Category: Insurance

Preparing for Retirement: Don’t Delay, Plan Today! If we ask people if they have planned for retirement? They will say yes, they already are saving for retirement. On further inquiry, do they know the amount they would require at retirement? Few had even put a thought to it. Even further, those who had put thought are either just saving through the traditional way or, even if they are using multiple channels, they have yet to plan any asset allocation.  Why do we need retirement planning? While interacting with many HNI’s Salaried or Businessmen in the NCR region, I wondered why we need to plan when we already have many assets. They were blank when we discussed how much you think is required at retirement.  The pace of life has increased, and most of us don’t even have time to ponder things that should matter to us financially. We are occupied with earning. We need to plan. The primary asset allocation structure. Which would help you to build your plan.  The life expectancy in our country has increased to 70.8 currently. If we say a person retires,  At, say, 58, he has to take care of his expenses for at least 12 years. During this time, he had no pension support in the developed world.  Also, the inflation would eat into most of the savings he has made so far. The person’s expenses at that stage are kept as he has a living standard to maintain. Medical expenses must be taken care of, and Indian tradition wants the elders to give to their children at this age. So you are not earning but only have expenses to take care of for at least a further 12 years.  With the nuclear family system, parents, after retiring, do not receive support from their children. The inflation-adjusted cost of everything would be very high. So, there is a need to have a retirement corpus in place, and it can be achieved through asset allocation. Missing Social Security In India: As the rest of the Western world or the more developed world has systems to care for its aging population, India still needs a strategy. A person must depend on retirement investments to create a corpus.  Another challenge people say is they are already spending so much that they need more money to spare for the future. People take such a myopic view of life that they start to think and plan when the future is very near, which would have been done years ago. They do not because of sheer laziness or lack of trust in the end.  How to plan for retirement? Once we understand the reason to plan retirement, we need to consider the factors to make a plan for the best possible pension we can give to ourselves. You worked hard all through life, and now you need to enjoy your golden years.  Emergency planning:  Any plan has to have emergency planning in case you lose your job or your business has a downturn. It would help if you were prepared with the amount required for at least one year of household expenditure.  Insurance:  Take sufficient cover to protect yourself from the unplanned incidences of life. Health and term should cover you and your spouse to help you with lifelong processes.  Budget:  So, how to budget is the big question you need to answer. So, the first step is to take your current monthly expenditure. This is the lifestyle expenditure. Add the cost of trips or any other activity you do to this. Take the number of years of retirement. Check the price of inflation as of today. Check the life expectancy the number of years you could be alive. Now, you have to consider the pre-retirement and post-retirement rates of interest. This would give a rough amount you would need after retirement.  Asset allocation:  Another important concept is asset allocation, which would help you to achieve your goals according to your risk. I have already discussed the same great length in my other post. (https://wealthinn.in/annuity-plan-retirement-planning/) Review and rebalancing:  Review your portfolio and rebalance as and when required. This fundamental step should always be noticed.  Estate Planning Consider creating a will, trust, or estate plan to ensure your assets are distributed according to your wishes. An estate plan can also help reduce estate taxes and simplify the transfer of assets to your heirs. What instruments are available FD: The most commonly used and relied-on instruments for planning. Which most people say is the best suited for them. But it should not be considered an investment option but a saving option. There are two cases where this would be used  Emergency fund parking  After retirement, some amount of money should go into it.  PPF/ELSS: Another fundamental instrument that can be used if you are very risk averse is PPF, and if you can take risks is ELSS for long-term planning. PPF would give tax-free returns and per-defined interest rates provided by the government. ELSS would be taxable at redemption, but you can earn higher equity-related returns. You can balance out both PPF and ELSS as investment options.  NPS: Another great government instrument is to invest in NPS. It helps you to create a corpus for a pension when you retire. The only mechanism which the government planned for retirement benefits in our country.  EPF: if you are salaried, you can use this instrument to create a corpus. But now, the government has made a limit beyond which you would not get taxation benefits.  Equity/MF/PMS- Equity or equity-linked instruments are one the best agents that help in long-term planning like retirement. You can invest via SIP or LumpSum. Also, you can use debt to balance the portfolio in market distress. Equity-linked instruments have been giving returns upward of 12 %, which other traditional devices are not. This helps you increase the risk and reward for your portfolio.  Annuity:  An annuity is another important instrument to use for your retirement planning. The annuities are simple instruments that give you a