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3. Retirement
It is Mr Mehta’s desire to work till the age of 58. This means that he has 16 years left for retirement.

His current PF balance is Rs 5.10 lakh with a monthly contribution of Rs 6,000. At the time of retirement, 16 years from now, the total PF balance that Mr Mehta would be entitled to will work out to around Rs 68.50 lakh.

Additionally, the current investment in mutual funds is Rs 1 lakh as lump sum and Rs 10,000 as an SIP. It is suggested that the Mehtas increase the SIP amount to Rs 15,000 and shift from equity to balanced funds. At a conservative rate of 12% p.a., this amount would grow over the next 16 years to around Rs 93 lakh.

This way, the combined retirement proceeds would work out to an astounding Rs 1.61 crore.

4. Pension
After retirement, one typically needs a monthly pension to take care of his needs.
The above retirement fund may be invested either at the rate of risk-free 9% p.a. or in mutual funds @12% p.a.

At the risk-free rate of 9% p.a. (say in a bank fixed deposit), the Mehtas would receive a cheque of Rs 1.28 lakh per month pre-tax.

At 12% p.a., the monthly proceeds would work out to Rs 1.65 lakh per month pre-tax.
Ideally, the money should be invested in a mix of risk-free deposits and mutual funds.

5. Insurance
Mr Mehta has purchased some expensive insurance policies. Also, the insurance cover that these policies offer is woefully inadequate for someone of Mr Mehta’s profile. It is best that he surrender these policies and instead buy himself adequate term as well as medical cover.

For medical insurance, a premium of Rs 15,000 per annum would adequately cover the entire family.

For life insurance, a premium of Rs 51,000 would buy Mr Mehta a term cover of as much as Rs 70 lakh. Note that a simple switch to a term plan buys almost 14 times more insurance cover for a similar amount of premium.

For the above medical and life insurance, Mr Mehta would need to set aside a sum of Rs 5,500 per month, which is what is approximately left over out of the monthly savings after accounting for the recurring deposit (Rs 6,000), gold ETF (Rs 3,000) and the SIP (Rs 15,000).

6. Contingency fund
The Mehtas have around Rs 50,000 as cash in the bank. Additionally, they would receive around Rs 60,000 as surrender proceeds of the insurance policies. This would cover around two months of regular monthly expense.

Additionally, the current value of their investment in shares is around Rs 2 lakh. This should also be maintained (of course after streamlining the same) as an emergency fund but one that can keep growing till needed. Assuming that they don’t need the same till retirement, at a very conservative rate of 10%, this fund would grow to around Rs 9.18 lakh. This money can then be added to the retirement corpus to be suitably invested.

One last step
It is important to undertake periodic reviews. Planning for the future is not a one-time exercise, but a constant, continuous process of knowing where you stand and what you have to do if you have strayed from the demarcated trail. If necessary, take the help of a professional financial planner. However, it is never a good idea to depend entirely upon someone else. Start drawing your own map, and go to the professional only for the fine-tuning.

The writer is director, Wonderland Consultants, a tax and financial planning firm. He may be contacted at sandeep.shanbhag@gmail.com.