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Retirement Dilemma: Buy a Flat Now or Continue Renting?

Ramalingam

Ramalingam Kalirajan  |7545 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 06, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Surander Question by Surander on Dec 10, 2024Hindi
Money

Hi Mam, I need your prompt advice as i need to take decision on the same. I am 55 years and have 5-6 Years in retirement. Post retirement have planning and secure. Now coming to the point that i am staying a capital of state where i pay house rent Rs.40000/- PM. My take homme monthly salary is approx 6 Lacs. My organization have policy to pay 50% interest subsidy on interest of Housing loan. I am planning to purchase a flat value 1.25 Cr in which 80 Lacs Banks are ready to give for next 12 Years . monthly EMI will be 85-90 K and out of which approx 28K will be subsidy and 40K my rent and 5K saving of IT in Housing loan interest . Ideally it will cost to me approx. 15-20 K Per month additionally . After retirement i will sell the flat and square off my balance home loan. Please suggest is it worth of taking ....or i should continue to pay House rent and add 20 K liability in Mutual Fund contribution . Urgent reply please

Ans: You are evaluating whether to buy a flat worth Rs. 1.25 crore or continue renting. Let us assess this situation considering financial, practical, and retirement planning aspects.

 

Financial Considerations
1. Monthly Cost Comparison

Current rent is Rs. 40,000 per month.
EMI for the home loan is Rs. 85,000-90,000 per month.
Subsidy from your organisation reduces the EMI cost by Rs. 28,000.
Tax savings on housing loan interest further reduce the cost by Rs. 5,000.
Net additional cost to you is Rs. 15,000-20,000 per month.
 

2. Opportunity Cost of Down Payment

Buying the flat requires Rs. 45 lakh as a down payment (including registration).
Investing this amount in mutual funds for 5-6 years can yield higher returns.
Evaluate if your current mutual fund contributions can bridge this gap later.
 

3. Post-Retirement Loan Liability

Your home loan tenure is 12 years.
After retirement, loan repayments will depend on other income sources.
Selling the flat to clear the loan may not always fetch expected value.
 

4. Rent vs. Ownership Costs

Owning a flat involves maintenance, property tax, and repair costs.
Consider if these costs are affordable post-retirement.
Renting offers flexibility and avoids these additional expenses.
 

Lifestyle and Practical Aspects
1. Stability vs. Flexibility

Owning a flat provides stability and security of residence.
Renting offers flexibility to relocate post-retirement if needed.
 

2. Emotional Value of Owning a Home

Buying a home can give emotional satisfaction and a sense of achievement.
Ensure this decision aligns with your long-term financial health.
 

3. Rental Yield Analysis

Flats often have low rental yields compared to their cost.
You may not earn substantial rental income after clearing the loan.
 

Retirement Planning
1. Impact on Retirement Corpus

Redirecting Rs. 20,000 to mutual funds can grow significantly over 6 years.
This additional corpus can support your post-retirement lifestyle.
 

2. Liquidity Needs Post-Retirement

Flats are illiquid assets and may take time to sell when needed.
Liquid investments ensure easy access to funds during emergencies.
 

3. Alternate Strategies

Continuing to rent and investing in mutual funds may create better retirement wealth.
Combine equity and debt funds for an optimal mix of growth and stability.
 

Tax and Subsidy Considerations
1. Housing Loan Subsidy

The 50% interest subsidy reduces your effective EMI significantly.
This benefit reduces the immediate cost of buying the flat.
 

2. Tax Savings on Interest

Tax benefits under Section 24 further reduce the financial burden.
These savings must be factored into your overall cost analysis.
 

Final Insights
Buying a flat offers stability but increases financial obligations. Continuing to rent allows flexibility and creates additional retirement wealth. Evaluate the long-term implications on your retirement corpus before deciding. Align this decision with your financial goals and retirement needs. Engage with a Certified Financial Planner to create a detailed retirement plan and optimise your investments.

 

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |7545 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 18, 2024

Asked by Anonymous - Jun 18, 2024Hindi
Money
Hi , I am 44 yrs old and having working wife and two son of 17 yrs & 5 yrs... elder son is down syndrom.. joint monthly take home is 2 lacs.. having 85 lacs of mutual fund.. 18 lacs in PPF, 32 lacs in EPF, & around 25 lacs in others like FD, saving, shares etc.. monthly saving around 1.2 lacs including 75K SIP, 18K PPF, 25K EPF etc... Having Own home at my native place.... Want to know that should I go for new Flat purchase at location where I am residing in rented house of monthly 14K excluding electricity or continue my investment in place of Home loan... I hv opted new tax slab and my wife is in old tax... my target to have 15 CR at the age of 60
Ans: Assessing Your Current Financial Situation
Income and Savings
Your combined monthly take-home income is Rs. 2 lakhs. Your current savings include:

Mutual Funds: Rs. 85 lakhs
Public Provident Fund (PPF): Rs. 18 lakhs
Employees’ Provident Fund (EPF): Rs. 32 lakhs
Other Investments (FD, Savings, Shares): Rs. 25 lakhs
Your monthly savings distribution is as follows:

SIP in Mutual Funds: Rs. 75,000
PPF: Rs. 18,000
EPF: Rs. 25,000
You live in a rented house with a rent of Rs. 14,000 per month.

Evaluating the Decision to Buy a New Flat
Current Housing Situation
Living in a rented house at Rs. 14,000 per month is relatively affordable, especially given your high monthly income. Renting provides flexibility and lower maintenance costs compared to owning.

Financial Impact of Buying a New Flat
Purchasing a new flat would involve a significant financial commitment, including a home loan, maintenance costs, property taxes, and other associated expenses. This would reduce your investable surplus and potentially impact your ability to meet your financial goals.

Comparative Analysis: Rent vs. Buy
Renting: Offers flexibility, lower upfront costs, and avoids long-term debt.
Buying: Provides stability and potential appreciation in property value but requires a large financial commitment and ongoing expenses.
Long-term Financial Goals
Target: Rs. 15 Crores by Age 60
To achieve your target of Rs. 15 crores by age 60, you need to focus on maximizing your investments' growth while maintaining a balanced risk profile.

Current Investments and Growth Potential
Mutual Funds: Your Rs. 85 lakhs in mutual funds can grow substantially with continued SIPs and market performance.
PPF and EPF: These provide stable, long-term growth with tax benefits, contributing to your retirement corpus.
Other Investments: FDs, savings, and shares add diversification but should be reviewed for optimal growth potential.
Investment Strategy
Enhancing SIP Contributions
Continuing and potentially increasing your SIP contributions will leverage the power of compounding. Focus on a mix of equity and debt funds to balance growth and risk.

Recommendation: Consider increasing your SIP by a percentage each year to keep pace with inflation and maximize returns.
Diversification and Rebalancing
Ensure your portfolio is diversified across various asset classes to minimize risk and optimize returns. Periodically review and rebalance your portfolio to stay aligned with your financial goals.

Recommendation: Include large-cap, mid-cap, and multi-cap funds for equity exposure. Balance with debt funds for stability.
Utilising Tax-efficient Investments
Maximize your contributions to tax-efficient instruments like PPF and EPF. These not only provide stable returns but also offer significant tax benefits.

Recommendation: Continue maximizing your PPF contributions and ensure your EPF contributions are optimized.
Emergency Fund Management
Maintaining a robust emergency fund is crucial. Your current Rs. 25 lakhs in FD and savings can be used to cover unexpected expenses.

Recommendation: Keep at least 6-12 months of living expenses in easily accessible liquid assets.
Estate Planning and Insurance
Life and Health Insurance
Ensure adequate life and health insurance coverage for your family, especially considering your elder son's needs. This will protect your family's financial stability in case of unforeseen events.

Recommendation: Opt for a comprehensive health insurance plan and term insurance for sufficient coverage.
Estate Planning
Create a comprehensive estate plan, including a will, to ensure your assets are distributed according to your wishes and your family is taken care of.

Recommendation: Consult a legal expert to draft a will and set up any necessary trusts.
Education and Future Planning for Children
Special Needs Planning
Given your elder son's Down syndrome, consider creating a financial plan that ensures his long-term care and support.

Recommendation: Look into setting up a special needs trust and explore government schemes and benefits available for children with disabilities.
Education Fund for Younger Son
Start a dedicated investment plan for your younger son's education. This can include child-specific mutual funds or education-focused investment plans.

Recommendation: Allocate a portion of your monthly savings towards an education fund.
Final Insights
Given your strong financial position and disciplined saving habits, you are well on your way to achieving your long-term goals. However, buying a new flat at this stage might not be the best financial decision if it significantly impacts your investment capacity.

Focusing on growing your investment portfolio and maintaining a balanced, diversified approach will help you accumulate the desired Rs. 15 crores by age 60. Ensuring adequate insurance coverage and planning for your elder son's special needs will further secure your family's future.

Stay disciplined with your investments, periodically review your portfolio, and make adjustments as needed to stay on track. Consulting with a Certified Financial Planner can provide personalized advice and help optimize your financial strategy.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |7545 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 18, 2024

Asked by Anonymous - Jul 07, 2024Hindi
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Money
I am living on rent, and now I have searched and seen a residential property that is flat(constructed in 2007) at ground floor in a society, which is for sale and may be cost up from 18 L to 22 L final talk not done, within two months my matured savings would be 11 lakh also having a pf balance of 1.5 to 2 lakh and ornaments of about 10 Lakh I have two daughters age19 years and 14 years If I do not disturb the gold and pf balance I would be in need of home loan of about 10-12 lakh So, is it wise to take home loan Alongwith SIP of amounting 10 percent of emi only Or if I finish all the savings and asset I would required no loan and will opt to purchase a gold of 15000 every month My take home salary is 39500 Please suggest which one of both is better Or if you have any other suggestion please guide
Ans: Buying the Property: Assessing Your Options
You are considering purchasing a flat priced between Rs 18-22 lakh. You have Rs 11 lakh maturing soon and Rs 1.5-2 lakh in PF balance. You also have gold worth Rs 10 lakh. You are contemplating whether to take a home loan of Rs 10-12 lakh or use your savings and assets.

Evaluating the Home Loan Option
Pros of Taking a Home Loan:

Liquidity: You maintain liquidity by not using all your savings.
Tax Benefits: Home loans offer tax benefits under Sections 80C and 24(b).
SIP Continuation: You can continue your SIPs, growing your investments over time.
Cons of Taking a Home Loan:

EMI Burden: Monthly EMIs can strain your take-home salary of Rs 39,500.
Interest Cost: You pay interest on the loan, increasing the total cost of the property.
Financial Stress: Managing EMIs and other expenses might be challenging.
Evaluating Using Savings and Assets
Pros of Using Savings and Assets:

Debt-Free: No loan means no EMI burden.
Interest Savings: You save on interest costs.
Financial Freedom: No monthly EMI, allowing better cash flow management.
Cons of Using Savings and Assets:

Reduced Liquidity: Using all savings and assets reduces your emergency fund.
No SIPs: Stopping SIPs might impact long-term wealth creation.
No Tax Benefits: You miss out on home loan tax benefits.
Analyzing Monthly Cash Flow
Your take-home salary is Rs 39,500. Let's analyze the cash flow for both options:

With Home Loan:

EMI (Assumed): Rs 10,000 (approx)
SIP (10% of EMI): Rs 1,000
Total Outflow: Rs 11,000
Remaining cash for expenses and savings: Rs 28,500

Without Home Loan:

Gold Purchase: Rs 15,000 per month
No EMI: Rs 0
SIP Continuation: Assuming Rs 1,000 (for continuity)
Remaining cash for expenses and savings: Rs 23,500

Considering the Future
Children's Education: Your daughters are 19 and 14. Higher education costs might rise soon. Ensure you have funds for their education.
Emergency Fund: Maintain an emergency fund for unforeseen expenses.
Retirement Planning: Continue to invest for your retirement.
Professional Insights and Recommendations
Balanced Approach: Consider a mix of both options. Use part of your savings and take a smaller home loan. This keeps some liquidity while reducing loan burden.
Prioritize SIPs: Ensure you continue your SIPs. SIPs are crucial for long-term wealth creation.
Gold Investment: Buying gold every month can diversify your portfolio. However, consider market fluctuations.
Emergency Fund: Always maintain an emergency fund. Avoid exhausting all savings on the property.
Tax Benefits: Utilize home loan tax benefits if you opt for a loan. It can reduce your taxable income.
Final Insights
Buying a property is a significant decision. Evaluate all aspects before proceeding. Consider both immediate and future financial needs. Balancing liquidity, tax benefits, and long-term investments is key. Make a decision that aligns with your financial goals and stability.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |7545 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 30, 2024

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Hello Sir,I am 38 yrs now & wife 34. We are having a 9 years old daughter. My salary is 80K & wife's salary is 85K.My SIP is 19,000 (10 years) per month & wife 35,000 for (20 years) .NPS-50K PA. LIC-1.5L PA,Shares 6L,Gold-7L We are having a home loan of 55L for 15 years where our target is to close it by 2033.(EMI-55K). This flat we have given it on rent (16,000) rent. My target is to get retire by 50 with a corpus of 3Cr.
Ans: Current Financial Situation
Monthly Income and Expenses
Your salary: Rs. 80,000 per month.
Wife's salary: Rs. 85,000 per month.
Total monthly income: Rs. 1,65,000.
EMI on home loan: Rs. 55,000.
Rent received from flat: Rs. 16,000.
Investments
SIPs: Rs. 19,000 per month (10 years) and Rs. 35,000 per month (20 years).
NPS: Rs. 50,000 per annum.
LIC: Rs. 1.5 lakhs per annum.
Shares: Rs. 6 lakhs.
Gold: Rs. 7 lakhs.
Goals
Retire at age 50 with a corpus of Rs. 3 crores.
Close home loan by 2033.
Retirement Planning
SIP Contributions
Continue your SIPs diligently.
Your 10-year SIP and wife's 20-year SIP are crucial.
Consider increasing SIP amount with salary hikes.
National Pension System (NPS)
NPS is a good retirement tool.
Rs. 50,000 per annum contribution helps with tax savings and retirement corpus.
Consider increasing NPS contributions over time.
Life Insurance
LIC premiums of Rs. 1.5 lakhs per annum.
Ensure that you have adequate term insurance coverage.
If LIC policies are not term plans, evaluate their returns and consider switching to mutual funds.
Direct Equity Investments
Current investment in shares: Rs. 6 lakhs.
Review the performance of your stock portfolio.
Diversify to reduce risk.
Gold Investments
Current gold investments: Rs. 7 lakhs.
Gold is a good hedge against inflation.
Do not allocate more than 10% of your portfolio to gold.
Home Loan Strategy
Early Loan Repayment
Aim to close the loan by 2033 as planned.
Use rental income and any surplus funds to prepay the loan.
Prepayment reduces interest burden and loan tenure.
Rental Income Utilization
Use Rs. 16,000 rent received to support EMI payments.
This helps in managing cash flow.
Education Planning for Your Daughter
Systematic Investment Plan (SIP)
Start a dedicated SIP for your daughter's higher education.
Estimate future education costs and invest accordingly.
Equity mutual funds are suitable for long-term education goals.
Review and Adjust
Review your investment strategy annually.
Adjust SIP amounts based on market performance and financial goals.
Building Retirement Corpus
Diversified Mutual Funds
Focus on diversified mutual funds for better risk management.
Actively managed funds can offer better returns than index funds.
Avoid index funds due to their passive nature and lack of active management.
Regular Review
Regularly review your mutual fund portfolio.
Consult with a Certified Financial Planner (CFP) for adjustments.
Alternative Investments
Consider debt mutual funds for stability.
These funds offer safer returns and help balance your portfolio.
Tax Planning
Utilise Tax Benefits
Maximise Section 80C deductions with investments in ELSS funds.
Continue NPS contributions for additional tax benefits under Section 80CCD(1B).
Final Insights
SIPs: Continue and increase SIP contributions over time.

NPS: Maintain and enhance contributions for retirement savings.

Insurance: Ensure adequate term insurance; review LIC policies.

Equity and Gold: Maintain diversified investments; review regularly.

Home Loan: Aim for early repayment using surplus funds and rental income.

Education Planning: Start SIPs for your daughter's education.

Tax Planning: Maximize tax-saving investments.

Regular Review: Consult with a CFP for portfolio adjustments and goal tracking.

By following this comprehensive strategy, you can achieve your retirement and financial goals, ensuring a secure future for your family.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |7545 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Dec 16, 2024

Money
Hi Sir, I need your prompt advice as i need to take decision on the same. I am 55 years and have 5-6 Years in retirement. Post retirement have planning and secure. Now coming to the point that i am staying a capital of state where i pay house rent Rs.40000/- PM. My take homme monthly salary is approx 6 Lacs. My organization have policy to pay 50% interest subsidy on interest of Housing loan. I am planning to purchase a flat value 1.25 Cr in which 80 Lacs Banks are ready to give for next 12 Years . monthly EMI will be 85-90 K and out of which approx 28K will be subsidy and 40K my rent and 5K saving of IT in Housing loan interest . Ideally it will cost to me approx. 15-20 K Per month additionally . After retirement i will sell the flat and square off my balance home loan. Please suggest is it worth of taking ....or i should continue to pay House rent and add 20 K liability in Mutual Fund contribution & avoid Interst subsidy !! Urgent reply please
Ans: Key Financial Factors to Consider
Option 1: Buying the Flat
EMI Costs

EMI: Rs. 85,000-90,000 monthly for 12 years.
Net EMI Cost (Post subsidy and tax saving): Rs. 15,000-20,000 per month.
Rental Saving

Buying eliminates rent, saving Rs. 40,000 monthly.
Subsidy Benefit

50% interest subsidy reduces your EMI burden by Rs. 28,000 per month.
Tax Benefits on Home Loan

You save approximately Rs. 5,000 monthly in taxes on interest payments.
Plan to Sell Post-Retirement

Selling the flat in 5-6 years may or may not yield significant appreciation.
Real estate liquidity can be unpredictable.
Option 2: Continuing to Rent
Current Costs

Rent: Rs. 40,000 per month.
No additional EMI burden.
Investment Opportunity

Allocate Rs. 20,000 monthly (saved from net EMI cost) to mutual funds.
This investment grows significantly in 5-6 years.
Flexibility

Renting offers flexibility in case of post-retirement relocation.
Detailed Analysis
Buying the Flat: Pros and Cons
Pros:

Owning a home offers emotional satisfaction.
Subsidy and tax savings reduce EMI burden.
Rent savings (Rs. 40,000) offsets the EMI.
Cons:

Requires additional Rs. 15,000-20,000 monthly for EMIs.
Real estate appreciation is uncertain over 5-6 years.
Selling post-retirement involves transaction costs and market risks.
Renting and Investing: Pros and Cons
Pros:

Avoids the hassle of a large loan and associated liabilities.
Rs. 20,000 invested in equity mutual funds can grow significantly.
More flexibility to relocate post-retirement.
Cons:

Rent payments continue with no ownership asset.
Miss out on interest subsidy and home loan tax benefits.
Scenario Comparison
Option 1: Buying the Flat
Total Outflow: Rs. 15,000-20,000 monthly (EMI after adjustments).
Asset Created: A flat worth Rs. 1.25 crore, potentially appreciating in value.
Risk: Real estate value may stagnate or decline in the short term.
Option 2: Renting and Investing
Total Outflow: Rs. 40,000 monthly in rent, plus Rs. 20,000 invested in mutual funds.
Investment Growth: Assuming 10% CAGR, Rs. 20,000 per month grows to Rs. 16 lakh in 5 years.
Risk: Market volatility may impact mutual fund returns.
Certified Financial Planner’s Suggestion
Based on your financial profile and goals, here is a balanced recommendation:

Leaning Towards Renting and Investing

Renting gives flexibility and avoids real estate risks.
Invest the additional Rs. 20,000 in equity mutual funds for better returns.
A diversified portfolio may provide more liquidity and growth by retirement.
If Emotional Value of Ownership Matters

Buy the flat only if you are confident about the real estate market in your city.
Ensure the flat is easily sellable in 5-6 years.
Carefully assess the costs and expected returns before committing.
Final Insights
Buying a flat works best if real estate appreciation outpaces mutual fund growth. However, this is uncertain in a short horizon. Renting and investing in mutual funds is a more flexible and potentially rewarding option for retirement planning.

Take a prudent decision considering your priorities and risk tolerance.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

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Radheshyam

Radheshyam Zanwar  |1144 Answers  |Ask -

MHT-CET, IIT-JEE, NEET-UG Expert - Answered on Jan 16, 2025

Asked by Anonymous - Jan 16, 2025Hindi
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I'm a bsc botany graduate and now got admission and doing msc. I'm in first year and just gave my 1st semester exam but somehow now i feel i can't do botany at all its not just in my interest. I can't continue further with it as i dont think there's much scope too. I have interest in fields like geography or law related subjects. I'll be attempting for upsc too this year and also had a second thought to go for Law. Should i drop the msc? ....I've cried a lot thinking about that and its affecting my mental health too.
Ans: Hello dear.
First I would like to suggest that, in any way, you first complete your M.Sc. (Botnay) either with interest or without interest. Who told you that there is less scope in Botany? There are a lot of career options after M.Sc. (Botany).It is good that you are interested in geography and are attempting UPSC this year. Dear, along with your M.Sc. you can easily appear for UPSC and do the study of Geography, after completing your M.Sc. you can take the admission to Law course. Many people do the law even after their retirement or in due course of their service. There is no need to cry about the things which happened to you.
Suggestions: (1) Completer M.Sc. (Botany) by any means (2) Space-time to read Geography and UPSC Syllabus (3) Develop your overall personality and try to engage in some extracurricular activities of your interest.
Best of luck for your upcoming bright future.

If satisfied, please like and follow me.
If dissatisfied with the reply, please ask again without hesitation.
Thanks.

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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