Category Archives: Retirement

Retirement Planning

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Greetings from PenguWIN

Across the globe, including US, Germany, UK and India, surveys conducted among retired people, have revealed one common response – “We should have saved more for retirement”

Retirement is one of the most critical financial goals that needs a corpus (sum of money) to be built, for a period of time (like 25 years from age of 55), adjusted for inflation (money value going down). In rupee terms, a person who is 35 years old today, planning to retire by the age of 55 (2039), needing 50,000/- per month in today’s value, at an inflation rate of 6%, would need a sum of approx. Rs.1,60,000/- per month in 20 years or 3.21 times of what is required today. If he earns a return of 7% after taxes and the inflation rate continues to be 6%, his retirement fund needs to be Rs. 4.28 crores by 2039 (retirement year), assuming he lives till the age of 80 years (2064). i.e. 25 years post retirement age. This value would be higher if he lives for more than 80 years.

Hence, a contingency need to be built so that he does not outlive the corpus. On the contrary, if he lives lesser than 80 years, the wealth can be passed on his beneficiaries.

Retirement Planning has the potential to become an enormous problem for Indians, with increasing life expectancy. People are diagnosed with lifestyle ailments including Diabetes, Blood Pressure, Cardio problems at an early age. However, they would continue to live long due to advancements in the field of medicine which means increasing health care costs. Unlike western countries where hospitalization and prescription medicines are covered, health insurers in India cover only hospitalization and regular medication including insulin, tablets, regular tests need to be borne by us. On the other hand, the retirement age is declining in private sector with availability of young talent pool resulting in people getting relieved of their services by age of 50-55 and is expected to decrease further, in future. Essentially, this means that one needs to accumulate a substantial corpus in 20+ years of their active earning life which should help sustain for 25+ years.

Government servants who joined service before 1 Jan 2004 were fortunate enough to be eligible for pension, that is adjusted for inflation. For the rest, retirement planning has to be done meticulously (including the Govt. servants for whom the pension may not be sufficient) so that they can lead an independent life with esteem and not dependant on their children or relatives or friends.

While the retirement corpus number might look daunting, please remember that these are numbers for future and adjusted for inflation. To quote an example, I remember having a plate of Idly in Saravanan Bhavan for about 2 to 3 rupees in late 80’s and if I were told that the same would cost about 40 Rs. in 2019, I would have had an extra plate then thinking that I can afford 3 more rupees and may not be able to afford that high a price in 2019.  But today we continue to consume Idlis paying 40 rupees.

Given the variety of products that are available in the market including Bank and Postal FDs, Senior Citizen Savings Scheme, Post Office Monthly income Scheme, RBI bonds, Corporate FDs, Non-Convertible Debentures (NCDs), Public Provident Fund, Employee Provident Fund, National Pension System, Annuity, Mutual Funds, Direct Equity Investments, it is very much possible to plan and build a portfolio for retirement. It’s just that the planning and accumulation process has to start as early as possible where the money to invest on a periodic basis would be less than try to start late in the game when the monthly investment requirement would be significantly higher.

Most investors want to do today what they should have done yesterday.  - Larry Summers 

<Blog # PenguWIN 1071 – Retirement Planning>

Deepavali 2018 and SIP for My Retirement

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Deepavali is a special day for most of us. During my childhood days, Deepavali used be my favourite day in the entire year, more precious than my birthday, last day of school closing for annual leave or other festival days. Its not the new clothes, savouries, sweets, meet and greet family and friends that made the difference but the Crackers! Things have changed a lot in the past 2 decades, when the interest level for crackers has waned significantly, even among small children. Ironically, the courts decide when the crackers are to be burst, day, date and time and mostly, the entire family gets glued to the idiot box!

Retirement

Dhanteras is celebrated all over India on the 5th Nov, today and marks the beginning of Deepavali Celebrations! People pay respect to Lord Kubera and Goddess Lakshmi during this time. There is a long-standing custom of buying gold during Dhanteras. It is believed that a symbolic buying of gold, silver, jewellery, vehicles, property will act as a protection against ill will and bring good luck to every family member

“Goal based” investment has been gaining traction over a period of time. Among goals including buying a new house, medical corpus, world tour, kids’ higher education, retirement planning and creating a corpus for a trouble free (atleast w.r.t. to money) Golden age period is extremely critical. Various research studies show that Indians, relatively, attribute less importance to this when compared to people in other nations

We, typically give importance to our current needs like house, overseas vacations, kids education, marriage and tend to start thinking about retirement only in late forties or early fifties. In the current competitive world where disruption is the order of the day, unless we start thinking about retirement (I am referring to the cash flow part and not sitting in an easy chair and reading a newspaper free of work pressure!), early in our life, its not going to be a smooth ride. Unlike the government and public sector jobs, people working in private sector, professionals, business face the threat of stable jobs till 58 or 60 years. Retired people struggling with penury is becoming common now and more so since we have very little support from the government.

During this week from today to Friday, we are having a awareness drive to invest for retirement by initiating a SIP in Mutual Funds to emphasise the importance of Retirement goal and also use the auspicious period of Deepavali to protect us during the Retirement phase. I am anticipating every investor to contribute a new SIP this week (we have 8 already created even before publishing this note as and when I interacted with a few investors today) with the theme of “SIP for My Retirement”  

SIPs can be as low as 1000/- per month and I want to use the opportunity for everyone to participate. Whether its 1000/- or a 1 lakh SIP does not matter but inculcating the practice to start building the retirement corpus is. While a SIP of 1000/- rupees or 1 Lakh may not be sufficient for retirement depending on our lifestyle, needs among others and requires a separate retirement planning session to figure out the corpus, we can be sure that everyone of us have started thinking about retirement.

I am not initiating a business drive with this and the intent is to have maximum number of people to participate rather than the business volume. I will be publishing the number of Individuals who participated in this initiative, not names or volume, next week. The statistics will be interesting to see how many can be nudged to start thinking and investing using this opportunity. Please don’t worry about the size of instalment and the key is to participate for the cause of “My Retirement” Read it as your retirement (and not mine by creating new business 😊). Its probably a little late in the day but I was reading an article today morning which dwelled into challenges faced by retirees and took the cue from that.

Request you to send in a mail or message indicating the amount per month and we will work on setting up the plan with goal marked as “My Retirement”

<Blog # PenguWIN 1063 – Deepavali and SIP for My Retirement>