Monday, 25 November 2019

Ways To Plan Retirement in India

Capitalstars Investment Advisor
Retirement is one of the important phases of a person’s life when the person, after decades of dedicated service, finally calls it a day. This is the time that professionals look forward to, when after years of toiling and handling responsibilities, they can finally enjoy their full, family time. However, retirement also comes with its own share of financial woes and unpredictable measures. The absence of a regular monthly income means that strain is put on the existing savings and returns from investments.

The purview of retirement does not exclude self-employed persons and like their salaried counterparts, they too, are bound to feel the burden of a retired life unless they have planned their finances well in advance. Investments made earlier in life, if chosen well, can go a long way in ensuring financial freedom after retirement.  Here is a list of certain important ways in which retirement can be planned:

* Increase the volume of investment with an increase in income: Starting from the earlier phases in life, choosing an investment that yields dividends as and when required is very essential. As the career graph moves on, there comes a phase when the volume of investment can be increased. You must always invest more when there is any such increase in earnings.

* Start early: The cost of living in India is on an upward spiral and this makes us feel the pinch with each passing day. Therefore, it is important to start investing in your future as soon as you start earning. Younger the person is at the time of commencement of relegating funds towards a retirement investment, higher is the term build-up and the resulting payout at the time of investment-maturity.

* Allocate a fixed percentage of your income towards retirement corpus: Investing a fixed percentage of the income towards the main retirement corpus always helps. One must also be careful not to use any part of the corpus (i.e. the main amount) before retirement.

* Consider the inflation factor while taking a retirement plan:  Seeking to invest and build up on that investment is important. However, the fact that inflation affects the financial planning heavily must never be ignored or belittled. Inflation can make your returns take a plunge and therefore, while choosing any plan, you must make sure that you have taken the futuristic price-rise projections into your consideration.

* Invest in health-insurance and specific plans simultaneously: You may not be in the prime of your health in your sunset years and therefore, start early when it comes to building up the financial safeguard in times of emergency. This ensures that your savings and the returns from the investments made by you do not suffer due to medical contingencies.

Sunday, 24 November 2019

Retirement Planning Tips in Your Mid-60s and Beyond

Capitalstars Investment Advisor
Retirement planning at any age can be challenging. Still, there are certain steps to take when you're in your mid-60s and beyond to make sure you're ready for those golden years.

* Many people choose to continue working past retirement age for extra income or to stay engaged.
* If you were born in 1960 or later, your full retirement age for Social Security benefits is 67.
* You can sign up for Medicare at age 65, whether or not you're retired.
* Required minimum distributions for traditional IRAs and 401(k)s start at age 70½.

At one time, the common age for retirement was 65, but times have changed. Even the Social Security Administration (SSA) has increased the age when full retirement benefits are available. Also, there has been a shift from defined-benefit plans to defined-contribution plans in many company-sponsored plans.

Adding to these changes is the fact that many savings programs are not producing projected returns. It's easy to see why many individuals may need to postpone retirement.

Of course, even if you are financially secure, reaching age 65 does not always mean it's time to retire. Many 65-year-olds love their jobs and want to continue working. Still, there are a few things to consider—and take care of—as part of retirement planning in your mid-60s and beyond.

Determine Your Retirement Readiness

If your employer's policy is to offer retirement at age 65, think about whether you are really ready to quit—from a psychological and a financial perspective. If not, consider whether you want to ask your employer to allow you to work a few more years, or if you'd like to be hired as a consultant.

Ideally, you will do this at least a year before you reach 65, as some employers start the retirement process early. Many employers now focus on hiring and retaining employees who are experienced and "know the business" to strengthen their intellectual banks.

Staying on as a salaried employee not only means you continue to receive a steady income, but you will also continue to receive health coverage and other benefits your employer offers. On the other hand, going the consultant route offers you more flexibility and could allow you to have more of a working retirement.

Create a Retirement Budget

Retirees who have saved up for many years can feel that reaching retirement age means it's time to enjoy the fruits of their labor. Fair enough, but the risk is that people can go overboard and spend it all in a few years.

To avoid falling into this trap, budget your expenses. Be sure to include new costs you plan to incur, such as extra travel. This will help you make a realistic determination of how easily you can afford some of those future plans.

Once you are no longer working, a budget is even more important, as your income will likely come from your savings, Social Security, and any pension plans you may have.

Decide the Best Time to Take Social Security

Social Security is usually included in an individual's financial projections for retirement. One key decision when factoring Social Security into your equation is to determine whether you will receive full or reduced benefits.

If you take Social Security benefits before you reach your full retirement age, your annual benefits will be lower than if you waited until you reached full retirement age.

If you do not need the payments when you reach full retirement age, consider waiting until age 70 to garner the maximum possible benefit. Waiting any longer will not raise what you'll receive.

“Factors that drive when it is best to take Social Security include the historical income of you and your spouse, your ages, and life expectancy," says Mark Hebner, founder and president, Index Fund Advisors, Inc., in Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.” 

"Most adults who are healthy would benefit from suspending their Social Security until they reach age 70," Hebner adds. “There are online resources for investors to help them maximize their potential Social Security payout.”

To get a complete understanding of your Social Security benefits, including determining how much you are projected to receive, visit the Social Security Administration website.

Use Your Home for Income

If you live in a large place, it may be time to consider whether you should move to a smaller home that is less costly to maintain and/or to an area where the cost of living is lower. Changing residences could provide some additional funds to add to your retirement nest egg.

If you are not willing to move or sell your home but need additional income, consider whether the risks involved in a reverse mortgage are suitable for you. Under a reverse mortgage program, a lender uses the equity in your home to provide you with tax-free income.

Before applying for a reverse mortgage, be sure to ask as many questions as possible, including how much in fees you'll pay, the terms of the mortgage, and your receipt-of-payment options.

Manage Your Income During Retirement

If you need to take income from your savings to finance your retirement, take steps to ensure that you minimize taxes and maximize what you get to keep. Your unique financial profile will determine the most opportune time to use certain types of income.

From a general perspective, withdrawals from tax-deferred accounts such as traditional IRAs and employer-sponsored plans should occur during the years when your income tax rate is lower. This will help to minimize the amount of income tax you owe on those amounts.

Take Required Minimum Distributions

Of course, if you are of required minimum distribution (RMD) age, you must satisfy your RMD amounts from those accounts—regardless of your tax rate.

You have to start taking RMDs from your traditional IRAs and 401(k) plans at age 70½. If you miss an RMD, you will owe a 50% penalty on the amount you should have withdrawn. Keep in mind that Roth IRAs don't have RMDs. You can keep your money in a Roth as long as you want and pass the entire account to your beneficiaries.

The Bottom Line

You will likely read lots of advice about timing your retirement and ways to manage your income. Still, one thing to remember is that there is no one-size-fits-all solution.

Working with a financial planner and/or retirement counselor can help you design a solution tailored to your needs and income. Ideally, start planning for retirement as early as possible and don't forget to rebalance your investment portfolio as often as necessary.

Thursday, 21 November 2019

Do you know about sequre act and How Could It Affect Your Retirement?

Capitalstars Investment Advisor
Could a sweeping new bill help the country overcome its retirement savings crisis?

That’s what some lawmakers envision with the Setting Every Community Up for Retirement Enhancement Act of 2019—better known as the SECURE Act. The far-reaching bill includes 29 provisions aimed at increasing access to tax-advantaged accounts and preventing older Americans from outliving their assets.

KEY TAKEAWAYS

The SECURE Act would make it easier for small business owners to set up “safe harbor” retirement plans that are less expensive and easier to administer.
Many part-time workers would be eligible to participate in an employer retirement plan under the bill.
The Act would also push back the age at which retirement plan participants need to take required minimum distributions (RMDs), from 70½ to 72.
The legislation, which passed overwhelmingly in the House in May 2019, remains tied up in the Senate.

A Troubled Retirement System
That there’s trouble brewing in the U.S. retirement system, which requires most workers to supplement Social Security with personal savings, has been widely acknowledged. According to data from the U.S. Bureau of Labor Statistics published in 2018, only 55% of the adult population even participate in a workplace retirement plan—whether defined benefit or defined contribution.
And even those who do are often woefully behind when it comes to investing part of their paycheck.
The wealth management giant Vanguard, for instance, revealed early in 2019 that the median 401(k) balance for those ages 65 and older is just $58,035. The SECURE Act aims to encourage employers who have previously shied away from these plans, which can be expensive and difficult to administer, to start offering them.
“With passage of this bill, the House made significant progress in fixing our nation’s retirement crisis and helping workers of all ages save for their futures,” Rep. Richard E. Neal (D-Mass.) said in a statement after the bill sailed through the House in May.

Major Provisions of the SECURE Act
The SECURE Act would tweak a number of rules related to tax-advantaged retirement accounts. For example, it would:
Make it easier for small businesses to set up 401(k)s by increasing the cap under which they can automatically enroll workers in “safe harbor” retirement plans, from 10% of wages to 15%.
Provide a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment.
Enable businesses to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.
Encourage plan sponsors to include annuities as an option in workplace plans by reducing their liability if the insurer cannot meet its financial obligations.
Push back the age at which retirement plan participants need to take required minimum distributions (RMDs), from 70½ to 72.
Allow the use of tax-advantaged 529 accounts for qualified student loan repayments (up to $10,000 annually).

Planners Evaluate These Changes
While retirement planner Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Md., cautions that the bill is far from a cure-all for the nation’s retirement challenges, she says several of the provisions represent a step in the right direction.
In particular, she notes, reducing the number of hours that employees are required to work in order to sign up for 401(k)s can help expand participation. “That’s helpful for part-time employees, whether they’re just entering the workforce or about to leave,” Cheng says.
And she’s in favor of adding flexibility to 529 accounts, which could be used to repay some student loans under the bill. That’s a good option, she says, for parents who may have fund remaining in an educational savings account and want to help a child who has already graduated. “The SECURE Act provides more flexibility,” says Cheng.
For David Rae, a financial planner based in Los Angeles, moving the starting age for required minimum distributions to 72 also makes sense, given that people are living longer than they did a generation ago. “Pushing back RMDs will help people make their money last just a little bit longer, especially since more of them need to work later,” Rae says.

The Bottom Line
While it’s still possible that the SECURE Act will go through some minor changes, the bipartisan support behind the legislation means it’s likely to end up passing in the Senate, too. Whether it ends up being a game-changer or not remains to be seen. But one thing is abundantly clear: The current rules aren’t allowing nearly enough Americans to put away the nest egg they’ll ultimately need for a secure retirement.

Wednesday, 20 November 2019

Look Out Some Tragic Retirement Cases

Capitalstars Investment Advisor
I am sharing one case and it is beneficial for all because everyone need to invest there money in right place and earn money so that it will help them after retirement and no need to depend on others.

In one case the couple who had run out of money were childless, and he had exhausted his money. Well almost. Who helped? The woman’s nephew had a spare house which he gave to his aunt and uncle. They lived in that house (rent free, even the maintenance was paid by the nephew) and they had money to eat and pay for the medical expenses. Then one day the uncle died. The nephew wanted to sell the house. She went off to a Senior Citizens Home. Suddenly the nephew found that she had Rs. 30L in bank fixed deposits. He did not know about that earlier. Neither did I. So in such cases, you never know the full truth. So the nephew paid the one time donation for the Senior Citizens home and she is paying the regular monthly charges. She is 83 and we are hoping that the 30L Rs. should last her lifetime!

In another case the old man ran out of money and the son was not (is not) in a position to fund the expenses of the Senior Citizens home. The son in law came to me saying ‘My father in law has Rs. 12 lakhs (this was about 8 years ago) and his expenses are Rs. 19,000 per month. I know this will go up and I have no clue what to do. Clearly the daughter and son in law were very well off and could afford to look after the old man. I said take the 12L and mix it with your portfolio. However, tell the old man that his money has been lent out at 20% per annum and hence they are able to afford to pay for his senior citizens home expenses. The 93 year old STILL BELIEVES that his “huge Rs. 12L” is feeding him. The home now charges about Rs. 70000 a month – including diapers, medicines etc. So the daughter says “interest rates have gone up” or “we put some of the money in shares”. However for the past 3 years those lies too have stopped. He is unable to comprehend what is happening. However, clearly he is outliving his money.

We have had such cases in the family too. Death of people who had no money to pay for cremation. Death of people whose family came to the hospital with Rs. 240 to claim the body, and do the cremation. The amount needed was Rs. 26,000. Obviously somebody from the family steps in and picks up the bill.

It is a real tragic story out there and it is very common to see such people. Even though they are still a small minority. We also need to remember that such stories do not come out. If you have such stories, please share them.

Tuesday, 19 November 2019

Investment options for retired person

Capitalstars Investment Adviser
Here are few investment options for the retired to provide for their monthly household expenses. The idea is to build a retiree portfolio with a mix of these products.
Retirement means the end of earning period for many, unless one chooses to work as a consultant. For retirees, making the best use of their retirement corpus that would help keep tax liability at bay and provide a regular stream of income is of prime importance. Building a retirement portfolio with a mix of fixed income and market-linked investments remains a big challenge for many retirees. The challenge is not to outlive the retirement funds - one retires at 58 or 60, while the life expectancy could be 80.

The idea is to build a retirement portfolio with a mix of these products. Here are few investment options for the retired to provide for their monthly household expenses.

Senior Citizens' Saving Scheme (SCSS)
Probably the first choice of most retirees, the Senior Citizens' Saving Scheme (SCSS) is a must-have in their investment portfolios. As the name suggests, the scheme is available only to senior citizens or early retirees. SCSS can be availed from a post office or a bank by anyone above 60. Early retirees can invest in SCSS, provided they do so within one month of receiving their retirement funds. SCSS has a five-year tenure, which can be further extended by three years once the scheme matures.
Currently, the interest rate in SCSS is 8.6 per cent per annum, payable quarterly and fully taxable. The rates are set each quarter and linked to the G-sec rates with a spread of 100 basis points. Once invested, the rates remain fixed for the entire tenure. Currently, SCSS offers the highest post-tax returns among all comparable fixed income taxable products. The upper investment limit is Rs 15 lakh and one may open more than one account. The capital invested and the interest payout, which is assured, has sovereign guarantee. What's more, investment in SCSS is eligible for tax benefits under Section 80C and the scheme also allows premature withdrawals.

Post Office Monthly Income Scheme (POMIS) Account
POMIS is a five-year investment with a maximum cap of Rs 9 lakh under joint ownership and Rs 4.5 lakh under single ownership. The interest rate is set each quarter and is currently at 7.8 per cent per annum, payable monthly. The investment in POMIS doesn't qualify for any tax benefit and the interest is fully taxable.
Instead of going to the post office each month, the interest can be directly credited to the savings account of the same post office. Also, one may provide the mandate to automatically transfer the interest from the savings account into a recurring deposit in the same post office.

Bank fixed deposits (FDs)
A bank fixed deposits (FD) is another popular choice with the retirees. The safety and fixed returns go well with the retirees, and the ease of operation makes it a reliable avenue. However, interest rate over the last few years has been falling. Currently, it stands at around 7.25 per cent per annum for tenures ranging from 1-10 years. Senior citizens get an extra 0.25-0.5 per cent per annum, depending on the bank. Few banks offer around 7.75 per cent to seniors on deposits with longer tenure.

Mutual funds (MFs)
When one retires and there is a likelihood of the non-earning period extending for another two decades or more, then investing a portion of the retirement funds in equity-backed products assumes importance. Remember, retirement income (through interest, dividends, etc.) will be subject to inflation even during the retired years. Studies have shown that equities deliver higher inflation-adjusted returns than other assets.

Tax-free bonds
Tax-free bonds, although not currently available in the primary market, can also feature in a retiree's portfolio. They are issued primarily by government-backed institutions such as Indian Railway Finance Corporation Ltd (IRFC), Power Finance Corporation Ltd (PFC), National Highways Authority of India (NHAI), Housing and Urban Development Corporation Ltd (HUDCO), Rural Electrification Corporation Ltd (REC), NTPC Ltd and Indian Renewable Energy Development Agency, and most carry the highest safety ratings. One may, however, buy and sell them on stock exchanges as they are listed securities.

Immediate annuities
Retirees could also consider the immediate annuity schemes of life insurance companies. The pension or the annuity is currently around 5-6 per cent per annum and is entirely taxable. There is, however, no provision of return of capital to the investor, i.e., the corpus or the amount used to purchase annuity is non-returnable. There are about 7-10 different pension options, including pension for lifetime for self, death to spouse and post that the return of corpus to heirs. The corpus is not returned to the investor under any pension option. The immediate annuity may not suit an investor who is capable of selecting and building his own portfolio. So it is better to diversify across different investments rather than invest in this scheme if you have the wherewithal to manage your own portfolio. This is also advisable as the returns offered on these immediate annuities are currently on the low side.

Monday, 18 November 2019

Bucket theory for Post Retirement Investments

Capitalstars Investment Advisor

I am a fan of the Bucket Theory of Investing for a Retiree portfolio. How this theory works is simple.

Let me take an example. Let us say that there is a young retired couple (as they say Young in the draw down stage). Let us assume that they have Rs. 10 crores in their portfolio, and have expenses of Rs. 1L a month, and Rs. 5L per annum in vacations expense.

Their money is normally divided like this:

Rs. 70L to 90L in bucket no. 1. This bucket is the very conservative bucket and has its money to be invested in bank fixed deposits, savings accounts, money market mutual funds, short bond funds, very short bond funds and cash at home. This bucket will NEVER EVER turn negative returns. If you invest Rs. 90L…it will never ever go below 90L…

 Bucket no.2 will have money for debt and some equity portfolio. It will have about 50L in a debt oriented hybrid fund. This category will have another say 50L in an equity oriented hybrid fund. Yes this looks aggressive but this couple now has 5 years expenses in bucket 1 and 6 years expenses in bucket 2. Providing for inflation lets say they have 9 years expenses in these 2 categories.

Bucket no. 3 will be more aggressive and will have an exposure to long term gilt funds, large cap funds, multi cap funds, small cap funds – and have a 10 year plus investment horizon. So say about 8 crores to be invested in this category. Do they NEED so much exposure to equity? Well that is a tough call to make. I would not put so much in equity.

For a retiree the MOST important thing is that the money should last LONGER than they last on the planet.

Assuming this was the asset allocation done in 2009, how would have I managed the withdrawals?

I would have done a SWP from the bucket no. 3 from 2009 till 2018 (at the time of writing the article). Which means the draw down is actually happening from the growth bucket. Given the rate at which equities have grown, today they would still have 2 crores in bucket 1, 2.5 crore Rs. in bucket no. 2, and about Rs. 15 crores in bucket no. 3.

Remember the couple is now 70 years of age, and has a very very aggressive portfolio. HOWEVER, they still have about 15 years expenses in the conservative buckets.

Now this couple can remove Rs. 4 crores from bucket no. 3 and buy an annuity from LIC. This would put Rs. 2L per month in their hand, reduce their exposure to equity, and give them a more safety cushion.

Now go back to where we started. Assume that the client had a rental income of Rs. 1L per month over and above the Rs. 10 crore mutual fund portfolio. How does it change things?

Well, then it is no longer a ‘retiree’ portfolio. It is an earning person’s portfolio. I would stick to the same portfolio, but at the age of 70, re-balance by taking some money off equity and putting it in more conservative boxes – 1 and 2.

I would also sell off my real estate at my age of 70 and buy an annuity from LiC. This will put more cash in my hand, and reduce my exposure to real estate – which is perhaps the most volatile asset class.

Sunday, 17 November 2019

Money planning differs significantly before and after retirement

Capitalstars Investment Advisor

Before retirement, it is about accumulating a sufficient corpus; subsequently, it is about generating a regular income stream

Understanding the difference between financial planning before and after retirement is extremely critical—more so for those planning to retire in the next 10 years.

For simplicity, let’s refer to Financial Planning before Retirement as FP-Before and Financial Planning after Retirement as FP-After in this article.

FP-Before focuses on the accumulation phase—the years before retirement. A good financial plan (before retirement) will make sure that you set a realistic retirement corpus target. It will also push you to invest enough to reach the target retirement corpus at the right time in the future. It goes without saying that in the years before retirement, there are other goals such as children’s education and house purchase too.

So, a good financial plan will take care of all these along with the goal of retirement. FP-After, on the other hand, focuses on how your existing retirement corpus will generate an income stream during your retirement years and how your expenses will be taken care of. It is, as mentioned earlier too, aimed at ensuring you do not run out of money before your years run out.

Sufficient retirement corpus

If you talk to any 60-plus person who isn’t ultra-rich, has retired and is living on income from retirement corpus, his/her concern would be, “Will my money last?”

Let’s take a small example to understand all this.

Suppose, at the age of 40, you decide (after procrastinating for several years) that you should begin saving for retirement seriously.

So you start with a small Rs 10,000 monthly investment in a 70:30 Equity:Debt portfolio. You increase the monthly savings amount by 10 per cent every second year. So you put in Rs 1.2 lakh each in first two years, followed by Rs 1.32 lakh in the third and fourth years, Rs 1.45 lakh in the fifth and sixth years and so on. You do this for the next 20 years till your retirement at 60.  Assume the returns you get on equity are the same as the actual annual Nifty 50 returns between 1999 and 2018. Debt returns have been assumed to start from 9 per cent and taper down to 7 per cent.

You retire with a corpus of Rs 1.28 crore. Is it enough? Let’s see.

To run the post-retirement scenario (from age 60 to 80), it is assumed that the starting expenses are Rs 50,000 a month (Rs 6 lakh per annum). And this increases by 7 per cent inflation every year. So, it’s Rs 6.42 lakh in the second year, followed by Rs 6.87 lakh in the subsequent year next and so on.

To generate an income for such levels of annual costs, the retirement corpus accumulated earlier (Rs 1.28 Cr) is deployed in a 30:70 Equity:Debt conservative portfolio. Equity returns fluctuate every year and debt returns start from 8 per cent and go down to 6 per cent.

Return assumptions important

If you do a more granular examination of the table above, the equity returns achieved in the first 3 years are 39 per cent, 15 per cent and 8 per cent. It seems like you retired in a good market. But what if you didn’t? That is, what if you retired in a bad bear market where the first three years delivered -10 per cent each? What would have happened then?

The money runs out before you turn 80!

This is, as you will agree, a financial disaster for a 79-year old who is going to live for at least a few more years if health permits.

And this is exactly what concerns financial planning after retirement. It tries to ensure that your corpus does not run out due to poor returns or high expenses.

Before retirement, you should not withdraw from retirement portfolio (but rebalance). So, a string of bad years doesn’t affect your portfolio that much, as you get to average down the cost of your investments, if nothing else. But after retirement, you have to withdraw from your portfolio to meet your expenses. And if this withdrawal happens in bad years, the corpus would deplete very quickly as there are the twin blows of withdrawal and market-related decline to the portfolio.


Thursday, 14 November 2019

1 in 3 boomers makes this critical retirement mistake

Capitalstars Investment Advisor
The risk is real.

Far too many workers are taking unnecessary risks with their retirement savings by putting too much of their money into stocks, according to Fidelity’s Q3 2019 Retirement Analysis, released this week.

“Although an increasing number of workers are leveraging target-date funds to keep their asset allocation on track and help manage the risk to their retirement savings, Fidelity’s Q3 analysis found that many 401(k) account holders had stock allocations higher than those recommended for their age group,” the report concluded.

For boomers, that’s particularly true. Indeed, 37.6% of boomers had more stock than advisable in their 401(k) — and that includes 7.9% of them who are 100% in equities — compared with just 18.6% of Generation X and 17.2% of millennials who hold more stock than is advisable, Fidelity’s analysis revealed.

“There’s a risk to this, especially for boomers,” Meghan Murphy, a vice president of thought leadership at Fidelity, tells MarketWatch. “The concern there is they are already in or approaching retirement and need to be thinking about guaranteed income streams. There’s not a lot of time for recovery.”

So how much is too much when it comes to equities? That depends on, among other factors, age and when you want to retire. For Fidelity’s calculations on whether people were overexposed to equities, they used their Fidelity Freedom Funds calculator. Using that, for example, they’d recommend that someone who is 55 now, and wants to retire in 10 years, should have 42% in domestic equity funds, 28% in international equity funds, 30% in bond funds and 0% in short-term funds.

There’s also a common rule floating around that you should subtract your age from 100 and put that amount into equities; so if you are 35, you’d have 75% in equities, for example. But many experts say that advice isn’t great.

“The old formula of 100 minus your age going into stocks is no longer the best plan for most people,” says certified financial planner Bobbi Rebell, host of the Financial Grownup podcast and co-host of the Money with Friends podcast. “In fact any plan that does not take into account financial goals and risk tolerance is outdated. And any percentages that someone chooses can be adjusted- not just in how they are invested, but when the time comes, in how much comes out. If an investment isn’t earning as much, people can adjust their lifestyle in order to maintain financial security.”

Mitchell C. Hockenbury, a financial planner at 1440 Financial Partners in Kansas City, says he doesn’t like the rule either: “I believe it all depends on what the money is to be used for and when. Many clients aren’t retiring at 65, not because they can’t afford to, but because they are good at what they do and enjoy it. So age-based rules of thumb on equity percentages don’t work so well.”

If someone does find themselves overexposed to equities, Rebell says they “can and should move some money out of equities but they just need to be comfortable with the adjustment in the timeline to meeting their financial goals.”



Wednesday, 13 November 2019

7 Best Retirement Plan Options

Capitalstars Investment Advisor
According to the Social Security Administration, 9 out of 10 people over age 65 receive Social Security. On average, Social Security counts for about 39% of total income during retirement. Social Security can’t cover all your financial needs during your retirement years. Having a solid retirement plan that will give you a financially secure retirement is based on having a bundle of various income sources best suited to meet your goals. With so many options, how do you select the right types of retirement plans?

1. Pensions

Having A Pension Is The First Thing Most People Think Of They Think Of Retirement Income.  Many People Have Earned A Pension At Some Point During Their Working Careers. It Requires Very Little Involvement Because The Employer Contributes The Money On Behalf Of The Employee. You Work, And When You Retire, You Collect Your Pension. These Days Pensions Are Less Popular And Less Generous. They Are, However, Still Quite Common For Government Jobs. The Most Prominent Downside Is That There Are No Cost-Of-Living Adjustments So Your Pension Payment Will Always Be The Same Year After Year During Your Retirement.

2. Defined Contribution Plans

Defined contribution plans are now offered by most employers. There are four primary defined contribution plans, 401k, 403b, 457 and TSP. If you decide to participate in a defined contribution plan, you pick plan options that best suit you and decide how much to contribute. Many employers that have defined contribution plans offer matched contributions as well. For a certain portion that you contribute, your employer will contribute as well (depends on the employer).

3. Individual Retirement Accounts (IRAs)

4. Nonqualified Deferred Contribution Plans

The Nonqualified Deferred Contribution Plan (NQDC) is similarly structured like a Roth but allows greater contribution amounts. For those with higher incomes who have other retirement plans but have reached their contribution limits, the NQDC is an option. Deferring a portion of your income for a later time is appealing as it will grow tax-deferred and will be tax-free in the year you become entitled to it. With an NQDC you have no income restrictions or contribution limits. Another appealing feature is the vast investment options available with an NQDC.

5. Guaranteed Income Annuities

A Guaranteed Income Annuity provides a guaranteed income when you retire. Essentially with this plan, you buy you a fixed monthly payment for your retirement. You can take the income payments as frequently as monthly or quarterly or receive annual payments. It is an investment which you should consider carefully and it’s recommended that you use highly rated companies with a long establishment. Single-Premium Immediate Annuity allows you to invest and take immediate income payments. The deferred-income annuity (DIA) with a cash-refund option is more flexible because you can decide when to start the income payments. Also, the cash-refund option lets you take out the money back.

6. Cash-Value Life Insurance Plan

Many financial advisors highly recommend investing in Cash Value Life Insurance plans because of the ability to accumulate value in a tax-free vehicle. Buying a cash value insurance plan allows you take a loan against your death benefit which can serve as income during your retirement. For example, a $500,000-dollar policy could provide you with a loan of $250,000 and can be paid out as a lump sum or in several withdrawals. The loan is repaid from your death benefits, leaving your beneficiary with the remaining $250,000. The loan is tax-free and can serve as an excellent retirement income for an unemployed spouse as well as providing life-insurance coverage.

7. Real Estate

For those who don’t mind managing and the work involved with real-estate investments, it can provide a substantial income flow. This holds especially true for those who haven’t saved much and are fast approaching retirement. Keep in mind, if you have mortgage-debt the property income should cover all your costs including mortgage payments, tax, and property maintenance. A financial advisor such as a Registered Investment Adviser (RIA) with experience investing in real estate can provide valuable guidance should you choose to invest in real estate. They can help you balance the risk with a property that can give you the highest revenue gains.

Tuesday, 12 November 2019

Questions to Ask Your Financial Advisor About Retirement

Capitalstars Investment Advisor
Whether you're just starting to save for retirement, or you've been investing for years, it can be a smart move to turn to a professional for guidance. But before you choose one, here are 10 questions to ask a financial advisor about retirement.

KEY TAKEAWAYS

A financial advisor can make recommendations and provide guidance to help you plan for retirement.
You pay an investment advisor at an hourly rate (fee-only advisors), a fixed annual retainer, or a percentage of your assets.
Make the effort to find the right financial advisor—you could be working with them for years.

Before you decide on a financial advisor, make sure you'll be getting the services you require and the advice you need. The best way to do that is to ask the right questions. If the answers are unsatisfactory or incomplete, you may want to keep looking. Your retirement is far too important to leave to chance.

What do you like about your job?

No matter what type of professional you're looking for, it helps to find someone who likes their job—and who isn't just punching a clock.
Ideally, your financial advisor will enjoy helping people and have a passion for all things finance, whether that's helping you budget, pay down debt, manage healthcare costs, develop tax strategies, build wealth, and ensure you have enough income in retirement.

Which services do you provide to your clients?

Your financial advisor should offer services that will help you solve the problems you may face in retirement. That includes helping you:

Figure out how much you need to retire, and set savings benchmarks to get you there
Pick investments that match your risk tolerance and time horizon
Develop a long-term investment strategy
Rebalance your investment portfolio
Manage your expenses now and in retirement
Make plans for long-term care
Create a favorable tax strategy

What are your qualifications?

In general, you’re looking for someone with advanced financial and retirement-planning education. Designations to consider include Certified Financial Planner (CFP®), Chartered Financial Consultant (ChFC®), and Chartered Life Underwriter (CLU®).

Another credential high on the list is Retirement Income Certified Professional (RICP®), which involves retirement-specific planning training and education. Verification sites such as Designation Check can help you search for a qualified professional, or verify that the certification he or she claims is accurate.


Are you a fiduciary?

"Fiduciary duty" is a legal term that means that one party has the obligation to act in the best interests of the other party. You want your advisor to be pointing you toward investments that are in your best interest—not theirs.

It’s great if the two coincide, but yours should come first. A hint: Fee-only advisors are more likely to assume fiduciary duty than those who work on commissions.

How will I compensate you?

It’s important to know upfront how you’ll compensate a potential retirement advisor. You should ask whether you’ll pay hourly, per transaction, or annually, based on the value of your assets. Other advisors may be compensated through commissions on the products they provide.

This isn't to say you should necessarily avoid someone who charges more. A high-priced advisor may well be worth the fee you pay if the results are valuable to you. Be wary of commission-based compensation, however, as it could mean the advisor will steer you into buying products with higher fees.

The Bottom Line

Asking the right questions and listening carefully to the answers you receive helps you decide if there’s a good match. If you’re part of a couple, both partners should feel comfortable with the financial advisor. Philosophy, fees, qualifications, and more all come into play.

Remember, choosing a retirement advisor is not an easy task. You may have to interview several candidates before you find the right one.



Sunday, 10 November 2019

Investing for Retirement

Capitalstars Investment Advisor


You know what is Retirement – it is when you accumulate a sum of money which allows you to lead a life you want without having to EVER WORK AGAIN for monetary gains. It can happen at different ages for different people.

Investing?
When you put money into the bank, buy bonds, shares, mutual funds, ETFs, buy real estate  or a even a partnership in a business, gold, art, antiques etc. with the goal of getting your money back plus earning a profit or interest, that’s investing. You could make a slight distinction by saying that those that pay interest are savings and those that give an uncertain return are called investment.  These different options are known as asset classes.

What are Asset Classes?
An asset class is a group of assets that react in a similar fashion to a variety of external financial forces.   Asset classes come with unique risks and opportunities and you need to understand them both. What are examples of asset classes?

* Shares, Stocks or equities
* Bonds or fixed income
* Cash or cash equivalents
* Real estate or businesses interests
* Commodities
* Animals – like horses for racing

How each asset class works?
If all shares are part of the equity asset class, that means they are all subject to similar forces.  Not all shares go up or down at the same time in the same proportion. But if the economy heats up, that improvement is going to help most shares. The tide rises. The outcome will be far different depending on the shares (or equity mutual fund).  But a growing economy will move most shares in an upward direction. However, a rising economy will also drive the interest rates up. This will soften the bond prices which was created on a lower interest rate! However the accrual funds will start doing well as the yields start improving!

Then you need to understand how each asset class works and responds to the nudges of the economy.

Friday, 8 November 2019

रिटायरमेंट के बाद इन चार निवेश विकल्पों से आता रहेगा पैसा, भविष्‍य की नहीं रहेगी चिंता

 capitalstars
वेतन में से 12 फीसद इसमें जमा होता है। इसकी ब्याज दर 8.65 फीसद है।
इसमें सालाना न्यूनतम निवेश 6000 रुपये कर सकते हैं।

नौकरी के बाद हर इंसान को पैसों की ज़रूरत होती है। क्योंकि खर्च तभी हो पाएगा जब आमदनी का जरिया बना रहे। नौकरी पूरी होने के बाद हर कोई चाहता है कि उसके पास पैसे आते रहें और उसकी जिंदगी सुकून से गुजरे, आराम से गुजरे। अगर आप भी यह चाहते हैं तो बचत और निवेश के कई विकल्‍प हैं जिनकी मदद से आप रिटायरमेंट प्‍लानिंग कर सकते हैं। हम इस खबर में ऐसे ही चार विकल्‍पों के बारे में बता रहे हैं।

नेशनल पेंशन सिस्‍टम या NPS

नेशनल पेंशन सिस्‍टम में निवेश से आप आयकर अधिनियम की धारा 80सी के तहत 1.5 लाख रुपये तक की कटौती का लाभ पा सकते हैं। इसमें 6 अलग-अलग फंड में निवेश कर सकते हैं। इसमें सालाना न्यूनतम निवेश 6,000 रुपये कर सकते हैं। इसमें निवेश की कोई ऊपरी सीमा नहीं है।

EPF

EPF रिटायरमेंट के लिए एक अच्‍छी बचत योजना है। बता दें कि वेतन में से 12 फीसद ईपीएफ में जमा होता है। इसकी ब्याज दर 8.65 फीसद है। हालांकि, वेतन पाने वाले ही इसका फायदा उठा सकते हैं।

PPF

धन की बचत के लिए PPF बेहतरीन विकल्प है। इसमें पैसा जमा करने पर ब्याज मिलता रहेगा। अगर आप डेट में निवेश करना चाहते हैं तो पीपीएफ एक बेहतरीन विकल्‍प है। बता दें कि इसका ब्याज टैक्स फ्री होता है। आप बैंक ऑर पोस्ट ऑफिस से पीपीएफ खोल सकते हैं।

रियल एस्टेट

रिटायरमेंट के लिए निवेश योजना में रियल एस्टेट अच्छा विकल्प है। रिटायरमेंट के बाद प्रॉपर्टी किराए पर है तो इससे एक नियमित आय मिलती रहेगी। इसमें निवेश रिटायरमेंट के पहले और रिटायरमेंट के बाद की जा सकती है।

 capitalstars

Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk.

Capitalstars is a SEBI registered investment advisor. Schedule a call with Capitalstars investment consultant or drop a mail at backoffice@capiltalstars.in and we will get in touch with you. You may also call us on 9977499927.


We will be happy to help you plan your retirement. ☺

Get more details here: 
Mcx Tips, Derivative-Free TrialIntraday Stock tips
Call on:9977499927
* Investment & Trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance.

Thursday, 7 November 2019

रिटायरमेंट के बाद चाहते हैं चिंतामुक्त जीवन!

 रिटायरमेंट के बाद चिंतामुक्त जीवन कौन नहीं चाहता, लेकिन इसके लिए जीवन के शुरुआती दौर में सही फैसले लेने की जरूरत होती है। जानिए आपको ऐसे जीवन के लिए क्या करना चाहिए।
 capitalstars
वो दिन गए जब 60 की उम्र में रिटायर होने का विचार जीवन की संतोषजनक उपलब्धि जैसा लगता था। आजकल तो रिटायर जीवन काफी अधिक सक्रिय होने लगा है। अब लोग पहले की तुलना में काफी अलग तरह से रिटायर होते हैं और उनके मन में रिटायरमेंट जीवन के लिए काफी उत्साहजनक और आकर्षक चित्र भी होता है। 

पुराने दिनों में तो लोग अपने सामाजिक सुरक्षा लाभों और पेंशन के भरोसे जीवन बिता लेते थे। लेकिन अब यह बात लागू नहीं होती है क्योंकि आजकल लोग अपनी रिटायरमेंट जीवनशैली का खर्च उठाने के लिए सिर्फ अपने सामाजिक सुरक्षा लाभों पर पूरी तरह निर्भर नहीं होते। वर्तमान दौर में रिटायरमेंट के बाद भी एक व्यक्ति को स्थाई आमदनी की जरूरत पड़ती है और यह जरूरत अतिरिक्त मेडिकल बिलों की मौजूदगी में बढ़ भी सकती है। 

चाहे आप जीवन के नए उद्देश्य पूरे करना चाहते हों या एक आरामदायक और सुकूनभरा जीवन बिताना चाहते हैं, इसके लिए पर्याप्त आर्थिक सहारा बेहद जरूरी है। इससे आपको एक नियमित आमदनी मिलती है, जो आपके मेडिकल बिलों, रोजमर्रा के खर्चों की पूर्ति करती है और यह भी सुनिश्चित करती है कि आप अपना जीवन स्तर बरकरार रख सकें।  

हालांकि, इस स्थिति को हासिल करने के लिए सबसे बड़ी कमी यही रह जाती है कि हम पहले से इसके लिए योजना नहीं बनाते। एक तनाव मुक्त रिटायरमेंट जीवन सुनिश्चित करने के लिए जरूरी योजना काफी पहले से बनाना होगा। अपने करियर के शुरुआती दौर में ही रिटायरमेंट की योजना बनाने से आपको इतनी बड़ी पूंजी जुटाने में मदद मिलेगी कि आप रिटायर होने के बाद भी नियमित आमदनी हासिल कर सकें।

आवश्यक सुविधाओं वाला एक पेंशन प्लान खरीदने से आप इसका रिटायरमेंट कवरेज और इसके लाभ हासिल कर सकेंगे। ऐसी ही जरूरत के लिए आधुनिक होल लाइफ यूलिप्स आपकी मदद कर सकता है। आइये जानते हैं कि यह कैसे काम करता है। 

क्या होता है यूलिप्स?
होल लाइफ यूलिप्स इन्वेस्टमेंट लिंक्ड इंश्योरेंस प्लान होते हैं, जो सुरक्षा के साथ निवेश लाभ भी पेश करते हैं। यह दोनों फायदे आपको 99 से 100 वर्ष की उम्र तक मिलेंगे। यह ऐसे प्लान होते हैं जो ना सिर्फ आपकी पॉलिसी के लाभार्थियों को मृत्यु लाभ प्रदान करते हैं, बल्कि आपके रिटायरमेंट के दौरान आपके रोजमर्रा के जीवन की जरूरतें भी पूरी करते हैं।

होल लाइफ यूलिप्स में आप 18 से 100 वर्ष की उम्र के बीच कभी भी प्रवेश कर सकते हैं और किसी भी उम्र में इनसे बाहर भी निकल सकते हैं। आप यह भी तय कर सकते हैं कि कितनी उम्र तक आपको पैसे बचाने, या जुटाने हैं। यह काम आप अपने रिटायर होने तक कर सकते हैं। लेकिन होल लाइफ यूलिप्स प्लान में भी 5 वर्ष की लॉक-इन अवधि रहेगी जिसके बाद आप अपनी पूंजी एक सिस्टमैटिक विदड्रॉल प्लान के जरिये बाहर निकाल सकते हैं, जो कि आपके रिटायरमेंट जीवन में एक नियमित आमदनी का काम करेगी।

लोगों को होल लाइफ यूलिप्स एवं इसके विभिन्न फायदे पेश करने वाली कुछ कंपनियां हैं बजाज एलायंज – लॉन्गलाइफ गोल, एचडीएफसी लाइफ– क्लिक2वेल्थ, कैनरा एचएसबीसी ओरियंटल – इन्वेस्ट 4जी – होल लाइफ।
 capitalstars

होल लाइफ यूलिप्स के फायदे विस्तार से जानिये
मृत्यु लाभ
अपने निवेश पोर्टफोलियो में होल लाइफ यूलिप्स रखने का प्रमुख फायदा यह है कि आपको 99 वर्ष की उम्र तक लाइफ कवर मिलता है, जिससे पॉलिसीधारक या बीमा सुरक्षा प्राप्त व्यक्ति के परिवार के लिए लंबी अवधि तक सुरक्षा सुनिश्चित होती है। बीमा सुरक्षा प्राप्त व्यक्ति की मृत्यु होने की दुर्भाग्यपूर्ण स्थिति में उसके परिवार को आर्थिक मुआवजा प्रदान किया जाता है।

यह मुआवजा बीमित व्यक्ति द्वारा कमाई जाने वाली आमदनी के नुकसान के एवज में दिया जाता है। इसका मतलब यह हुआ कि यह प्लान जीवन भर के लिए जोखिम कवरेज देता है और आपकी पॉलिसी की कोई एक्सपायरी डेट नहीं होती। आपकी मृत्यु कभी भी हो, आपके लाभार्थियों को कुल सम एश्योर्ड यानी बीमा राशि मिलना निश्चित है।  

आंशिक/पूर्ण निकास सुविधा (टैक्स मुक्त)
यह सुविधा खासतौर पर आपको किसी भी तत्काल आर्थिक जरूरत को पूरा करने लिए धन निकासी की सुविधा देने के लिए तैयार की गई है। फिर चाहे यह जरूरत आपके बच्चे की उच्च शिक्षा हो या फिर उसकी शादी। लेकिन इस सुविधा का लाभ पॉलिसी के 5 वर्ष पूरे होने के बाद ही उठाया जा सकता है। यह अवधि पूरी होने के बाद आप चाहे जितनी बार आंशिक निकासी करें या अपनी जरूरत के हिसाब से पूरी राशि एक बार में भी निकाल सकते हैं। इसके साथ ही आपके द्वारा निकाली गई पूरी राशि टैक्स मुक्त होती है यानी आपके रिटायर होने के बाद आपको टैक्स मुक्त आमदनी मिलेगी।  

परिपक्वता लाभ
आपके रिटायरमेंट पर मिलने वाला इसका परिपक्वता लाभ पूरी तरह से उस बात पर निर्भर करेगा कि आपने यह पॉलिसी किस उम्र में शुरू की है। उदाहरण के लिए, अगर आप 60 की उम्र में लगभग 5 करोड़ की पूंजी जुटाना चाहते हैं, तो आपको 35 वर्ष की उम्र तक होल लाइफ यूलिप्स में निवेश शुरु करना होगा।

इसके बाद आपको 60 वर्ष की उम्र तक रु. 28000 प्रति माह निवेश करने की जरूरत होगी। पॉलिसी के परिपक्व होने पर, आपको फंड वैल्यू के साथ अगर कोई टॉप-अप फंड वैल्यू है, तो वह भी मिलेगा। फिर आपके पास यह परिपक्वता लाभ एकमुश्त या सेटलमेंट ऑप्शन का इस्तेमाल करते हुए व्यवस्थित भुगतान के रूप में लेने का विकल्प होगा। 
 capitalstars

आधुनिक यूलिप्स में बेहद कम चार्जेस होते हैं
इसका यह मतलब हुआ कि होल लाइफ यूलिप्स में निवेश शुरू करने से पहले आपके इससे जुड़े कुछ शुल्कों को ध्यान में रखना होगा। यह शुल्क पॉलिसी की पूरी अवधि के दौरान चुकाए जा सकते हैं और अपने लिए सबसे उपयुक्त यूलिप्स इंश्योरेंस ले सकते हैं।

यूलिप्स में चार प्रमुख शुल्क लिये जाते हैं – प्रीमियम एलोकेशन चार्ज, फंड मैनेजमेंट चार्ज, पॉलिसी एडमिनिस्ट्रेशन चार्ज और मॉर्टेलिटी चार्ज। आईआरडीएआई के नए दिशानिर्देशों के बाद अब यह शुल्क लगाए जाने के तरीकों में कुछ बदलाव हुए हैं। ऑनलाइन मार्केट में यूलिप्स लॉन्च होने के बाद प्रीमियम एलोकेशन और पॉलिसी एडमिनिट्रेशन चार्जेस लिये जाते और इस खरीदारी में कोई मध्यस्थ या एजेंट बीच में नहीं होता।

इसके अलावा, परिपक्वता तिथि पर पॉलिसी में से काटे गए मॉर्टेलिटी चार्जेस और पॉलिसी एडमिनिस्ट्रेशन चार्जेस की कुल राशि फंड वैल्यू में जोड़ दी जाती है। लेकिन इसके लिए सभी प्रीमियम चुकाने जरूरी हैं। आपसे लिये गये इन दोनों चार्जेस की राशि को प्लान के फंड्स में बराबर अनुपात में आवंटित कर दिया जाएगा। इसमें आपसे लिये गए कोई अतिरिक्त मॉर्टेलिटी चार्जेस और इन चार्जेस पर मौजूदा टैक्स नियमों के हिसाब से लगाए गए टैक्स शामिल नहीं होंगे। इसके साथ, यूलिप्स प्लान पर समय के साथ फंड मैनेजमेंट चार्जेस भी 1.35% प्रति वर्ष तक सीमित कर दिये गये हैं। 

किसी भी वक्त पेंशन राशि बढ़ाने/घटाने की छूट
आपकी जरूरतों के हिसाब से या फिर किसी वित्तीय इमरजेंसी के वक्त आप कभी भी अपनी पेंशन को बढ़ा या घटा सकते हैं। यह उन लोगों के लिए एक खास फायदा है जो जीवन में बाद के चरणों में थोड़ी अतिरिक्त सुविधा चाहते हैं। हालांकि, अगर आप अपने रिटायरमेंट के लिए लाइफ इमिडियेट एन्युइटी जैसे पेंशन प्रोडक्ट्स चुनते हैं, तो आपके पास होल लाइफ यूलिप्स की तरह अपनी पेंशन घटाने या बढाने का विकल्प नहीं होगा। 


 capitalstars
Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk.

Capitalstars is a SEBI registered investment advisor. Schedule a call with Capitalstars investment consultant or drop a mail at backoffice@capiltalstars.in and we will get in touch with you. You may also call us on 9977499927.


We will be happy to help you plan your retirement. ☺

Get more details here: 
Mcx Tips, Derivative-Free TrialIntraday Stock tips
Call on:9977499927
* Investment & Trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance.


Tuesday, 5 November 2019

The 3 main challenges in retirement planning and how to overcome them

 capitalstars
There are three primary challenges in
retirement planning.
Do I have enough money to retire? This is easily the most asked question in retirement planning. When I wrote about the need to take charge of your 40s, friends asked for a method to evaluate whether they have enough. Let’s consider some pointers. How much is enough is a tough question to answer. The easier approach is to look at the current spending levels and assume that the same lifestyle has to be maintained in retirement. If someone spends Rs 50,000 a month on an average, in current rupee terms, and if we assume that such a person will live 30 years into retirement, we can use a thumb rule to ask if they have a retirement corpus of Rs 50,000 x 12 x 30, or Rs 1.8 crore.

Purists will argue we have not considered inflation. We can counter-argue we have also not considered the growth in the corpus. Since we are not going to use up the Rs 1.8 crore in one shot, but use only a part of it, we would invest the rest and thus it will appreciate it. The Rs 100 we have saved today (the retirement corpus or that bundle of wealth we will draw upon after retirement) will grow in value if it is invested. If the return on investment matches or exceeds the rate of inflation, it would be better not to complicate calculations.

The real problems in retirement planning are not about corpus. If we have an aggressive saving habit and have enough income to not touch it while working, we are all likely to retire with enough wealth. In this day and age when most middle-class incomes leave behind a surplus for saving, building an adequate amount of wealth to be able to retire comfortably is not a challenge.

There are three primary challenges in retirement planning. The first is whether our corpus is invested well to grow aggressively in value. The second is whether our income needs in retirement are well thought through and provided for. The third is whether the amount we draw from the corpus and the amount we keep invested is well balanced.

Consider the retirement saving challenge. Many believe that the contribution to PF is a good way to save. The best thing about PF is the employer contribution. When our saving is matched by the employer, we have more money to work for us. However, the biggest pitfall of this investment choice is that it is a long-term investment meant to appreciate in value over time, but is mistakenly invested in income assets that generate a defined return.

This mismatch of objectives has not been adequately addressed due to misconceived notions about risk and diversification. Even the NPS has not been able to popularise the simple idea that an index fund invested in equity shares of the largest listed companies would have provided a better return on investment. This shortchanging of the longterm interests of the saver is unfortunate.

While we may not able to change the PF rules, we can apply the principles of diversification to the rest of our savings. A simple index fund or ETF —a Nifty-based or Sensexbased product—is the simplest, easiest and lowest cost route to building a default retirement corpus. There is no need to select a fund, monitor it, and chase returns. Simply investing in the index is adequate to build a decent retirement corpus that leverages the power of equity to enhance its value.

Second is the question of income needs in retirement. Many of us believe our retirement will mean a more frugal lifestyle. That may not be necessary, nor should it be the objective. We may have made specific plans to keep our expenses in check. Owning a house by the time one retires is a good plan to keep rents in check. Whether that house should be a four-bedroom flat in a society that charges a huge amount of money to maintain the pools, lifts and tennis court, is a question you have to answer honestly.

The mix of expenses will change in retirement: you might spend more on new interests; on travel and tourism; on health and medicare; on gifts and giveaways. It is not always easy to estimate these expenses, and some of them may be unexpected. Many of us are not used to severe budgeting and planning exercises and are rightly spooked about running short. The limit to our expenses is set by the third factor in that list.

The third element in retirement planning is the much-feared drawdown. What this means is the amount of the corpus we will actually end up spending in retirement. The simplistic assumption many make is that they will invest the corpus, and live on the interest it earns. That is harmful thinking in at least three ways: One, you leave the corpus unchanged in value, investing it to generate income for a long period of 30 years. Such a long-term asset should be invested better. Second, you use the income and leave behind the principal. That might not be the ideal plan for wealth you earned all your life. Your children may not need that largesse. Three, you don’t use all that money when you draw on it, so obsessing about keeping the corpus intact is actually foolhardy.

View your corpus as one large pool. You draw some of it—income or growth won’t matter—and you let the rest stay invested and grow in value. Your expense as a percentage of that corpus should be a small single-digit percentage. If your corpus is Rs 1 crore and your annual expense is Rs 6 lakh, you are drawing down 6%. That is quite a large number, and you may run out of it as you age. Keep that number small, at 3-4%.

That thumb rule at the start is based on this math: When you apply that simple rule of 30 times your spend as your corpus, ensure it is available to use as we just elaborated. If that wealth is locked in your house, you save on rent but earn no income. That won’t help. Hence that 30% rule: 30% of your money in the property you have anyway bought; 30% in equity for appreciation and inflation protection; 30% in income assets for your expenses and 10% as a buffer. Most of us should do well with these rules.


 capitalstars

Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk.

Capitalstars is a SEBI registered investment advisor. Schedule a call with Capitalstars investment consultant or drop a mail at backoffice@capiltalstars.in and we will get in touch with you. You may also call us on 9977499927.


We will be happy to help you plan your retirement. ☺

Get more details here: 
Mcx Tips, Derivative-Free TrialIntraday Stock tips
Call on:9977499927
* Investment & Trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance.

आप जानते हैं नेशनल पेंशन स्कीम (NPS) क्या है.

Capitalstars Investment Advisor इस योजना में अपने रिटायरमेंट के बाद के जीवन के लिए निवेश किया जाता है. व्यक्ति के निवेश और उस पर मिलने ...