Financial Planning for 40s couple

Background: 

I recently visited one of my existing clients. The aim was to find out how his son's educational goals were progressing and how much money will be needed annually. We talked about a variety of goals in-depth throughout our more than hour-long meeting.

Education Goal:

Let's call him Mr. Rakesh Shah, and his spouse Mrs. Swati Shah. Rakesh began investing with us more than three years ago. During our initial conversation, we talked about his only son, who aspires to attend an IIT for graduation. His son, Manan, is in 12th Std right now. In 2021, I suggested Rakesh ji to start SIP of Rs 50k-55k for his son Education goal to reach the target. We agreed to start with 40k at that time. 

The goal of my recent visit was to discuss and decide whether any changes to their portfolio were required owing to market conditions. As we all know, markets are overvalued, and their target was just about a year away. I will transfer to debt funds for safety if necessary, or I will get the portion amount redeemed. Since the coming year can be rather unpredictable, I didn't want to take any chances with their near-term objective.

The Wife:

Because of previous familial ties, I have known the family for over ten years. When I went to their house recently, Swati ji hesitated to join us for the talk. the possibility that she won't understand the numbers we'll talk about. I suggested that she just sit and listen with the rest of us.

My intention was to educate her about the value of compounding and involve her in family financial planning matters. I wanted to obtain some actual data from Rakesh ji on the schooling goal that we had established three years prior, which was the topic of our initial chat. 

Rakesh ji originally intended for his son to graduate with a total of Rs 40 Lakh over the course of four years, 10 Lakh each year. We were given the idea to phone someone whose kid is pursuing the same course by Swati ji, who intervened. That person guided us that Rs 5 Lakh per year is sufficient. From last 3 years investment, we accumulated about Rs 12.5 Lakh in the corpus for this goal. And Rs 40k per month SIP is already in place. I therefore argued that nothing needs to change and that the current situation is sufficient to achieve the aim. 

You may now see the advantages of including your spouse in your talks about setting financial goals!

The House:

The family has 2 residential properties in Ahmedabad valued at about Rs 80 Lakh. Currently they reside in a rented apartment and planning to sell both properties. Rent is Rs 23k per month.

They recently purchased a new flat, and possession is scheduled for 3-4 months from now. The transaction will cost roughly Rs 82 lakh. Rakesh ji has an outstanding balance of approximately Rs 30 lakh on prior properties, thus he will have around Rs 50 lakh available for a new purchase. He intends to borrow the remaining amount through a home loan.

I inquired about the costs of furniture and other expenditures, as this is a new property rather than a resale. He estimated that it will cost around Rs 5 lakh. I revised them to a minimum of Rs 10 lakh and an average of Rs 15 lakh for furniture setup, etc. This sum can be handled by increasing the loan amount or by getting it from other mutual fund portfolios.

We may underestimate our spending compared to the actual numbers. This causes stress at the time of execution. Our job is to provide our clients with realistic data that will help them reach their life goals without causing unnecessary worry.

Another aspect to consider is that the husband overestimated education expenses while underestimating home interiors. How did this happen? We tend to feel emotional when planning for children. 

Retirement Planning:

Rakesh ji is 43 years old now. Swati ji is a homemaker of same age. We discussed retirement, which may be due in 15 years. 

Their present monthly housing expenses range between Rs 40k and 45k. Considering nominal inflation of 6% over the next 15 years, this monthly price will climb to around Rs 1 to 1.25 lakh per month. And this monthly amount is required for the next 25-30 years! To support this monthly amount for 25-30 years, the family will require a minimum of Rs 2.5 crore in retirement corpus. 

A monthly commitment of Rs 45k to 50k is required to meet this aim for the family.

For such precise retirement goal planning, we offer our retirement-specific solution Anant Nivesh, which combines a Systematic Investment Plan (SIP) with a Systematic Withdrawal Plan (SWP).

Systematic Withdrawal Plan: SWP is one of the most underestimated products in the Indian mutual fund sector. This product works in the exact opposite way as SIP. In this arrangement, units are redeemed from mutual fund holdings and credited to the investor's bank account at predetermined intervals and dates. This approach is utilised to get a consistent income from mutual fund investments. SWP is also a tax-efficient strategy to generate monthly income from retirement corpus.

Using the Anant Nivesh type of combo product, one can earn Rs 1.2 lakh per month for life after making a SIP of Rs 40k per month for 15 years!

We agreed to start investing on this goal in a few months. 

Old is NOT Gold:

Swati ji was totally engaged in our discussion at this point, and she was actively contributing to it. She told me she's always wondered why her husband calls me whenever he wants financial guidance for the family! Today, she recognised what I do.

She was more excited than me or Rakesh ji. Then I tried to educate her about inflation, the necessity of investing, and other topics in simpler words. 

During our conversation, she told me that they invest Rs 5500 each month in gold with Tanishq. I said, 'Wonderful'. Without any investment gains, she spends Rs 66,000 per year on jewels, which she keeps in a bank locker!

I advised her to invest this amount in Sovereign Gold Bonds (SGB) or a hybrid fund for 7-8 years, then purchase Gold redeeming bonds/mutual funds as needed. By doing any of these things, she can have many advantages over typical physical gold purchases.

She was now sure that the money would be better spent on other options than physical ornaments.

Pocket Money SWP:

Later, we talked about a housewife-specific product that we built called 'Pocket Money SWP'. Here, the lady puts a lump sum amount in a mutual fund scheme (typically a hybrid plan) and receives monthly income from the investment for the duration of her investment.

Indian housewives typically save money from their household expenses and retain it at home to use in the event of a family emergency or for personal expenses. During the demonetization, many families discovered this golden trove, and ladies also realised the risk linked with cash holdings.

We advise customers to invest this amount in a mutual fund scheme and receive regular monthly income from their investments. Approximately 6% of the invested corpus should be available for withdrawal annually. If you invest in a hybrid category scheme, the principle amount may appreciate.

This product also excited her, and she expressed an interest in it.

The meeting lasted around 1:30 hours, and it was bedtime for all of us! I left their residence satisfied that I had helped them understand their life goals.

Conclusion:

I prefer to advise investments following a proper financial planning for family goals. This benefits both the clients and me in numerous ways. Because the markets are volatile, I may consider making a partial withdrawal before the due date in 2-3 years.

Families might also relax because their financial goals have been met. If one makes investments, it should be done after careful financial planning, and an annual assessment of the portfolio is also important.