I WANT to plan my retirement,” says Jatinder Singh, 27, who works with an IT company.
"What’s the hurry?” I ask
"The early I begin the better it is,” he says.

Wow! Isn’t that supposed to be our line? It’s exciting to hear Jatinder so eager to save for his retirement but planning early varies from case-to-case. There’s a reason why we tell you this…

Jatinder married Bavneet in 2008. He wanted a wedding where his family and friends could attend and give their blessings. So, he took a personal loan of Rs 225,000 to get this event going smoothly. The personal loan was taken at an interest rate of 15 per cent per annum for a period of 4 years. Now, a year later, he’s still paying Rs 6317 as equated monthly instalment towards the repayment of the loan.
1. Pay off your loan!
Financial Trainer, PV Subramanyam says, “Jatinder should use all his spare cash to repay his personal loan immediately. Trying to out earn a loan is a very difficult task.” Financial Planner, Anil Rego echoes, “His priority should be to close the loan. A personal loan does not even have tax benefits unlike a home loan. So, there’s no point delaying its closure.”
Step 1: Use some amount of his wife’s income of Rs 15,000 per month and his income to pay off the loan without much delay.

2. Keep your insurance
“Oh! Did I tell you, I have taken insurance policies?” he says.
“Which ones are these?” I ask.
“I have two Unit Linked Insurance policies (ULIPs) with a sum assured of Rs 500,000 and a three-year lock-in period – one was taken in 2006 and the other, a pension plan, was taken in 2007. I took these to save tax.”

Taking ULIPs for the purpose of saving tax isn’t ideal. That said there’s no talk about discontinuing policies.

Subramanyam says, “He should continue these policies and use the top up facility to improve the returns on the ULIPs. On maturity, this accumulated amount can serve as corpus for buying an annuity pension plan. But, he should NOT commit any more money into fresh ULIPs. And, in case his insurance needs have not been fulfilled, he should go for a Term plan.”
Step 2: Keep your ULIPs but don’t buy anymore new ones.

Also read: Portfolio review - Does Ajay have the right asset allocation?

3. Saving money for investing
“What about saving for my retirement? That’s my question,” he says
“Okay, let’s get to that. Have you made any investments?”
“I have been saving Rs 2,000 to 3,000 per month since 2006. This amount, however, has been idle in my savings account. Also, as far as financial outgo is concerned there are no major expenses. There’s also no question of renting a house because we live with my parents in our own house. My parents are self-sufficient, although, I give them a specific sum every month. Basically, that’s all there’s to my investments, and liabilities. And, I do have another 30 to 35 years of service. So, I have nothing to worry, right?!”

Rego says, “Once the loan is closed, there will be that much more cash for investment.” He further elaborates how you should utilise the amount.
Step 3:

-Prioritise tax saving through ELSS -- not only will Jatinder get tax benefit, he’ll also get moderate returns

-Invest through systematic investment plans in mutual funds, with 70 per cent in equity and 30 per cent in debt

-Create emergency fund. Allot 20 to 25 per cent of Jatinder’s investments in a low-risk and high liquidity option

-Once a portfolio is built, Jatidner can take moderate risk and focus on stocks. Of course, it’s only if he’s comfortable with the idea.

The important point to keep in mind: Pay off all your liabilities and start investing a little every month. This is the secret to an unruffled retired life.

Read: No clue what to do with my savings!

Illustration: Vaibhav Shirke

Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.