Planning Retirement with an Ongoing Home Loan EMI

A reader wishes to retire with an ongoing home loan EMI and asked us how to plan for this using the freefincal robo advisor tool — a discussion.

First, some general considerations. Retiring in the middle of a home loan service may seem odd to many readers. However, it is quite common. For example, SBI offers a home loan to IITM employees that extends beyond retirement. This is because the bank is confident the client will repay the EMIs on time as they will receive a monthly pension from the government or via NPS.

Is this prudent? It is certainly not ideal from a traditional viewpoint. However, it depends on the individual’s retirement corpus and how they can manage their lifestyle for the next 5-10 years after accounting for the EMI. Some may retire early with a working partner and can easily handle the EMI.

However comfortable you are with paying EMIs after retirement, there is always a small risk that things do not go as planned.

To be on the safer side, we recommend:

• Pre-closing the loan before retirement
• Postponing retirement until you can pre-close when possible.
• Plan for an adequate buffer corpus from which the EMIs can be drawn if retirement cannot be delayed. It is best if this is not mixed with your retirement corpus.
• The scenario discussed below (EMIs to be factored in while computing the retirement corpus with no other separate plan) should be the last resort.

All these will require considerable planning, ideally years before you start the home loan.

For those who may not know, the freefincal robo advisor tool is fully customisable to create bespoke financial plans for yourself or your clients.  Suppose I wish to retire at 45 and intend to pay home loan EMIs for the next eight years.

I have made no special arrangements for the EMIs and wish to factor this while computing my retirement corpus. My annual expenses must include the yearly EMI outgo for the first eight years of retirement.

To accomplish this:

1. Plan for retirement as usual. See an illustration here: Retirement plan review: Am I on track to retire by 50?
2. Go to the recurring goals sheet in the robo tool and set the EMI as a recurring outgo for the first eight years of retirement.
3. Go to the cash flow sheet (6A) and include this recurring goal in the cash flow. This will ensure the EMI will be included in the total expenses. If you have any other one-time goals, like paying for your kid’s college, they, too, can be included in the cash flow.
4. If you head back to the retirement tab, the higher corpus factoring the EMIs will be seen. The tool can include three income sources after retirement. E.g. pension, rent, etc.

Also read:

• How much do I need to retire at 40 in India?
• Why do I need seven crores for retirement?!