Retiring Soon? What's Your Strategy?

In a country like India, where the economy is growing slowly and the inflation is at an all time high, retirement planning is a tough job. In the giant financial product marketplace, one might end up buying a financial product that might not yield an amount sufficient for post-retirement life. The marketplace is filled with numerous retirement products for investment in India. But before we dig deeper, let us get familiarized ourselves with two phases of retirement planning: accumulation and distribution. While the accumulation phase requires the accumulation of the amount required for post-retirement needs, the distribution phase comes into picture when the accumulated amount needs to be aptly distributed to fulfil the financial needs arising in later life.  

Pre- and Post-Retirement Investment Products

1. New Pension Scheme (NPS): Having delivered annual returns of around 10% in the last couple of years, NPS is a perfect product for retirement. Although this product is mandatory for government employees, it is open to all individuals across the country. NPS comes with a mandate to invest in an annuity insurance plan worth 40% of the total amount accumulated through NPS at the time of retirement.
2. Employee’s Provident Fund (EPF): With a fixed rate of return per annum (8.5%) and tax deductions of up to Rs. 1 lakh, EPF is the most common and popular saving instrument in India. Although EPF does not impose restrictions like mandatory annuity purchases, it is strongly suggested to keep investing in the EPF account (by means of EPF transfers in case of job change) and not close/settle it upon leaving the job. This will help earn guaranteed return as an outcome of compounded investments.
3. Equities: Instruments like stocks and mutual funds, which offer equity investment, are unbeatable when it comes to providing maximum returns. For retirement needs, make sure to pick products under these instruments for the long term (10 years or more). However, keep a check on your products and review them annually to identify poor or non-performing products and replace them with better ones.
4. Monthly Income Schemes (MIS): Getting a regular income is of paramount importance to someone who is retiring. Schemes that offer monthly income are called monthly income schemes and are provided in the form of funds by means of investment in mutual funds. Such schemes are also offered by post offices at an interest rate of 8.4% per annum and a maturity period of 5 years. MIS requires the investment of a lump sum. The corpus thus accumulated is further invested in numerous financial instruments to ensure a fixed monthly income.
5. Pension Plans:Much like the MIS, pension plans also require you to invest a lump sum amount in exchange of monthly income. These plans are offered by insurance companies and under mutual funds; however, the rates charged by insurance companies tend to be higher than those charged under mutual funds.

With most of the investment products like NPS (which requires compulsory investment in annuity insurance plans) and pension plans requiring early and long-term investments, it is advisable to start early savings for retirement. This can be anytime between 2 and 3 years after one gets his/her first job.

Why to Use Child Plan Calculator?

The cost of a two-year MBA course in the Indian Institute of Management, Ahmedabad, has risen 400 percent since 2007 and if the same trend continues, it will reach a stupendous Rs. 95 lakhs, according to a report in the Economic Times. Can you imagine how much you would need to save if you wish to send your child to such reputed institutes? An approximate estimate for the amount of funds required by you to meet your child’s advanced education can be estimated using tools like a child plan calculator.

Need for Child Insurance Plans

Rising education costs and high aspirations of parents warrant the need to build a substantial kitty to fund the massive costs of education, co-curricular activities and other requirements. Add to this the cost of their marriages and the total amount required for your children’s welfare shoots up further. What to do in such a scenario? Invest in a variety of options like a child plan and make some investments that offer good growth.

The exact amount of funds that you will need and can invest now can be decided with the help of insurance tools like child plan calculator and retirement planning calculator (if you are looking for an investment for building a post retirement fund). Using these tools is very easy as all you need to provide is the current age of your child, the age at which you need the funds, your current savings, the type of education which you want your child to pursue, the expected tuition fee and the inflation rate. By using this information, the tool provides you with the amount of funds that you need to save. Now, you have a final target and can calculate the amount of monthly savings that you need to target.

Child insurance plans can be regular premium plans or single premium plans. In case of the former, annual premium payments need to be made until the child turns 18 and after that, the insurer pays back the amount in installments or in one go, depending on the terms of the policy. Such policies generally cover the life of the parent and in case the parent dies before maturity, the premiums are waived off but the sum assured is paid on maturity.

While some child plans are money back plans, others are unit linked policies, which invest in the market to create wealth for the policy holder. Most insurance companies offer varied options with different risk profiles to cater to the requirements of all types of investors.

Apart from offering life cover, several child plans come with options to add various types of riders, so that you can combine the goal of saving for your children with other aims like taking accident insurance or critical illness insurance.

4 Things to Ensure You Have a Fun & Relaxed Retired Life

Your ability to save and invest while you are working will decide whether you can lead a happy retired life or have to struggle to meet even your regular expenses post retirement. The key to successful investing is to start as early as possible and save from the day you start working. The compounding effect of your early savings will prove to be very fruitful and go a long way in helping you build a safe and healthy corpus for your retired life.

Use the Right Tools to Plan

By using tools like a retirement calculator or a pension plan calculator, you can easily determine the amount of funds you would need post retirement and how much need to invest to achieve that goal. The earlier you start, the better it will be for you to build a reasonable corpus to spend your retired life in a relaxed manner, without any kind of financial worries.

Tips for Retirement Planning

Here are some tips that will help you enjoy your retired life:

• Always keep a specific percentage (say about 10 percent of your earnings) for saving purposes and invest them in long term investment options. This could be done via investment in a public provident fund or pension funds. Increase the amount saved with every increase in your salary. This will help you deal with the impact of inflation on your post retirement expenses.
• Avoid using the funds kept aside for your retirement to fulfill any other needs or expenses that come up during your everyday life. Also, try to use only a small percentage of your retirement corpus in the first few years of retired life. This is important to ensure that you don’t outlive your savings and have to struggle for funds in the later years of your retired life. You can use a retirement calculator to keep track of the savings too.
• Ensure that you have repaid all your loans or debts before you retire. Also, modify your investment from equity to debt as your age increases or you near retirement so as to reduce the risk involved.
• Invest in a health insurance plan so that you do not need to borrow from your retirement kitty to pay hospital and medical expenses. Buy a plan that offers you the maximum coverage, since getting health insurance is difficult as you age and develop chronic ailments like high blood pressure and diabetes. Buying a term insurance or life insurance plan is also recommended to protect your dependent family members from any kind of financial worries if something untoward happens.

So, using retirement planning calculators, saving consistently, investing wisely in insurance products and repaying all debts before retirement are the prerequisites to a happy retired life.

Home loan facts: 5 things to know before you sign up

We list the five most important facts that you must do before you formally apply for the home loan.

Are you about to apply for a home loan? We have only three activities to suggest: Research, research and research! Consider the following five points to get you started:

1. Understand what loan eligibility means. Banks and lending institutions offer about 60 times your current income as the home loan amount. You may have a high salary, but that may not automatically translate into a high loan eligibility. The lending institution will consider the prominent components of your pay package, while setting aside the LTA and Medical Allowance. The eligibility is then calculated on the basis of the remainder amount. Use a loan eligibility calculator to find your eligibility.
2. How much EMI is too much? Normally, any EMI that exceeds 30% of your finances is not ideal, and an amount exceeding 50% is a stretch. Your monthly budget must not be strained owing to the EMI payable. Use a home loan EMI calculator to compute how much you will pay the lending institution every month basis the loan amount, tenure and interest charged on it. You can keep manipulating the figures using the home loan calculator to arrive at a figure that suits your budget.
3. A pre-approval is important – here’s why. Normally, people apply for a home loan after they have found a suitable property. This is a good approach, but taking a pre-approval is even better. Taking a loan approval tells the lender that you are a serious buyer who is about to take a loan in the next few months. The loan approval checks your personal eligibility and helps you understand how much your borrowing limits are.
4. An expert must see the property documents. It is always a good idea to appoint a lawyer to study the property documents. This is important to verify the document’s layout, authenticity, chain of agreements (in case of two or more past buyers), permissions (in case of under-construction projects), titles and freehold, etc. Get any lacunae corrected before you apply for the loan – unsuitable properties are not liable for home loans. Rectifications at a later date will result in delays.
5. The interest rate is everything. Ultimately, the interest charged on the loan amount decides the monthly outgo. A lower rate of interest helps you save more money. You can opt for a floating rate of interest if the market rates are expected to slide in the next few months. Another good measure to save money is to repay the loan early, i.e. before the tenure ends.

Term Plan – The best New Year gift for your family

Leave the expensive home appliances and new mobile phones – get your family the greatest gift ever, a term insurance plan.

Whenever we think of celebrating a milestone or gifting a special someone, we often think of buying big, expensive presents. While that is a great thought, the impact of that gift is only short-lived. After all, how long can one revel in the thought of a new mobile phone or a TV set?

But some gifts have a much more enduring value. They have a permanent good effect and they can be veritable life savers. We are referring, of course, to buying a term plan.

The best present this season – a term insurance plan

Your family may initially be puzzled if you whip out a term insurance policy document and say ‘Surprise!’ But a few minutes of explanation will help them realise the value of your decision to buy a term plan. If you are unsure of how to explain it to them, allow us to give you a few pointers:

• A term plan is an insurance policy that has a high sum assured and a low premium payment.
• It pays a substantial amount of money on termination. Hence, even if you are absent from your family’s world in the future, the term plan money can pay all their expenses and also for such things as children’s education, house maintenance costs and also repay loans.
• The term insurance nominees get the entire sum assured on termination of the plan, based on the pay-out option you choose.
• Once the plan tenure ends, the plan is terminated even if the policy holder outlives the plan.

How to buy term plans online

All reputed insurers today encourage prospective clients to buy term plans online. The applicant must fill out an online form, use the term plan premium calculator to find the best combination between sum assured and premium payable, and proceed to pay for the plan. Once the first premium is paid and processed, the term plan is deemed purchased.

Buying a term plan online also results in cheaper premiums. The premiums can be paid online every year and the insurer sends a reminder about due dates.

The premiums paid for the term plans are liable for tax benefits under Sec 80C of the Income Tax Act, 1961.

And so, it makes the best gift this season…

What would you rather choose – a gift that gives your loved ones momentary happiness, or a gift that protects their future with a substantial sum of money? We bet it is the latter option – after all, wouldn’t you want somebody to watch over your family when you are no longer around to protect them?

A term plan is that protector!