Couple in mid twenties that makes more than 15 Lakh/yr, needs financial planning/investment & retirement advise. (X-post r/personalfinance/)

[seekingtreeoflife]

Hi,



We are a couple in our mid twenties (27/26) and we would like your suggestions to help us plan our investments/retirements. We make decent living and after paying taxes and all other expenses, we save about 13,00,000 ₹ per year. We believe that we can keep on investing the same amount (if not more) for next about 4/5 years before we make the decision of buying our own house. We would still be able to invest after 4/5 years but it might not be as aggressive as it is right now.



Due to very little time at hand, I was unable to keep constant watch on our savings and have invested about 18,00,000 ₹ in bank fixed deposit accounts and about 6,00,000 ₹ in bank current account. However, I would like to change that and start paying more attention to our investment options so that I can achieve the following goals for our investment.

• Yearly rate of return should be around 8-10%. (Assuming it is good economy and nothing goes south)
• Plan retirement options such that we can retire around 45/50ish.
• The resulting money should allow us to invest in various instruments for the future kids
• Don’t have to review my investments more than 5/6 times a year.

A few ending notes:

• Debt/Loans - We have loans of about 15,00,000 ₹ but at the rate that we are paying, we believe that it should be paid off in next three/four months.
• Emergency Funds - We have sufficient emergency funds for six/eight months.
• Insurance - We currently do not have any kind of life insurance. We just have health insurance.
• Retirement Savings - We don’t have any retirement savings.

We would like to invest in various financial instruments but properties. Do financial gurus have any advise for us?



Thanks!

 

[thatdave]

@seekingtreeoflife I've been in your position before and here are some very simple rules.

• Have emergency fund for at least 6 months
• Pay off your debts. The tax benefits on home loan are not worth the hassle. If frees your mind to be more focused.
• Max your PF/PPF and other retirement fund options
• Invest at least 65% of your savings in equity mutual funds (maybe 2 or 3 schemes). This would be your primary retirement saving and you probably shouldn't withdraw it till you are close to retiring. If you don't have much time to review your holdings all the time, use a service like scripbox that makes it simple.
• Of the remaining, save 20% in conservative instruments like FDs for long term (5+ year tenure)
• The remaining 15% should also be interested in FD/RD but meant for your short term goals (vacation next year or a newer car down the line). It should be oriented towards your spending in the next 3 years at most. If you haven't spent it, put it back in equity.
• Life insurance is required, but overrated for your case. If all your debts are paid off, and your SO is earning equally, no need to "protect against a loss of income". I would go a maturity amount of perhaps 4 times your annual salary + outstanding debt.

 

[eljai]

@thatdave Why go in for only 4 times annual salary for life insurance when at this young age, easily 10 times cover is available for

 

[cmadukasi]

@thatdave No stocks ?

 

[debsy17]

@seekingtreeoflife 8-10% returns per year is not a good target return to hope for. You will not be beating inflation(especially urban inflation) and the purchasing power of your invested money will erode over time. Please target at least 12-14%. We DO NOT recommend index funds in India.

Since you do not have any retirement savings and you plan to retire at 45, the most obvious thing to do would be to put some money into equity but with the current market conditions, only a SIP can be recommended. Pick 3-4 funds good performing funds and start a SIP. You need to be aggressive on equity. 5 years of investing 100% of your savings into equity would make your portfolio 70% equity and 30% debt. You really need to do this if you want to retire in 20 years.

If you have dependent parents, some cover will be necessary. It can be completely avoided if they are well off. You can get some life cover for your children when they are born. I am assuming that both of you are self sufficient and can manage to live by yourselves in case anyone dies.

Since you also want to buy a house, you can pay for the down payment with your Bank FDs and the EMIs with your regular salary. You will also have to re-balance your portfolio to reflect this. But that is a long time away. Good Luck.

 

[colinamey]

@debsy17

You will not be beating inflation

Is that your blog ? I started reading it with interest but as it went on (now I am not a finance guy) there are a lot of irregularities in the calculation I seem to notice. The first and the foremost being that it assumes any change in the amount of expenses in a category is caused by inflation. Those could also be a consequence of plenty of other factors like 1) the change in the quality of life by the family as they grew richer or poorer 2) Increase / decrease in the number of family members, 3) Variation in the average age of family members and therefore their needs (as newer generations tend to marry late), etc

This can be mitigated to some extent by using per unit prices of essential items only, but the author fails to do that. He bases his entire calculation on the average consumption on an item in a month instead of its unit price. He assures that milk consumption is about the same even though now there are 4 members instead of 3, petrol is about the same but says nothing about the distance traveled each month now vs then, and vegetables ... it's entirely possible that their diet has changed and they are consuming costlier veggies now (I know for a fact that our family is).

All those factors can bring about huge variations, I wouldn't be very confident in that 7-8% inflation rate.

 

[debsy17]

@colinamey It is not my blog but I would in the very least consider inflation to be 8%. You are correct that having a second or third child will increase your expenses by a lot but it is hard to put a number on such future events. It may even decrease income because the wife/husband may decide to stay back home to take care of the kids instead of working.

Assuming that your expenses will grow at a pace less than inflation is not a good one.

 

[colinamey]

@debsy17 I am not assuming anything, I am merely suggesting that the facts presented in the article are not credible enough to support the idea that inflation is 7-8%.

regardless of anything, assuming that your expenses will grow at a pace less than inflation is not a good one.

That's obviously not a smart thing to do, however at the same time assuming inflation has gone down because your expenses have gone down is an equally stupid thing to do. Another factor that relates inflation with increase/decrease in your expenses is the quality of life you maintain. Estimations of future considering inflation are done to ensure we can at the very least maintain our current lifestyle and quality of life. We can only correlate the difference in expenses & inflation if the lifestyle remains the same ... which is not true in the article.

 

[sammie2019]

@seekingtreeoflife

1. How much are you spending? 13L you are saving.
2. 15L loan, which type? Home / personal / credit card?
3. What is going to change after 4/5 years? Kid?

Please go through wiki and you should be able to get a basic decent structure.

Due to very little time at hand...

That is not good. You will have to apply decent time to evaluate and execute things. Otherwise, take professional help (fee-only). You are "paying" a lot in opportunity cost.

 

[debsy17]

@sammie2019 Fee only planner would help no doubt. Especially since amount to be invested is large.

 

[eljai]

@seekingtreeoflife I will try to provide some inputs later, but immediately you need to have life insurance cover (just term insurance) for about 10 times your annual income - i.e. 1.5 crore

It depends on who's earning how much. So if you're earning 50-50 then insurance should be taken out for 75 lacs each so that the other person's income does not drop in case of an unfortunate incident.

Going by your profile, this should not take more than 8,000 pa as a premium. PLEASE take this first

 

[eljai]

@seekingtreeoflife Addendum, I hope you have personal health insurance and not depending on your workplace. If not, again, this is a must to be taken immediately