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Nearing 50? Here's a financial plan for you
Udyan Ray, Outlook Money | November 06, 2006
Yashwant Kumar Singh's life is at the crossroads, what with the impending marriages of his children, the heart ailment of his wife and his retirement. In this new regular feature, Outlook Money does a financial makeover with a customised gameplan for him.
It was June 12, 1974. Yashwant Kumar Singh, then a 20-year-old, was at his Kolkata home when he received a telegram from his father. It simply said: "Marriage fixed on June 14. Come immediately."
Singh's father had earlier gone to their ancestral home in Varanasi. While the development was sudden, Singh remembers feeling good about his abrupt marriage. "I was too young to understand what marriage meant," says Singh.
Unknown to Singh was the real reason behind the super-quick alliance. Singh had been getting friendly with the daughter of one of his neighbours. Recently, his parents got wind of this budding relationship and decided to nip it in the bud by getting him hitched.
This was despite the fact that Singh had just graduated in Commerce and was barely earning Rs 100 from his part-time job at a shop.
During his wedding, Singh was showered with expensive gifts by his in-laws. However, he didn't get the one thing he wanted: a gold chain. Somehow, that made him cross with his wife. "I didn't speak to her for many days," says Singh with a chuckle as he reminisces.
Cut to December 3, 2003. Singh, then 49, had brought his wife, Sulochana, then 46, to Delhi's Escorts Heart Institute, where he was told that she would need an immediate heart surgery.
It all started with Sulochana blacking out at a wedding some months back and as various manifestations came to the fore, cardiologists confirmed a heart blockage. Singh had already spent Rs 1.5 lakh (Rs 150,000) on medication and botched treatments in Kolkata.
As Sulochana was wheeled into the operation theatre, Singh was told he could not accompany her further. For Singh, it was the worst moment of his life. He broke down and sobbed inconsolably. "For the first time I realised I might not see her alive again," says Singh.
After a less-than-perfect start, the bond between the two had grown immeasurably over the years. Sulochana had supported Singh all the way and was instrumental in helping him move up from a clerical position to becoming the general manager in one of India's first IT firms.
For a person who bought life insurance products for risk cover and investments, Singh was now face to face with a situation for which no insurance was adequate.
Singh endured eight nerve-racking hours of surgery before getting to know that it was successful. The relief came with a price: Rs 3 lakh (Rs 300,000). Singh gave Rs 1 lakh (Rs 100,000) from his pocket, and his company helped him out with the rest.
Post-surgery their lifestyle changed, with Sulochana having to do regular exercises and her diet undergoing a change. Other changes occurred too. Till then, Sulochana used to look after all of Singh's needs -- from clothes to food, especially his favourites: mutton, omelette and fried fish.
With the heart ailment constraining Sulochana, daughter Varsha, now 24, a Commerce graduate pursuing studies in Law, stepped into her mother's shoes ably. Today, three years after Sulochana's surgery, Singh's life is again at the crossroads with three impending events.
First among them is Varsha's marriage that Singh hopes will happen by 2007. He has set aside Rs 3 lakh for the event. Like most Indian families, Singhs have been buying gold jewellery from time to time and have accumulated ornaments worth about Rs 2 lakh (Rs 200,000) for Varsha's marriage.
The major expense during the event would be a party that Singh wants to throw. The number of guests is expected to cross the 1,000 mark. "This is not surprising since I have attended so many weddings. Now it is the turn of others," he says, tongue-in-cheek. While Varsha's marriage is on top of his mind and sometimes worries him, like all fathers, the idea of her going away affects him. "I think I will age by five more years when she gets married," says Singh.
Next, is the marriage of 25-year-old son Abhijeet, a graduate both in Commerce and Law, who earlier this year joined a reputed private bank. Singh had been planning for Varsha's marriage, but hadn't reckoned that Abhijeet would be ready for his big day so soon. Only two years back, Abhijeet's career was nowhere near settled, having only a commerce degree under his belt. But that was before the family experienced the power of Internet chats.
"When I taught my kids how to use the Internet on our PC at home, I had no idea what I was getting into," chuckles Singh. Like most youngsters, Abhijeet got addicted to chatting. He got friendly with a young lady from Chennai and this changed his life.
The lady encouraged Abhijeet to enhance his career focus and motivated him to make a determined effort to get a job with a reputed company so that he could be financially independent. In July this year, Abhijeet's efforts bore fruits as he got the job he desired. While the Singhs are yet to celebrate Abhijeet's job, he has kept aside Rs 3,000 to treat his family. "Ever since he has got a job, my wife pays more attention to him," jokes Singh.
With a stable income, Abhijeet can afford to indulge himself. So, every Sunday, he makes his way to the City Centre -- a popular Kolkata mall -- to shop for himself and his family. Singh calls him a "mad shopper". "Even if he wears something different everyday, his wardrobe would last him six months," claims Singh.
But such complaints are superficial. One can sense that Singh is quietly satisfied that his son is now financially independent. While Singh doesn't include Abhijeet's marriage expenses among his financial goals, it is clear that this position will be changing soon.
The third impending event is Singh's retirement in 2012. Before he retires, he wants to complete a 1,250 sq ft flat in a cooperative society in Kolkata's upcoming Rajarhat locality. This flat, whose construction would cost about Rs 5 lakh (Rs 500,000), will help him move out of his rented home where he has been staying for the past 44 years.
It was here that Singh came from his ancestral village in 1962 to join his father, a reputed teacher at a government school. "I was excited since I had boarded a train for the first time and had come to such a big city. I remember the horse cart that dropped us from the railway station had a tough time getting out," says Singh. It is from this locality that Singh completed his schooling as well as his graduation in Commerce during the tumultuous years of the Naxalite movement in the early 70s.
After his marriage in 1974, Singh joined the business group he now works for. His first posting was in Delhi and then at Ropar. In 1977, he got back to his old rented home when he got a Kolkata-based opening in the same group, an association that continues till date.
The neighbourhood is home to Singh's best friends, Arvind Gupta and Shyamal Chattopadhyay. The time slot of 6 pm to 8 pm every day is booked for 'adda' sessions, a typical Kolkata activity where males get together for informal banter that can cover anything from politics, literature to fish prices. With more time at hand, the 'addas' last longer on weekends. The neighbourhood and its residents are close to Singh's heart. He is constantly helping someone or the other -- whether it is getting somebody's son a job or extending a helping hand to another during a medical emergency.
While retirement plans are in progress, Singh is considering the option of becoming a recruitment consultant since his present job moves around this activity. From his accumulations in Public Provident Fund, his provident fund and other investments such as those in life insurance endowment and pension policies ("I didn't know other investment options," he says), Singh seems to be on course to generate a steady retirement income (see Makeover below) for meeting regular and medical expenses.
Singh knows that all work and no play will make him a dull man. So post-retirement, there would be much more of the same: more 'adda' and, of course, more time for his other favourite pastime, travel. Singh loves going to his village in Varanasi, where he had built a house in 1987 with a windfall from a bonus that year. "I feel that soil keeps calling me," he says. At a crucial juncture, Singh seems ready to manage some of the biggest events in his life.
Look hard at his story and you will find that his circumstances are typical of many Indians in their 50s. Does his story ring a bell?
Makeover financial plan
by Brijesh Dalmia, CFP
Yashwant Kumar Singh, 52, a general manager with an IT company, stays in a rented accommodation in Kolkata with his wife, Sulochana, 49 , a home maker and his two children Abhijeet, 25, a bank employee and Varsha, 24, currently pursuing studies in law.
Yashwant's expenses are under control and over the years, he has made regular savings. His 11-year-old PPF account has a balance of Rs 2 lakh (Rs 200,000) and the value of his retirement corpus, including his PF accumulations is Rs 12.5 lakh (Rs 1.25 million). He also has investments in Kisan Vikas Patra (KVP) and National Savings Certificate (NSC) that will mature in 2007 and 2008.
Investments in stocks and mutual funds are insignificant. Yashwant has a house in Varanasi and is set to build a 1,250 sq ft flat in a cooperative society in Kolkata's Rajarhat area. He has a life insurance cover of Rs 6 lakh (Rs 600,000) and his family members have medical cover of Rs 2.5 lakh (Rs 250,000) each.
Current Asset Allocation
Yashwant's investments are tilted towards debt and real estate. His equity exposure is nominal.
Singhs will also have to reckon with Yashwant's retirement in 2012 and Sulochna's heart ailment. Thanks to his past investments, Yashwant is set to achieve his goals. But, he will have to make adjustments to make his finances smoother and tax efficient.
Varsha's marriage: Investments in NSC and infrastructure bonds are maturing next year and would provide Rs 2.7 lakh (Rs 270,000). This should cover most of the estimated expenses. The remaining amount can be raised by parking surplus funds from now on, in floater funds.
Home: Investments in KVP and bank recurring deposits, maturing in 2008, would provide Rs 1.75 lakh (Rs 175,000) and Rs 70,000 respectively. The remaining Rs 2.55 lakh (Rs 255,000) can be raised by parking surplus funds in floater MF schemes.
Retirement: Corpus in retirement benefit schemes, coupled with other liquid assets will be sufficient to meet retirement income needs. Income from his planned self-employment after retirement, would add to the kitty.
Insurance: With six years of work life left, Yashwant's life cover is adequate. He also needs to maintain the current medical cover.
Asset allocation: With his existing income and resources being sufficient to take care of his goals, he can safely increase his equity allocation from the current level of 6 per cent to 19 per cent over the next two years in a phased manner. He should invest in diversified equity mutual funds rather than directly in equities. Annual rebalancing and reviews will become a must once he increases his equity allocation.
Investments: Yashwant should invest in ELSS funds through SIPs. For tax deduction of Rs 1 lakh (Rs 100,000) under Section 80C, I recommend an allocation of Rs 60,000 in ELSS and Rs 40,000 in his company's PF, besides PPF. After expenses and these contributions, the available surplus of Rs 60,000 can be parked in floater funds. They will supplement funds for the twin goals of Varsha's marriage and building a house in 2008.
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