What is your advise for him?
A friend called me with a surprising question.
Let us call him M.D.
He bought a house in Navi Mumbai for about Rs. 180 Lakhs, – of this about Rs. 95 lakhs was funded by a loan from the State Bank of India. Over the last 4 years he had paid a lot of interest, but the principal outstanding was still Rs. 85 lakhs.
He was also doing some SIPs which had seen an amount of Rs. 33 lakhs, but now in this market was worth Rs. 37 lakhs – not too bad, but the IRR was not too great. He does not have any debt investments except his LIC endowment policies – and all the policies are together worth Rs. 30 lakhs.
So far fine. He just lost his job with effect from December, 2016……he is on notice period now………
He will have to find a new job, NOW and immediately.
What is at stake?
Household expenses (including children’s school fees) …….Rs. 100,000
EMI Rs. 102,000
His needs are as follows:
Rs. 2L x 12 = Rs. 24L – assuming he gets a job in 6 months, he will need Rs. 24 L.
He is about 53 years of age – he needs to have his retirement corpus in place. He knows that jobs paying Rs. 45 lakhs and above are almost non existent especially in Sales and Marketing unless you are willing to take aggressive targets. In the bfsi space perhaps it is only a bank that will take him. How does a 53 year old join an aggressive and young bank? Not so easy….
He can always sell his house (he thinks it has appreciated, my take is the appreciation is LESS than the interest paid on the loan)..but yes that is a choice. Options are few and far between in the jobs. Most people expect a 53 year old to be holding a technical qualification or an address book of potential clients…he has neither…
What does one do? Looking for answers…
Shan
Well the first step is to always cut losses. In this case he has to dramatically reduce any outgoing first so yes selling off the house is a must as it stops EMI. Any other expenses that can be curtailed need to be curtailed
If he can move to a lower cost city and find a job then that’s a good idea too
Next he needs to find a job somehow or come up with creative ways of writing about his situation which can get him one or get it published 😉 I don’t think the usual ways apply. Desperate times, desperate measures
karthik
How come 53 year old person kids are going school?
If the reverse mortgage options are available, he can try to maintain the same lifestyle.
PPF money can be used.
surendra
dear subra
please dont create “night-mare” events to readers
people are physically,mentally “tired”
write somethong “positive”
cheer up
surendra
in “capitalism” 33% models fail, 33% models average out,33% models look positive,1% models are really succesful
in any “kurukshetra” there will be only 1 ” ARJUN”
Roshan
Dear Subra,
I think the solution here is simple for the person who is suggesting and very tough for the person who is implementing.
It is easy to give out a solution by asking him questions like can you do this, can you work this way, can you lower your lifestyle etc. Assuming we don’t have those answers as well as the person affected may not be really aware, below are the 2 solutions:
1. Go Aggressive (Enable your Beast mode 🙂 ) :
This is like playing double or nothing. He can put in some more chips on the table, get a short term distance program completed. Dig into his existing assets(MFs, PF, loans on LICs, also take a student loan to get a 6 month diploma from reputed institute) Go find a job that will match his lifestyle. It’s difficult but not impossible.
2. Go Conservative:
This is more like accepting the situation n being realistic. It will be a very uphill task to compete with the 30 years old and outshine them. Also, learning at this stage will be difficult. The pressure to perform will be huge since you have everything at stake. So the solution is to deleverage. Try to consolidate your investments and reduce cash outflow. This included selling the house, reducing monthly expenses. I mean it’s very obvious that if i am not doing well i will need to settle on Naturals ice cream instead of Baskin Robins. This will need support from family. There is nothing to be ashamed of here. You took them to these heights. Life can’t be a one ways journey, there will be highs n lows.
You take up some job which pays you decently well, more like 20 lacs pa. Anyways sitting at home is no use if you don’t plan to do freelancing. Keeping yourself mentally occupied is equally important. Who knows ,you might be able to grow from this small positions. So don’t keep a very high salary barrier.
Relocating to a cheaper city might not be very feasible if you have kids who are studying. Instead you might take up jobs which require you alone to shift.
More importantly accept that every person who starts his career isn’t like A.M Naik who joined as engineer and become CEO(n never left :P) or like Chandra from TCS who went through the ranks to become CEO. Many of us are going to peak out before we complete the standard working years of our life. Peaking out may be in terms of our performance or a some crisis hitting our industry. If you get knocked out a wrong time, then there would be probably no chance to return.
Whatever you do, it’s more important to be content in your life. All the Best !
lakshminarasimman
sir
I am sure lot of geniuses will tell to sell the house as though you can sell today and get money tomorrow and move to rented home day after tomorrow
that person has any pf or gratuity ?
also at 53 yrs his children still going to school ? this case is real or imaginary like safal niveshak?
more importantly, what that person himself is thinking of what to do ?
Sivakumar
Sir,
I am just putting myself in his shoes, but i dont have answers for some of the questions
1. Is my networth is (180 -85 = 95 in real estate) +(37 in equity) + (30 in policies) = 162 lakhs.. If yes then something badly wrong.. With 162 lakhs at current value even if i sell the house to complete children education and lead my retirement life this is not enough and i have to take some job..
2. Do i get Grautity and PF accumulated and will it be enough to take care of my commitment for next 1 year so that i can decide on what i should do with that house.. knowing that i have a risk of lossing job.
3. Selling a house and finding a job with some salary will be the only goal for the next 1 year and i dont have to worry that i have money either in PF or gratuity to take care of family expenses on 1 year..
4. Now if the networth after selling house is just 162L then now i have to plan things much better for rest of my life and based on what kind of job i get in the next one year.. i will refine my planning better..
Deepak
Try not to mix career and PF. If LR is due to business, market conditions ;you are already best and can find something equally good or better in 6 months time. If this is due to performance you must have seen it coming… Hope you have emergency fund for 6 months.
A) EMI… If it’s from nation bank, hope you have done overflow s in previous years … Time to leverage it… That gives you nice cushion without actually becoming default er.
B) cut down monthly expenses to bare essentials, fire all servants or send them on LOA. If you can cut it to 25K… Ride out the storm…. Should be possible. Also use the LR payout and Gratuity for your expenses during the storm… This should not be part of any allocation. Plus Emergency fund…. I think he can manage. Do pause SIPs, investments…..
You could be safe and emerge stronger don’t worry.
Jayaraman
It is easier said than done. But my views are
1) Seriously and sincerely look out for a job. He has 4 more months to go (has job till dec 2016) and even if the salary is less than what he gets currently, he should first take it.
2) Stop all SIPs that are currently committed by him.
3) He needs minimum 6 months requirement as emergency fund. It is better to redeem Rs.24 L from the mutual fund to cover himself upto Dec 2017
4) It is better to sell the house to reduce his outgoings. He needs to immediately look out for selling it. Target is to finish it before one year from now on.
The above plans are for one year. Anything can happen during this period and he may land up in a better position.
Whatever happen is for good and with a purpose. I pray to almighty for him to come out successful in this tough time
Santy
My suggestion. Sell the house for 2 Crore (lower end of estimate) and that removes the 1 lakh emi problem. The sale would net 1 crore after all settled. Give 50 lakh to Subra, no questions asked and let him manage it for you. of the remaining 25 lakh, put it in debt fund for expenses. Start the search for a job. Get a 50K apartment on rent. Take a lifestyle hit.
Your kids are likely to be in college, which means ask them to get education loans. You cannot afford to pay for their education. Let them live and learn.
MiraD
This is a hellish place to be in. But the sky has not fallen, as the parent used to say.
Find a new job? Let us be practical!
Cash flow is all important.
If he has been tracking expenses then he would know what can be cut down. Ruthlessly.
Where are they staying now? On rent? Possible to move to a smaller place?
If the kids are in college, educational loans can be opted for. If they are in school– no go, and assume expenses will increase disproportionately.
Does he have health insurance independent of the company plan?
The apartment for which he is paying EMI– can it be rented out until it is sold? Not sure why his corpus is so low! Anyway.
At this age, PF interest would be sizable. After seventh year one can withdraw once per year– withdraw the interest only. So that is some money cushion every year.
So what he needs to cover is the difference in annual expenses and this PPF interest amount.
Gratuity, leave encashment etc etc will be a good lump sum.
Does he have PO MIS? 9 lacs can be put here for him and his spouse so atleast some monthly income.
The rest of the money that he needs in the first year stays in the bank account or in FDs.
Now whatever is left– some into PO TDs– ladder– and the rest in an index fund.
This will buy some time till the apartment is sold.
devan
It is very scary to think about it even in his position.
Krish
For those who is advocating to sell the flat, let me narrate my story.
We and close to our family members sold 4 flats in last year in all 3 segments(Luxury, Mid & Budget).
It took nearly one year to sell those flats
All the flats are sold at either cost price or 10% lower. None on profit.
We literally struggled to sell the oldest flat of 10 years. Had to give massive discount. Can not imagine, if the flat is more than 15 year old.
While am not sure about Mumbai or North India, Flats value depreciates a lot in South cities (B’lore, Hyd, Chennai).
Even if it is a distress sale, my suggestion is to get rid of his flat. Everything else would fall in place if he takes of this huge white elephant.
Ashish
1. Sell the house ( 180 lakhs – 85 lakhs loan ) = 95 lakh ( About 90 lakhs in hand )
2. Get rid of Endowment ( 28 lakhs in hand )
3. Total 118 lakhs in hand.
4. Put 6 lakhs in a Savings bank account ( Emergency Fund)
5. Put 12 lakhs aside for ( Rent and Expenses for the next year – 1 lakh / month )
6. Put 100 lakh in FD which will get steady income (about 6.5 lakhs after tax) for the next year.
7. Keep the Stock portfolio as it is. ( Dividend go back to portfolio)
8. Find a job.
Adithyan
If you need to sell your house you need to pay income tax on capital gains on sale of house unless you invest in another house or invest that amount in capital gains bonds issued by NHAI or REC.the loan of 85 lakhs cannot be adjusted with capital gains.
Since he has 4 months to leave job he has to search a new job which can give a reprieve a little bit.
Abhishek
My observation:
Buying such a high value property at an age when he has about 8-10 years to retire doesn’t seems right. He should have been debt free at this age and should have had a decent retire kitty to fall back on to. He also does not have a backup or contingency fund to take care of 6 months of expenses which would have been very ideal in this situation.
I am not sure if he has taken any insurance for the property which would pay his EMI in case of a job loss, if it is not too late then it can be considered.
Depending on the LIC policy maturity dates if they are close to maturity (in the next 6 months or year) he should wait for then to mature.If he does not find a job till Dec 2016 he can start surrendering his policies one by one in the order of the one with farthest maturity the first and so on.
Also if he is not able to find a job in the next couple of months (October end) he should list his property for sale and also have a word with the bank where they can offer terms considering a job loss situation.
Ricky
What he should NOT do:
1. Endownment (30 lakhs): redeeming this abruptly will lead to loses. Don’t break this and wait till it matures.
2. Existing SIP (37 lakhs): Pause the SIP till you get a job but don’t redeem because this corpus will help serve partial retirement goals.
3. EPF: It is very easy a tendency to withdraw all of EPF money when one quits or is asked to leave. But rather don’t withdraw this, and transfer EPF to next job. This corpus will help serve partial retirement goals.
What he should do:
1. Home & EMI (1.8 crores): Changing a city or even station/location at 53 yrs with kids going to nearby schools is not quite easy. Assuming existing flat is like 3bhk (1.80cr), sell this and shift to a 2bhk rather (1.40cr). Basically shift from whatever existing size house to smaller one. Keep 10 lakhs for emergency, prepay 30 lakhs towards loan, now the revised home emi should be around 55-60k.
2. Job & house exps: From 45 lakhs salary, even if he settles for 20% cut, he may end up with 35 lakhs job or say 2.5L monthly gross take home. Pay EMI (55-60K), house expenses (80k – lifestyle creep/habit won’t allow him to reduce this exp drastically), do SIP for left over (90-100k), and continue to work till he is at least 65 yrs.
Bharat Jaiswal
First and the most important thing in these types of situation is liquidity. As some of the expenses which cannot be curtailed is like household expenses, education expenses.
As the emi is eating a big pie of the monthly income and there is no solution to get rid of it other than liquidating the property (hoping for getting at least the par value). Second option he can do is rent his flat and move to low rent flat so that he can utilise the difference amount as a income, as moving family to other city is not viable for the children as well as it comes with a huge cost.
He must look at the mutual investment by shifting it to some conservative equity fund or actively managed balanced funds because he cannot totally rely on the fixed income funds. But should transfer at least 20℅ of the fund value to liquid fund by the month of October end.
Third strategy would be to withdraw a part of the EPF amount and invest in balanced fund.
The person having an income of Rs 45 lakh will also be having some liquidity in banks also the investor has not spoken about that.
kkk
I was facing the situation 2 months back. I am much younger (37-38). This is what I panned. My monthly expenses are 65K, 15K emi for house. Selling house is not an option as it depreciated a lot but emi is not high and I live in it. I have around 90 lakhs in debt and 80 in equity all mutual funds. I was getting around 20 from severence and another 35 from pf. Job market was bad and gave up on similar job. So I planned that I would keep all 2.25cr in debt mf and get around 18L before tax at present yields which will take care of my expenses. Then give 6 months for job search and if I don’t find it I was confident that I will get a teaching job with my post gratuate engineering degree. I will continue living on my debt funds and pump what ever I earn from this job into building an equity portfolio again.
Never need to implement as I found a job in my company in other department.
I would give similar advice here. Get rid of house ASAP but give it enough time to at least market value and not lose money on it. Pool all the money to invest in debt to cover for the expenses (it looks he has enough money for that after selling the house). And find any job that he can find to bring on additional investments. Invest that money where ever he is comfortable with. I decided entire salary goes to equity considering my age.
Amar
Best option, become a Saint, free of attachments….Let his kids take all his wealth and pursue their studies. No point bringing him back to the world of 25 years at this age!!! He deserves much better than that