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| Myth: As a long-term investor, short-term market swings do not affect me. Fact: When investing in equities, it’s comforting to look only at historical, long-term returns, because that way you’ll never make a loss. But what if you want to or need to exit your investments in a bad year? It pays to keep track of market moods so that you know the best time to book profits or cut losses. |
So yes, it makes sense to own a home if you plan to retire in any kind of comfort. But it’s even more important to plan this house early. Leave house buying to the late 30s and 40s and you’ll find that there’s very little time left to take care of the down payment and the EMIs. The early 30s are generally a good time to start planning for a home.
Says Rishi Nathany, director, Touchstone Wealth Planners: “It’s tough to decide when you want to retire and where you want to retire. But this should not stop you from buying a house as an investment to chief financial officer, Bharti AXA Life Insurance: “If planned, financing your retirement will be easy and fall in place as you work towards it.”
Your changing economic needs can also blow your plans to bits. For instance, assume you put away Rs 70,000 every year in a 20-year plan that earns 8% a year on an average. Assume, in the fourth year of the plan, you withdraw Rs 30,000 to make the down payment on a car and also skip making the annual payout that year, when the accumulated capital is Rs 2.5 lakh. At the end of 17 years, you will have Rs 2.7 lakh less in your corpus.
So, how do you manage your finances to include home-loan payments? Worse, what if you are already paying off a home loan, but want to buy a retirement apartment in another city? “You should consider the PIPE model in these years—prepare for investments and postpone expenses,” says Gaurav Mashruwala, financial planner.
Many dual-income families believe they are better off than single-income ones, and that’s a fact. But, as Mashruwala says, the problem is when the extra income is seen as wealth. “Most families often fritter away the second salary just to maintain a household where both husband and wife go to work,” he says. The biggest hurdle to wealth creation, particularly in dual-income families, say planners like Mashruwala, is mounting non-discretionary expenses.
Then there are big-ticket purchases like a top-of-the-line home theatre system, plasma TV or luxury sedan, products that most families can do without or compromise on. Such expenses dig deep holes in your wealth pile and disturb the process of compounding. Add the EMIs to pay off a home loan, and you could be severely strapped for cash. That’s why it makes sense to buy a home early. Once you have paid that loan off, you can get to work on creating a healthy retirement fund.
Are you on track? Here’s what you’ll need to have in your retirement corpus to ensure that your money does not run out in your lifetime Insurance Investment Account for home loan EMIs in your plan. In a dual-income scenario, pay the EMIs jointly to take advantage of tax breaks. | |||
THE POWER OF TWO A dual income family can take greater investment risk and will be able to pay for a house faster than a single income household | |||
| SINGLE INCOME (Rs) | DOUBLE INCOME (Rs) | ||
| MALE | FEMALE | ||
| Gross salary | 8,00,000 | 4,00,000 | 4,00,000 |
| Deduction u/s 80C | 1,00,000 | 50,000 | 50,000 |
| Net taxable income | 7,00,000 | 3,50,000 | 3,50,000 |
| Income tax | 1,18,450 | 25,750 | 22,660 |
| Take-home pay | 5,81,550 | 3,24,250 | 3,27,340 |
| Household expenses | 3,00,000 | 1,50,000 | 1,50,000 |
| Disposable income | 2,81,550 | 1,74,250 | 1,77,340 |
| Even if the couple does not make full use of Section 80C benefits, they have a higher investible surplus | |||
