A friend called me with a surprising question.

Let us call him M.D.

He bought a house in Navi Mumbai for about Rs. 180 Lakhs, – of this about Rs. 95 lakhs was funded by a loan from the State Bank of India. Over the last 4 years he had paid a lot of interest, but the principal outstanding was still Rs. 85 lakhs.

He was also doing some SIPs which had seen an amount of Rs. 33 lakhs, but now in this market was worth Rs. 37 lakhs – not too bad, but the IRR was not too great. He does not have any debt investments except his LIC endowment policies – and all the policies are together worth Rs. 30 lakhs.

So far fine. He just lost his job with effect from December, 2016……he is on notice period now………

He will have to find a new job, NOW and immediately.

What is at stake?

Household expenses (including children’s school fees) …….Rs. 100,000

EMI                                                         Rs. 102,000

His needs are as follows:

Rs. 2L x 12 = Rs. 24L – assuming he gets a job in 6 months, he will need Rs. 24 L.

He is about 53 years of age – he needs to have his retirement corpus in place. He knows that jobs paying Rs. 45 lakhs and above are almost non existent especially in Sales and Marketing unless you are willing to take aggressive targets. In the bfsi space perhaps it is only a bank that will take him. How does a 53 year old join an aggressive and young bank? Not so easy….

He can always sell his house (he thinks it has appreciated, my take is the appreciation is LESS than the interest paid on the loan)..but yes that is a choice. Options are few and far between in the jobs. Most people expect a 53 year old to be holding a technical qualification or an address book of potential clients…he has neither…

What does one do? Looking for answers…

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  1. Family
    ——–
    He should allocate on his children’ education as planned and keeping their confidence up, but not think about marriage. He should not be hiding his financial difficulties with daughters, it will condition them to start thinking on limiting their budget without him asking for it.

    With good education and job daughter will be able to save for their marriage also will be able to support parents.

    Saving 10-20% on monthly expenditure is not a big task to achieve. It start with both the parents first, with their personal expenditure.

    Home:
    ——-
    Access real state market situation in his locality .. determine how much time it may take to sale his apartment. What are real ongoing rates in his locality. Does he has all paper work done for the apartment. So that once he decide to sale it would not take much time.

    As her younger daughter is in 12th, he may like to keep his house until her board exam – March 2017. He should not immediately jump into selling it.

    Insurance
    ————
    He should certainly look to surrender his endowment policies. Let’ say he is able to liquidate 50% of all that would probably give him 15 Lakh cash also save yearly outgo in premium.

    10 Year term for 40Lakh will cost him ~25k, but at this age insurer may load additionally if he is not as fit as insurance company expect him to be.

    He can try to take 1-1.25 Cr Term plan, and surrender costly term plan linked with his home loan. Otherwise he should not buy more them 50 Lakh or longer then 10 year. But this is not something he should overly worry about.

    15 Lakh from Insurance + Liquidate 10 Lakh from Equity should give him comfort for a year to search for a new job. (Liquidate remaining 27L as per his daughter’ education’ requirement.)

    Job
    ——–
    When such things happen we get in to negativity loop, but out there in market it also difficult for companies to get good people. It does take some time to get a new job when you are higher up. But difficulties does bring best out of you.

    He should be ready to take or atleast try for job in any part of India. Ready to pick it up once you get decent offer.

    —————–

    Let’ say he find a similar paying job .. in next 6 month. .. Is he really on a sound footing ? no ..

    he need retirement fund of 3Cr to be able to spend 10Lakh per year (in today’ value, including house rent) for next 20 years. Can he double his savings in next 7 years?

    House Value > 50% rise in value, probable, He takes care of installment > 3 Cr
    Endowment > 35% appreciation > 45 Lakh
    Equity > 100% possible > 70 Lakh

    No further saving from his income apart from Home Loan EMI
    ———————————

    His children and home equity is the only his retirement savings.

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