Ashwin was staring at the ceiling. His newspaper had slipped from his hands. The tea was getting cold. It was a nice Sunday morning, but a fear had gripped him —- that he may not be able to meet all his expenses just two years from now, when he retires.

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For the past several years, Ashwin has been feeling uneasy about retirement and the consequent loss of income. After all, several of his relatives have had to cut corners after retirement.

Ashwin has been doing his best in terms of savings and hoping it will suffice.

His current income is around Rs92,000 per month, post tax. He has been working in the purchase department of a listed pharmaceutical company for over 20 years. His office at Chembur (a Mumbai suburb) is not too far from his place at Sion (another Mumbai suburb).

He has a son, Ambarish, who has completed graduation and is working in a BPO. Then there is his wife, Nirmala, who is dependent on him. His mother lives with his brother at Nasik. He gives her money from time to time, when he visits her, but not on a regular basis.

Ashwin has always been a great believer in small savings and fixed deposits (FDs). He has invested in National Savings Certificate and Kisan Vikas Patra, which are maturing at retirement and are expected to amount to Rs14.5 lakh. He has FDs to the tune of Rs7.5 lakh.

He has not been a great believer in equities, though he had invested in a few shares, including that of his company, when it came out with an IPO. The current value of his equity portfolio is Rs3.6 lakh.

He has also been investing in mutual funds for the last five years, at the prodding of his friend, Kanchan. An inveterate mutual fund investor, Kanchan had helped Ashwin put together a MF portfolio. He had also suggested that he start some SIPs in a few schemes. Ashwin went through a nervous breakdown when the bottom fell out of the stock market in 2008. Thanks to Kanchan, he remained invested and now the portfolio is worth Rs11.4 lakh.

His retirement benefits are estimated at about Rs28 lakh. Apart from the residence, he owns a piece of land in Nasik. His brother tells him it is now valued at Rs7-8 lakh.

Over and above all these, two insurance policies maturing in two years will together give him Rs3.5 lakh.

The good thing about Ashwin’s household is that the expenses are low. The expenses pertaining to his son’s education stopped a couple of years ago. Now they spend Rs17,000-18,000 per month as regular monthly expenses. Then there are travel, house/ bike repair and insurance premium, which amount to another Rs65,000 per annum. Plus, he donates Rs10,000 per annum to a charitable trust.

Ashwin proposes to stay on in the same house after retirement. His brother has been egging him to come to Nasik after retirement. As of now, Ashwin is inclined to continue in Mumbai.

I analysed his situation for him.

While it is natural to worry about retirement years, particularly given the experience of his relatives, Ashwin’s financial assets add up to a little over Rs70 lakh. Assuming a 7% overall post-tax returns, the interest he can earn on this would come to Rs4.9 lakh.

As against this, his total expenses in a year are Rs2.91 lakh. His expenses at retirement are assumed to be the same as today. Inflation into retirement is assumed at 7%. Assuming that his corpus will also grow by a post-tax return of 7%, we have a problem around the 26th year, when the corpus will be depleted.

This plays exactly as Ashwin had feared. In this case, he will have to lower his expenses in his retirement years. He would get a 7% overall post-tax return if the investments post-retirement are 80% in debt (earning 6% post-tax) and 20% in growth assets (earning 12% post-tax).

If he increases allocation to growth assets to 35%, it will mean an overall return of 8%. The corpus dwindles, but is still able to support him for up to 30 years into retirement. However, if his allocation is aggressive at 50% in growth assets, the corpus supports him beyond 30 years after retirement. An allocation in growth assets should be predominantly into large-cap funds, index funds and equity oriented balanced funds. The portfolio rebalancing exercise can start now and could be completed in the next two years.

Anticipating all expenses into retirement is a bit tricky. Expenses reduce in retirement, which has not really been factored here. On the flip side, medical expenses could balloon.

He does not have a medical insurance. It is necessary that he takes a cover immediately for him and his wife to the tune of `5 lakh each. His son’s employer’s group medical insurance also covers his wife — but only to the extent of Rs50,000, which is inadequate.

Ashwin was a bit concerned about increasing the allocation to growth assets to 50% of the portfolio. But, after fully understanding the pros and cons of the decision, he relaxed a bit. I had suggested that he let a professional manage his portfolio and periodically review and rebalance it.

I also reminded him of his biggest trump card — if push comes to shove, he has the Mumbai home, which is today valued at Rs1.1 crore. Also, we had not considered the Nasik land.

He was relieved now and asked me if I smelt a rose. He helpfully moved his chair to reveal the rose bush behind. Yes, there was a faint aroma. I smiled and nodded. He was beaming with pride — that was his baby.