A better plan for middle-aged dinks

This is a financial plan for Rajeev (49) and his wife Radhika (42). They don’t have children. They have elderly parents, reasonably healthy and with enough cash flows to meet their medical and other needs for lifetime.

Rajeev is a well known personality in the finance field and has a good stable job with an income of Rs 12-Rs 15 lakh per annum (before tax). He is confident of being employed at good salary (either at current or better rates) for the rest of his working life, estimated to be around the age of 58. Also, because of his expertise he is confident of getting a job as consultant post-retirement. However, should there be enough money, he would like to pursue other hobbies and not take up consultancy assignments.

Rajeev plans to live in the same house post-retirement and does not wish to settle in any other place.

Radhika has her own small advisory business in the finance field and though the cash flows are not regular, on an average she makes around Rs 2 lakh per annum.

Both Rajeev and Radhika have good health. In short, they are middle-aged dinks (double-income, no kids).

Hence, they have a life expectancy of around 85 years. The couple has a mediclaim policy of Rs 3 lakh each. They also have investments, largely in fixed instruments. After discussion, the process of comprehensive financial planning, following key points were noted:

Liquid cash for emergency

First it was found that the liquid cash that they have access to was less than 5 months of their monthly income. It was pointed out that it would be prudent to raise this to 6-7 months’ income to meet emergencies.

Risk coverage

They don’t have a house and house contents insurance. Thus, they need one. Term insurance or other insurance plans were not in place. This was addressed. It was advised to meet a good insurance consultant and work out the actual needs. A term insurance was suggested. It was thought prudent to raise the mediclaim cover from Rs 3 lakh to Rs 5 lakh per person.

Wills and power of attorney

Wills and power of attorney were not drawn up and, hence, the same was suggested. Parents’ will and power of attorney should also be considered.

Taxation

A substantial amount of money was paid as taxes. Tax saving measures and investment with a twin objective of tax saving and meeting future goals was suggested. Investment in tax saving mutual funds was discussed. Possibly a house purchase was also contemplated and suggested. It was suggested that a tax consultant should be approached to do detailed tax planning. Measures like taking salary as consultancy charges was also adviced.

Investments

Bulk of the investments are in fixed interest bearing instruments. It was suggested that some investments be shifted to get better inflation adjusted returns like property and equity mutual funds.

Investment nest

Here the power of compounding was discussed and it was pointed out that what ever money is needed today will not be enough in future to keep the same life style due to inflation.

Budget, cash flows and net asset statements

Concept of budget was introduced and discussed so that there is proper control on expenses and savings. Projected cash flows and net asset statements under different types of asset allocations and different return scenarios was explained.

Need for review

There is need for review to keep in view the changing and dynamic nature of investments and happenings.

The author is a certified financial planner (CFP) and is working as the vice-president (Research) of Anand Rathi Securities. He may be contacted at myplan@fpsbindia.org.