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A financial plan for senior citizens
Sunita Abraham, Outlook Money | December 06, 2006
In 2001, Daljeet Singh Mongia and his wife Swarn had to take a decision on where to live. They had been living in a luxurious house in Delhi's upmarket Panchsheel Park since 1981.
Their three children, well settled in the United States, wanted them to move there. They chose an option which probably very few people in India would consider. They sold their house and moved into a senior citizens' home.
And they chose well.
At 83 years, Daljeet is a content man, having lived life on his terms. He took the decision to sell the home in consultation with his wife and children.
"It had become difficult for us to maintain the house with reliable domestic help becoming nearly impossible to get. I offered it to my children, but none of them wanted to inherit it since their interest in coming to India would end with us," he says. "It made no sense to keep it."
He gave nobody else the opportunity or the right to comment on what was essentially a family matter.
After a Bachelor's degree from Foreman Christian College in Lahore, Daljeet came to Delhi in 1944 to pursue a Master's degree in Hindu College. But fate intervened in the form of a job offer from Burmah Shell. He took up the job and worked with commitment, moving from place to place till his retirement in 1981.
The company reciprocated by becoming his safety net -- it takes complete care of his medical needs even after retirement.
Neither his marriage in 1948 nor the three children that followed changed Daljeet's attitude towards life and money. "The easiest way to get rid of temptation is to yield to it," he says with a twinkle in his eyes.
His job meant a very good lifestyle for the family and tomorrow never worried him. "Around 50 per cent of my salary went towards my children's education in the Jesus and Mary School at Nainital," he says. Daljeet and Swarn took this decision to ensure that his frequent transfers did not disturb their children's education.
Daljeet gives full credit to Swarn for managing the home finances that allowed them to indulge their love for travelling as a family. It left very little to save for the future. To some extent, the cushion provided by an affluent father helped Daljeet to live by his dictum that "the future will take care of itself."
But he never took financial help from his father. He remembers an occasion in 1978 when he did not have the Rs 5,000 needed for a medical emergency. His company stepped in and took care of the bill.
Money was not a major consideration for Daljeet when he sold his house. "My only requirement was that the entire transaction must be above board with all necessary approvals and taxes paid. It also meant that I got much less than what I would have if I had agreed to a partial cash transaction," he says.
But it gave him peace of mind and to the ability move on without worries. And yes, the surplus money has given him a degree of comfort.
The first event that required a substantial financial outlay in the Mongia household was the eldest daughter's wedding in 1970. A plot of land in Delhi left to him by his father came in handy. It was sold to finance the wedding. "Life was not expensive then," he reminisces.
"An excellent wedding dinner cost just Rs 12 per guest." For the wedding of his second and third daughters, he sold another plot in Faridabad left to him by his father. "I had given my children a good education. I could not provide for a big dowry," says Daljeet.
In 1970, he constructed his own house in Panchsheel Park on a plot of land that his father gifted him. It cost him Rs 1 lakh (Rs 100,000), a princely sum then, and he took a loan against his insurance policy to finance it. This was the home that he retired to in 1981.
His retirement benefits, including pension, and the income from a portion of the house rented out meant that they lived well. They had no major responsibilities as their children were well settled by then. They sold a part of the house to finance their yearly trips to the US despite offers from their children to foot the bill.
But advancing age made living alone in their Panchsheel Park home an unviable option for the Mongias. Moving to the US did not appeal to them. "We would have been dependent on others there," they reason. It was then that a friend told them about Godhuli, a senior citizens' home in Dwarka, on the outskirts of Delhi.
The Mongias knew they had found their new home and paid Rs 4 lakh (Rs 400,000) for their place there. The Panchsheel Park house was sold. "We have no regrets," they say. This can be gauged by the fact that they have not gone back to see their old house.
It helped that they went away to the US till Godhuli was ready for occupation. Despite the objections of his children, Daljeet divided a part of the money that he received from the sale of his house among them.
The transition to Godhuli was very smooth. They were the only residents there initially and that made it possible to have things done their way for some more time. A beautiful collage of photographs which traces their life together is testimony to the adjustments that the Mongias had to make in their new phase of life.
Money was never very important for Daljeet. "But he has become more careful with his finances," says Swarn indulgently. The money from the sale of the house, after giving the children their share, was invested in RBI tax-free bonds. Now, after maturity, their money is invested in the senior citizens' scheme up to the limit of Rs 15 lakh (Rs 1.5 million).
The balance is in a five-year bank fixed deposit. "When the bonds were tax-free, I had surplus income which I saved for my daughters. But, after paying 30 per cent tax, not much is left for saving now," says Daljeet.
The monthly expenses of the Mongias include the maintenance charges they pay at Godhuli, their expense on food and the car and the driver they maintain. "That doesn't come to more than Rs 30,000-Rs 35,000 per month," says Daljeet. The medical expenses are taken care of by his former employer.
Their monthly income from their investments is more than sufficient to take care of their requirements and indulgences. Swarn likes to do charity and Daljeet spends on his favourite hobby, gardening. He oversees the gardens in Godhuli and spends out of his pocket on it, if necessary.
Godhuli. That time of the evening when cows come home to rest. This is the name of the place that has become home to a lot of couples like the Mongias. Life has been good to them.
They worked hard when they had to and are now enjoying the fruits of their labour. In the evening of their life, they spend their time doing what pleases them. Swarn looks forward to the religious discourses that give her spiritual fulfilment. Daljeet takes time every morning to thank God for all his blessings and enlivens his day with sher-o-shayari (poetry) and card games with his friends at Godhuli.
Financial plan by Brijesh Dalmia, CFP
Octogenarian Daljeet Singh Mongia lives with his wife, Swarn, in Delhi. After retiring in 1981, Daljeet started living in his own house in Delhi's Panchsheel Park. In 2001, the couple sold their house as advancing age had made staying there alone unviable. They then moved to a Delhi-based senior citizens' home.
The Mongias' three daughters are married and financially independent. By and large, the couple enjoys good health. Their erstwhile employer covers their medical expenses, including hospitalisation and cost of medicines.
Current Asset Allocation
Mongia is risk-averse and has invested in the Senior Citizens' Savings Scheme (SCSS), which provides quarterly interest at 9 per cent per annum. His investments in tax-free RBI Relief Bonds matured earlier this year. He reinvested the money in a five-year bank fixed deposit (FD) in his wife's name that offers quarterly interest payments at 7.50 per cent per annum. Plus, he has a healthy balance in a savings account.
Mongia is retired and well advanced in age. His only goal is to manage regular monthly expenses of Rs 30,000.
Insurance: At 83, Mongia doesn't need a life cover. His former employer is not only covering medical expenses fully, but also providing him Rs 2,000 per month for medicines.
Asset allocation: Mongia only has investments in debt securities, interest from which fully covers his expenses. Since he is not interested in taking any risk to increase returns, I do not recommend any change in his existing asset allocation.
Investments: His SCSS investment gives him a guaranteed income. On its maturity, he should extend it by three years. In case of bank FD, other investments may offer better post-tax returns, but given his need for regular income, there would be a loss of interest income in the event of premature liquidation.
I recommend that he let the FD mature. His savings account balance is sufficient to take care of his emergency fund requirement.
Tax: Daljeet's income from the SCSS is not taxable since it falls below the Rs 1.85 lakh (Rs 185,000) per annum limit stipulated for senior citizens. However, Swarn's income from SCSS and FDs is taxable. To reduce her tax liability, I suggest that she invest Rs 1 lakh in a 5-year bank FD every year to qualify for Section 80C benefit.
Future: While inflation will push up the Mongias' cost of living every year, their income will remain the same. With his current income, he will be able to meet the costs for the next five years.
After that the bank FDs of Rs 1 lakh that he had invested every year for Section 80C benefits will start maturing. This will help meet the higher expenses. Investments of smaller amounts in FDs would have been better. A premature withdrawal would not have resulted in loss of interest income on the full amount. In the future, he could go for staggered maturity of FDs.
Brijesh Dalmia can be reached at firstname.lastname@example.org