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The client, Mr. Mehta is a 55-Yr old individual, employed with a private sector enterprise. His family comprises of his wife (a homemaker) and a son. Mr. Mehta earns an annual salary of Rs. 10, 00,000; broadly speaking, his annual expenses amount to Rs. 500,000 (Rs. 350,000 towards household expenses and Rs. 150,000 towards travelling/holidays).

When I met Mr. Mehta, he expressed his desire to retire in 5 years. Also, he wanted to provide for his son 2 – Yr MBA programme, 7 years down the line. The outlay for the same would be around Rs. 500000 per annum (pa). Finally, with more time on hand, he wanted to travel more frequently, implying additional expenses, around Rs. 250,000 pa.

Mr. Mehta holds an investment portfolio which at present is worth nearly Rs. 40, 00,000. The same is lop-sided in favour of assured return schemes like bonds, fixed deposits and small savings schemes, several of which rank poorly on the liquidity front. Only a minor portion of the portfolio is allocated to equities and mutual funds. Also, he has bought an endowment plan that will offer him a maturity value of Rs. 10, 00,000 (after taking into account the bonus).

What the numbers indicate: to begin with, I computed the future value (as on the retirement date) of Mr. Mehta present investment portfolio. Assuming an average growth rate of 8% pa, it amounted to a maturity value of around Rs. 5,877,000. Then I computed the post-retirement expenses (household expenses, travel costs and the corpus required for the son’s education). After factoring in inflation and assuming a life expectancy of 75 year Rs. And the numbers proved to be eye-openers, to say the least. Over a 5-Yr period, Mr. Mehta needs to accumulate a retirement kitty of approximately Rs. 4,900,000, over and above his existing investments to meet all the aforementioned expenses. This is turn, amounts to making investment of Rs. 61,000 or an annual investment of a Rs. 772,000 (assuming a 12% CAGR).
Given how Mr. Mehta finances are placed at present, it would not be possible for him to save and invest the required monies. Even if he were to invest his entire savings from now until retirement (i. e. around Rs. 500,000 pa), the target seems unachievable.

Mr. Mehta finds himself in a rather unenviable situation. He faces the prospect of having to compromise on his lifestyle. For instance, post-retirement, he can consider holidaying less frequently and/or curtailing his household expenses. Mr. Mehta can consider not retiring at the end of 5 years, given that he is employed with a private sector enterprise. Or maybe post-retirement, he can think of working as a consultant in order to supplement his finances. Finally, he can explore the possibility of asking his son to avail of an education loan to finance his higher education.
Simply put, barring the possibility of receiving an unexpected windfall, Mr. Mehta’s dreams of a picture-perfect retirement has certainly gone awry.

As I mentioned earlier, I wanted to use this case to highlight the downside of not starting the retirement planning process early. On the surface, Mr. Mehta earning a handsome salary and leading a comfortable lifestyle might give the impression of all being in order. But as is often the case, the habit of making investments in a sporadic manner and leaving too much for later, does spell trouble.

In conclusion, providing for retirement need not be a difficult task. All one needs to do is plan methodically and have sufficient time on hand. And the implications of not doing so should motivate one to get started in earnest, at the earliest.

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