently retired person who was introduced to me by a friend. For the purposes of this discussion we will call him Aloke. Some background of Aloke will be in order before we get to the case itself.
- Aloke is an Engineer by profession and has worked in different manufacturing companies for about 35 years before retiring last year.
- His wife is a homemaker and he has one son who is a CA, working now in a reputed audit firm in Mumbai.
- Aloke has a 3 BHK apartment in West Hyderabad and wants to settle there.
- He has never been in equity, most of his investments were in PF and PPF. All expenses except the apartment was always from his active income or from FD / RD which he had set up for larger expenses.
- His current expenses are 5 lacs a year and he thinks if that is adjusted for inflation he will be pretty ok with it.
- He got his PF in 2013 which amounted to about 1 crore. He had put all of it into Tax free bonds that were giving an interest of 9 % then.
- His PPF is presently having 45 lacs.
Aloke came to me as he was confused with all kinds of strategies that were being told to him by financial planners. Many wanted him to sell his funds in the secondary market and put the money into different buckets etc. This is an amazingly bad idea as he is getting a tax free income of 9 lacs and will be getting it for the next 17 years !!
Here is what I suggested to him.
- Continue with the current situation till the tenure of the tax free bonds run out. By that time he will be 80 years old.
- For the surplus each year, put 1.5 lacs into PPF and the rest in a multi cap mutual fund such as ICICI Value Discovery or SBI Emerging Blue Chip.
- Assuming 6 % annual inflation, Aloke will be able to carry on the MF investment till year 6 by which his investment will be about 9 lacs.
- PPF can be carried out till year 9 when his expenses will get to 9 lacs a year.
- From the years 10 through 17 he will need to withdraw from his MF fully and PPF partially to fund extra 32 lacs of expenses.
- At the end of 17 years, when Aloke is 80, he will have 1.5 crores in PPF and 1 crore from redemption of tax free bonds.
- Even with annual expenses of 20 lacs then, this will definitely last him comfortably till the rest of his lifetime.
Understand that the plan is specific to Aloke who does not really want any risks, does not want to worry about taxes and is comfortable with his present lifestyle. It is not always important to have 5 crores or chase equity returns. There is a financial plan present for each person and situation, you just need to use some knowledge to get there.