Mr. Subra my name is A…K. These are some of the facts about me. Please tell me whether I am on the right track please.

Facts: AK is 52 years of age, works in a semi-government company. He has a house in Mumbai (current estimated worth Rs. 85 lakhs, located at Mulund). He drives a SGX4 which is 3 years old and he is planning to change it. His wife is a housewife and both his daughters are studying. One daughter is doing B.com (and is planning to do her MBA) and the other daughter is doing her Engineering.

He has about Rs. 16 lakhs in his provident fund, Rs. 16 lakhs in his Public provident fund, Rs. 4 lakhs in nsc and about Rs. 3 lakhs in savings and fixed deposits with a co-operative bank.

His liabilities include a Rs. 22 lakhs of housing loan, Rs. 2.4 lakhs of car loan, and Rs. 50,000 personal loan.

I liked the best statement in his mail: “I do not like to take risks, so I keep all my money in government securities or banks”.

My reply:

Dude, you have not just taken risk on your portfolio, but believe me, you have s…d it real bad. All your assets put together is Rs. 39 lakhs. This in itself is not a great figure, but if you reduce the borrowings of Rs. 25 lakhs – your net worth is Rs. 14 lakhs. This amount will be used up in your daughter’s education if both of them do their MBA from a half decent institute in Mumbai or Pune.

Now what you have done is an amazing mistake of borrowing at 11.5% for home loan and 14%p.a. for a car loan while your money has been earning A MAXIMUM OF 8% per annum. On a Rs. 25 lakh portfolio of you have earned -5.5% (post tax) YOU HAVE LOST about Rs. 1.25 lakhs PER ANNUM – on a salary of Rs. 6.5 lakhs (gross) this is not affordable. Not affordable at all…..

Even now it makes sense for you to take all the money from your national savings certificate, your bank deposits, and even from your PPF and repay the car loan and partially down pay the home loan. All this will release some cash in your hand…I suggest that you should try to work longer, ask your daughters to pay for their education and marriage and start building a retirement corpus.

Seeing your standard of living your expenses per month will be in the region of Rs. 55,000 per month. Assuming your expenses double by the time you retire it will be in the region of Rs. 120,000.

As a rule for a person spending 15 lakhs per annum the corpus that you will require to retire reasonably comfortably you will need Rs. 4.5 crores to Rs. 6 crores.

Mr. AK you are nowhere near this.

Suggested action Now:

Break fd, nsc, pay off car loan and home loan.

with the money still in your hand, and a reduced EMI, you will have a lesser cash flow burden. Do a SIP in Hdfc Top 200, Hdfc Equity fund or Hdfc Prudence. Make sure you do not touch this amout till you are 65 years of age (13 years of compounding).

Then when you are 65, withdraw from these funds…slowly.

By the time you are 72 you will again have  a cash crunch. Now do a reverse mortgage for 14-15 years.