Retirement planning and insurance when you have fixed assets

POSTED BY JayaprakashReddy ON January 4, 2011 4:49 pm COMMENTS (2)

This is the question related to a 30yr old married and started career 5yrs back and want to take insurance and plan for retirement. 

His monthly expenditure is around 25k and he is expecting a kid by march 2011. He has some fixed assets (few acres of land and house) which he is going to get from his parents after them, which are worth 3-4 crores (current value).

How should he plan for his retirement and insurance considering these assets?

He is planning to take insurance (term) for about 60lakhs and doing retirement planning to create wealth of around 2 crores by the time he retires. He doesn’t have any liability such as loan other than family.

Now my question is does he require that much insurance and also does he require to create that much corpus for his retirement when we consider the fixed assets he has at the moment. I mean do we consider these fixed assets for the future requirement corpus after retirement?

2 replies on this article “Retirement planning and insurance when you have fixed assets”

  1. JayaprakashReddy says:

    Hi Shashank,

    Another very good explanation from you. Thanks for your inputs. I had the same opinion about insurance with regards to fixed assets.

    By the way coming to my question on Jeevan Anand: I’ve already taken enough term insurance from Aegon Religare online policy. I’m a kind of risk taking person and dont want compare it with LIC in terms of trust and claim ratio as this is new company. I took this risk because even if the claim fails it doesn’t bother my family much because we have enough financial support apart from that. If I surrender my policy, whatever amount I get will be fully invested in equity and even future premiums will be diverted to full equity. So, in this case I think it is not wise to continue with the policy. May be I should make it paid up as you suggested. Still evaluating the options, yet to decide on that.

    Thanks again for your inputs for my previous question.

  2. shashank kashettiwar says:

    @Jayprakash,
    Your question whether we should consider the fixed assets for the future requirement like retirement funding is a good one. This is legacy passed on to us by our parents and we should consider it for our and the family’s welfare.
    Actually many people miss this point completely when they are thinking about retirement planning.
    When I tell many individuals that why are you so worried about your retirement fund/corpus when it has already been created today only by your parents (in the form of legacy they would be leaving behind);for a moment they are taken aback. This is funny but you will realise that in the Indian society; the middle class and richer class, a large number of people really don’t have to worry about retirement. We are a ‘savers’ nation unlike the ‘spenders’ in the western society and we end up creating more wealth than we require/need for retirement.

    The typical retirement calculators and planning usually miss out on this point.

    This goal of retirement is generally overfed and the aim of protecting economic value through insurance is hugely underfed! Treating insurance as an expense typically leads to this situation.We think that if we buy more insurance it will impact our future needs negatively as the returns on a insurance product are lesser than the similar pure investment options. If we live normal life then we want to create and leave behind a large estate but while buying insurance we are very narrow in our approach.

    So should your friend buy insurance if he is already having so much wealth left for him by the parents? The answer is a definite yes. Through this mechanism he will be protecting his future income and the consequent wealth creation which he will do if he lives a full life.

    It is good that you have asked this querry because I was going to write on the similar lines on your querry about surrendering your Jeevan Anand plan. Surrendering it and putting the same money split into a term and a debt portfolio— does it really improve the situation, not necessarily. And moreover if you are thinking of buying the term plans from LIC only(because of ‘trust’, ‘claim ratio’ type factors) then the term+debt portfolio does not result in any benefits at all. You have to see the larger context of where this premium money and also rest of the savings are being placed to understand correctly.

    shashank

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