Taxfree income for a retiree

Some days ago, Mr. Sharma, an elderly person came to me for advice on how to plan his investments after retirement. He was retired at the end of last FY & after so much noises in the financial market regarding Share market crash, high inflation, recession etc., he was not sure what to do, where & how much to park his hard earned retirement kitty. Here is the initial data –
Present family size – Husband aged 60 & wife aged 57 only. (children, 1 son & 1 daughter, both are married & settled in their life respectively),
Annual expenses for living, Medical Ins. Prem. & visit to children once in a year = 150000 Rs.
Retirement funds received net of taxes = 35L Rs.
Currently both Mr. & Mrs. Sharma owns individual PPF accounts having 10L Rs. in each.
House they r living in currently, is their own & market value is around 40L Rs. as of now.
Apart from this, some shares in demat accounts of both with combined valuation of around 5L Rs. after prediwali crash & most of the shares r bluechips. But there was no Eq. MF investment as on date.
Mrs. Sharma is a housewife, all through her life.
Although they have direct Eq. investments but are reluctant to invest in direct Eq. or in Eq. MFs at present.

As his age is 60 only, he can’t anjoy the higher tax exemption limit of Sr. citizen at present, so it is necessary to keep his Tax incidence in mind while advising on investments.

The advice – Out of his retirement kitty of 35L Rs. (which was lying in saving bank account at present), I advised to loan an amount of 18.5L Rs. to his wife (Mrs. Sharma) as an interest free loan. After giving the 18.5L Rs., He w'h have 16.5L Rs.

Here r investments of Mr. Sharma –
1. 4.5L Rs. in POMIS - annual income 36K Rs.
2. 7L Rs. in SCSS - annual income 63K Rs.
3. 4.5L Rs. in various banks’ FDs of higher rates 10.5% avg. – annual income 49K Rs.
4. 0.5L Rs. in saving bank account for emergencies – annual income 1.7K Rs.
Total annual income = 1.49L Rs. which is just a tad below his taxable income limit of 1.5L Rs. Hence no tax at all.
Here r investments of Mrs. Sharma –
1. 4.5L Rs. in POMIS - annual income 36K Rs.
2. 11L Rs. in various banks’ FDs of higher rates 10.5% avg. – annual income 120K Rs.
3. 2.5L Rs. in bank FDs of smaller duration ranging 6-12 months earning 8% avg. (this was for medical & other major expensive emergencies) – annual income 20K Rs.
4. 0.5L Rs. in saving bank account for emergencies – annual income 1.7K Rs.
Total annual income = 1.78L Rs. which is just a tad below her taxable income limit of 1.8L Rs. Hence no tax at all.

So after all this, the annual income for the family is 3.27L Rs. & no tax at all. All the investments were made in the highest possible safe instruments (POMIS, SCSS & Bank FDs). After deducting the annual expenses of 1.5L Rs., there was a surplus cashflow of 1.77L Rs. As their expenses were taken care off, Income Tax liability was zero, I advised to invest this surplus cash in a mix of MIP & balanced funds in 80:20 ratio. Even incase of MIP, 75% allocation was made for < or = 20% Eq. exposure MIPs & rest 25% was in 20-40% max. Eq. exposure MIPs. Thru MIPs & balanced funds, the total Eq. exposure was 33% or 58K Rs. out of total investment of 1.77L Rs. of surplus cash.
The investment in MIPs & balanced funds is to be used as buffer & to give kick in returns to fight inflation.

The basic retirement kitty of 35L rs. was fully safe, zero income tax, & at the same time surplus cash is providing a cushion for future increase in expenses due to inflation. After his age of 70-72, in future, if the interest income generated by his total investments falls short of his the than mly. expenses, the option of reverse mortgage is there to supplement the income requirement.

After all the No. crunching, now Mr. Sharma is fully satisfied with this portfolio & he is investing based on this advise.