Smart ways to retire in style

All of us at some point want to ‘die with our boots on’, but as we all know this may not happen, and  we might be required to hang our boots and call it a day. This  could be due to various reasons such as ill-health, lack of opportunities / stamina, inability to compete  etc., It is better to plan ahead and ensure that we stay financially stable and independent in our latter years, 

Retirement planning – The Need!

A recent survey indicated that 80% of the working Indians do not have a retirement plan. Planning for retirement has become important since longevity has increased, while the number of working years hasn’t. Although your employer, out of concern has planned for your pension by means of the contribution towards provident fund, it would relatively be a much smaller amount when you actually get the payouts, due to the discounting factor. 

The increasing rate of inflation makes it evident that things could only get dearer by the day, and it is the most important reason to plan well for the retired years. .  During the earning years, investors are game for risks, and to attain about a 15% average return may seem practical but as you approach retirement age, wealth preservation strategies are replaced by wealth  accumulation strategies. It is prudent to make your money work harder for you during the earning years.

What you see is not what you get!

Although, today you may be spending a modest Rs. 20,000/- per month on groceries, utilities, transport and all the other mandatory aspects, the picture could change drastically over the years. Deducing an appropriate corpus should involve a detailed study of various factors - Current Household budget (excluding temporary commitments, loan liabilities), Inflation rate (till retirement and post-retirement), Rate of return on the investment, life expectancy (average Indian lives till 85 Yrs), medical contingency and so on.  

Although all this analysis appears quite a task and the parameters could leave one’s head spinning, the whole thing can be understood with a simple example. 

Current Age    30 Yrs

Preferred Retirement    55 Yrs

Pension as of Today    Rs. 20,000 / month 

Corpus Required    Rs. 2 Crore

The corpus required is arrived with assumptions on life expectancy – 85 Yrs, Inflation – 6.5% and Rate of Return – 10% (post-tax). The requirement set should be realistic and hence one needs to do a reality check by visualizing what could be the plausible requirement at that point of time in future.

Investment avenues

A part of the corpus will be brought in by means of your Provident / Pension Fund (if any) and the balance can be planned by means a variety of options ranging from low-risk avenues – Fixed Deposits, Traditional Insurance plans, Income / Money Market funds, Fixed Maturity Plans etc., One can also invest partly in Equity oriented avenues – Balanced Funds, Diversified Equity Funds, Equity Linked Debentures, Unit Linked Insurance Plans, Capital Guaranteed plans etc.. However, approaching retirement years, one should limit direct exposure to equity.. It is suggested that one should not have more than 30% of exposure into equities at retirement.  A rental income yield post-retirement, is a good proposition, since it provides a regular income. 

The Reverse Mortgage concept is still in nascent stages in India, while it is a widely used instrument in the US, Canada and Australia, by the elderly to derive cashflows from their own house. In reverse mortgage, the retiree can pledge a property that they already own (with no existing loan on it). The bank in turn gives you a series of cash-flows for a fixed tenure. 

The homeowner's obligation to repay the loan is deferred until the owner dies; bank bears the risk that the outstanding will exceed the market value of property then and will not ask for the difference from the heirs.

Few parameters are to be kept in mind while choosing the avenues for retirement planning – 

•    Overall post – tax returns generated by portfolio should be higher than the average inflation rate, 

•    Choose plans which have lower fund management charge,; given that this is a long term goal, mutual funds may turn out to be expensive than other options available around. Hence, a balanced approach would do the trick and maintaining risk profile at ‘Moderate’ levels would be vital. 

•    Although Annuity plans are a preferred plan amongst investors, what one often overlooks is the fact that the payouts from a pension plan will be taxed. It makes more sense to opt for a plan which works to provide for annuity but would not attract taxes during payout.

Planning for contingency and medical (both self and family) becomes vital at an older age, hence if you are above the age of 35 years, voluntarily plan for your medical contingencies (despite your existing company cover), and consider plans which will cover you lifelong.

It is important to ensure that financial independence does not elude you post retirement.

Top 7 money saving motivations

No one says no to a bulkier bank account, so say a big “hello!” to our list of money saving motivations. In the current economic climate many of us are feeling the pinch, so here are seven handy ways to boost your bank account:

Money saving motivation 1: Create a spreadsheet

Instead of constantly trying to work things out in your head and making rough estimates on how much money you have left for the month, make things a whole lot easier by creating a spreadsheet.  At first glance, these can seem a little daunting but it’s really easy once you get used to it and there are many free spreadsheet websites online which work out all the sums for you. By having your outgoings on a list in front of you, you can identify what you’re saving on and what you perhaps need to cut back on.  

Money saving motivation 2: Avoid shopping when you’re feeling emotional... or hungry

You’re feeling a little down in the dumps but you need a new work shirt... bad idea. Turn around, get back inside the house, lock the doors, and ask someone to hide your keys right now – if you’re feeling emotional there’s a high chance you will end up splurging on stuff you don’t really need to give you a quick happiness boost. After spending five minutes looking for a shirt, you return with a few tins of paint to re-vamp the house, a new wardrobe of clothes, and a mop for the kitchen floor, but the new work shirt is nowhere to be seen. Whilst these spur-of-the-moment purchases may uplift your mood for an hour or two, the initial high will soon wear off and you’ll be left feeling worse as you realise you’re left with nothing more than a few bargains and an empty bank account. For a thriftier approach to shopping, go when you’re in a pretty good mood and – whatever you do – don’t shop for groceries when you’re hungry.

Money saving motivation tip 3: Surround yourself with exciting hobbies and positive people

Rather than spending money on takeaways and meals out to cheer you up after a long hard day, identify other things you like doing that will boost your mood instead of spending money. Arrange some fun things to do with family and friends around your house or take up a new hobby such as gardening or crafts. We often end up spending more when we’re bored, emotional, and/or lonely so plan a film night with your family or buy a few ingredients from the grocery store and try cooking something you’ve never made before. 

Money saving motivation 4: Save little and often

It’s a common mistake to think that you can’t start saving because you don’t have much money, but that’s like saying you won’t go on that one hour run because you don’t have the whole day off to exercise – it’s counterproductive and unrealistic. Experts advise that the best way to boost your bank balance is by taking the ‘little and often’ approach to saving. Rather than putting a lump sum of your month’s wages into a savings account and leaving very little to live off for the rest of the month, just put a small amount away as often as possible and the money will mount up without you even noticing it. The more you see your bank balance rising, the more you will want to keep adding to it. Go on, try it – it’s addictive.

Money saving motivations

Money saving motivation tip 5: Put some money aside for pleasure

It’s important to treat yourself occasionally to avoid getting frustrated and spending all your savings at once, so make sure you include a little “happy time” money in your budget to treat yourself every now and again. Do you want a new television for the living room? Save up for one. Fancy a small break somewhere nice? Save up for it. Once you’ve saved up for something and reached your target amount, you’ll feel much better than you would if you spent money that you didn’t really have in the first place.

Money saving motivation 6: Read a finance blog or make your own

Personal finance blogs are becoming an increasingly popular form of inspiration for many people; they can encourage you to save and adopt good financial habits in the process. It’s also really interesting to take a sneaky peak into the lives of other people and see what they enjoy the odd splurge on. If you’re feeling really brave, you could create your own finance blog to share your own tips and advice with others. This will not only help you to network with other people in the same financial mindset as you, but it will encourage you to save more so that you can feel extra proud of yourself when you share how well you’re doing with others.

Money saving motivation 7: Get support

If you’re really feeling the pinch and you need advice, don’t feel ashamed to seek support from others. You may feel like a little fish in a big pond when it comes to finances, so seek advice from a financial expert who will have a lot of experience dealing with problems like yours. Your financial adviser will come up with a realistic plan to help you sort out any money difficulties.