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Got plans for the future – but don’t know if you can afford them? Like to start saving – but you’re not sure how or when or how much?

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There are six simple steps that can help you sort out your finances and plan for your retirement.

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know yourself save little and often invest for the future protect yourself get advice

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Don’t forget to check back for updates October 2007
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you need to tackle those two everyday elements: spending and debt. Balancing our finances The key things that affect our finances are what we earn. ‘I want to have lots of money’ – obviously we’d all like that. it’s important that you don’t just ignore the problem: you should learn to manage your debt. we all need to plan for the future. Before you can focus on saving for the future. you have direction – how else are you going to know what to aim for? Of course. Once you start looking at your spending like this. But it’s really hard to know just where to start. if you are finding this overwhelming. The basics • Look at your spending and know where your money goes each month • Manage your debt – if you need help. Once you start thinking about what you want to achieve. Over time. finally. Once it’s all written down. you’re going to find that you have a mixture of short-term and longer-term goals. Put a figure and a date on it. you need to plan how to achieve them too. talk to your financial advisor on your advisor. it puts you in control of your finances – and in a position to think about how to make your money work for you. Fill in the retirement planner and find a financial adviser to talk over your options. It’s not much use to say.six-steps. That’s why the first of the six steps is to take control of your finances – to sort out your current position. 2 Produced by Aviva India www. you can identify where you can make savings. However.in . to control our spending and. you should have a clear overview of how much you have to spend on fixed costs (eg commuting. what we’re spending and how much we’re saving. but don’t be tempted to cut back on your long-term goal • Think about a plan to achieve your goals.take control Take control of your finances and plan for your future. Setting goals Goal setting is an essential part of taking control of your finances. to reduce our debt. More about that later. It’s the balance between these elements that determines just how healthy our position is. And if you find that you’re regularly spending more than’s coming in. to increase our savings. you could try noting down absolutely everything you spend in a diary for a month – you might be surprised. Start by asking yourself some questions: how much money do you have coming in and where does it go each month? To keep track of your spending. and it becomes something you can work towards. what we owe. Tackling your spending You can’t have financial control without managing your cashflow – what’s going in and out of your account. • Set financial goals to give you direction • Your long-term goal should be to save money for your retirement • Short-term goals are things like saving for a deposit or a holiday • Be realistic and balance your aims. The key things about goals is that they should be specific and achievable. rent/mortgage) and what spending you should be prioritising (eg credit card and loan payments). work out your priorities and think about making a plan for the future. we should be looking to earn more. Like it or not. Once you have goals.

save up for a deposit on a house. 3 Produced by Aviva India www. Admittedly. (If you’ve got credit card debts and this isn’t one of your short-term goals. Once you’ve taken steps to control your debt and spending. True or False Financial planning is nothing to be scared of. Which are necessary and which ones would just be nice to have? For instance. In fact. Once you’ve got an idea of what you’re aiming for. Credit card debt is expensive so this one should be a priority.com. they could still take you five years or so to achieve. The retirement planner is available on www. In fact. your home and savings – to get you there. True Just follow the six steps. another useful. and worked out what you’re aiming for. that should definitely be one of your short-term goals. well. Although goals like these are short term when compared with planning for your retirement. so you need to plan for them too. It’s up to you to make it less so. As you’ve probably realised.six-steps. this does feel a little abstract. nothing’s set in stone. build up some savings for a rainy day or pay off a loan. a potential problem here is that you might have quite a few short-term goals. That’s because delay is costly. Short-term goals are rather easier to visualise – maybe you want to buy a new car. But when it comes down to it. Look at the short-term ones. your route to financial security in your retirement. Don’t forget to review your goals – and any plan you’ve made – if your situation changes. we’re all going for pretty much the same thing: enough money to have the life we want when we retire.six-steps. long term.in . you’re ready to start thinking about a plan to achieve your goals. the more you’ll have to save.Long-term goals are hard to get to grips with because they can seem so. though unshowy. perhaps one of your shortterm goals is to pay off your credit card debts. Don’t be tempted to cut back on the long-term goal of saving for your retirement. The longer you put off saving for your long-term needs. But remember. put it on the list immediately!) You should be settling your debts before you think about saving for anything else as it’s possible that you’re paying more interest on your debts than you’d be receiving on your savings. This means you’ll have to do some thinking about your priorities. The sooner you get down to it the better. you can start developing a long-term investment plan – built around a pension. Fill it in and take it to a financial adviser. You’re losing money. short-term goal would be to talk to a financial adviser about this. What you need to do is to establish a long-term investment target so that you’ll have a picture of what your income will be when you retire.

evaluate the degree of risk involved and then decide whether it’s something we feel comfortable with. Step 2 helps you understand what’s at stake so you can work out how you really feel about money. because prices can fall relatively quickly. As we can’t eliminate risk from our lives. Here’s a quick guide to the relative riskiness of various ways of investing your money. consider the risk involved and then decide what you feel comfortable with • Lower-risk products like savings bank accounts are best suited to shortterm saving • For long-term savings. The risk is you might not get the return you expected – or even that you end up losing money. On the other hand. your money will be secure – and so will any interest that you make. you need a better return on your money. For long-term investments. 4 Produced by Aviva India www. it’s also rather risky. and you might lose your money • The longer. Savings bank accounts If you put cash into a savings bank account. Why does any of this matter? Well. as it ties up your capital. However. the higher the risk. they’ll pay you back at a certain rate each year.six-steps. Bonds Bonds are like an IOU issued by the government or a company – in return for your money. what’s important is that we can consider our options realistically. if you save every month trough a necurring deposit account in bank. such as an emergency fund. their value can go down as well as up. before you launch into any financial decisions. if you’re saving up for wedding expenses or a dream holiday.know yourself Are you a risk taker or do you like to play it safe? Big spender or penny-pincher? Careful planner or impulse buyer? It’s all down to your financial personality. risk is going to play a big part in your thinking about financial planning. you could get a really great return for your investment. As much as we all like to demand guarantees on everything from public safety to the bank holiday weather forecast. The real issue with short-term savings is that inflation eats into their value because they offer very little growth potential. It’s also the right place for any money you need to be able to get at quickly. Savings bank accounts are a good option for short-term savings – for instance. And that chance is always going to be there. The rule-of-thumb with investing money is the higher the return. Naturally. Bonds aren’t risk free – as their value can fall and the company that issues them could go bust – but they do have greater growth potential than ordinary savings accounts. your mony is not only secured and so also the interest you earn And the power of compound interest can be substantial. you need to know yourself and understand how you really feel about risk. Property Investing in bricks and mortar – whether it’s your own home. so you should be looking elsewhere. the better for long-term investments as this gives you time to recover from any losses • Don’t put all your eggs in one basket – it could be dangerous to have all your long-term investments in one place. commercial property or buy-to-let – can bring great returns if the property market grows. look at higher-risk investments such as shares and bonds but remember. Risk is simply the possibility that something negative will happen. Your money isn’t easily accessible so bonds are a long-term investment. It’s also a long-term investment. The basics • Think about your savings options realistically. similary.in . most things in life involve a degree of risk.

Weighing up the risk While it’s up to you to evaluate risk and to know if it’s something you can live with. For instance. It’s best to have a range of investments and spread your risk. This means many retirees are keeping more of their assets in higer-risk equities rather than bonds because they need their assets to continue to grow so that they have enough to live on for 20 or 30 years in retirement. if you put everything you have into property you could find yourself in trouble if the housing market falls – particularly if you stretched yourself to the limit when you were investing. If you’re in your twenties and investing in shares for the long term (say. the greater the opportunity to ride them out. Low-risk products are best suited to short-term savings and higher-risk ones to longterm saving. over the long term. if you really can’t cope with the fact that you might lose some money at some point. True or False All investing is risky Most things in life are risky and that includes investing. For those risky. making them risky.Shares The value of shares can go down as well as up. guard against a knee jerk response when you’re thinking about risk. always make sure you discuss how you feel about risk so the adviser can recommend products that are right for you. long-term investments. The balance of your investments is another important thing to think about. There could be big long-term potential if you can handle the short-term risk. So. there are some things that should influence your decision. then look into the risk inherent in each type of investment. but the longer your money is invested. they’ve traditionally been the option that makes the most money for investors – by a very long way. True 5 Produced by Aviva India . the longer ‘long-term’ is the better. Start by knowing what risk you can accept. But health care developments and lifestyle changes mean more of us are living longer. The balance between your investments shouldn’t be static throughout your life. You should have the right sort of investments for the job. Don’t put all your eggs in one basket – it could be dangerous to expose yourself too much to one kind of risk. Of course past performance isn’t a guide to the future. Of course. You need time to give yourself a chance to recover from any losses. If you talk to a financial adviser. it’s a risk well worth considering. But you should also know yourself and what makes you uncomfortable. then shares aren’t for you. This is because they are tied to economic performance and over long periods of time – say 10 years – this more than offsets the impact of inflation and the periodic falls in stock markets. You can’t predict the fluctuations of the stock market. for over 20 years). you’re giving yourself plenty of time to make up any potential losses. Otherwise. However.

after a year you’ll have your original Rs. in fact. How much? That’s up to you. For savings accounts. You need to consider your current income and outgoings. And start as soon as you can. then you probably shouldn’t think about saving until you’ve paid them off. This works out how many years it will take for your savings to double – simply divide 72 by the interest rate you’re getting. Financial boffins have cooked up a useful formula based around rate of return: the rule of 72. The basics • Short-term saving is about saving for things over the next five years • Three things will affect your savings: rate of return. the inflation rate is higher than the rate of interest you’re getting on your account. Your money needs to be both accessible and secure. if you put Rs. over time. Short-term saving is about funding goals you hope to achieve in. I n te r e s t r a te 6% 72÷6= 12yrs 4% 2% 72÷4= 18yrs 72÷2= 36yrs 0 10 20 Years 30 40 But is it a good idea to make a deposit and forget about it? Well. Confused? Well. Rate of return Rate of return describes the growth you’ll get on your savings. This effect becomes more noticeable over the long term and is one of the reasons why your long-term savings tactics should be different from your short-term ones. how much you put in and how often you do it • Rate of return is how much interest you’ll make – the higher the rate the better • How much you put in is up to you. The amount in your account might be increasing. The interest you’ll get over a year on an account is expressed as a percentage. You’re forgetting about inflation. it all comes down to the interest rate. If you put aside a little bit of money each month. think little and often. The higher the interest rate. but do it regularly – even small amounts will build up • Saving each month gets you into the habit and you’ll benefit from compound interest too • You’ll need a low-risk account with a high rate of return that you can access when you want to without paying penalties This table shows how it works. So. with most savings accounts. (This is the simplified version.six-steps. if. It’s affected by three things: rate of return. no. 100. plus Rs. but its value might not be growing at the same rate. then you’ll find you can actually buy less with your money.) So it makes sense to pick a highinterest savings account that will give you a good rate of return. what you’re saving for and your budget. the next five years. That’s because it’s likely that you’ll be paying more interest on your debt than you’ll get on your savings. you’ll be taxed on that interest. You may be congratulating yourself for starting to save but. such as credit card debt. If you’ve got debts. how much you’re putting in and how often you do it. the sooner your savings will double. 5 of interest. Save little and often – that’s the secret of step 3.100 into an account which pays 5% interest. 6 Produced by Aviva India www. you’ll be losing money.in .save little and often When it comes to short-term saving. it will soon add up to something more substantial. say.

Rate of return A high rate of return is obviously a good thing for building up your savings. True or False It’s good to start saving when you’re young True You’re never too young to start saving! The sooner you start the better.000 10. It’s all to do compound interest. it will be Rs.What you should do is going to be dependent on your personal circumstances – your age and the scale and type of your debt. And the next month. your savings will rise to Rs. Say you put Rs. The interest the second month is Rs. It’s something you should discuss with a financial adviser. It assumes that you’re putting in Rs. That’s Rs. These gains may seem small. the more compound interest can work for you. There are several savings opportunities. easy access and a high rate of return. As always. Always check the terms. So. and that your savings are earning 5% interest. there are three things to look out for: low risk. the post office savings schemes offer different types of savings accounts.000 0 10 20 Years 30 Interest earned Savings Where to save The most painless way to save is to set up a monthly direct debit from your savings bank account to your recurring diposit account. Access If you’ve met your savings target. Tax-free savings With most savings accounts. How often? To make the most of your short-term savings. Besides your bank. Take a look at bank interest rates on various accounts and for various time periods. Low risk Low-risk savings accounts are the best place for short-term savings.000 a year. You should do your homework by checking out interest rates and how easy it is to access your savings.000 70. an emergency fund needs to be as secure as possible – you might need it tomorrow. but think how they could build up over time – adding to your savings.000 20. 2. commit to saving regularly.000 50.six-steps. You’re gaining interest on the interest. A m o u n t 60. few financial institutions also regular income and fixed term savings instruments. Here’s how it works. 1. 2 in interest. you’ll have to pay tax on any interest that you make. There are a lot of accounts to choose from and that’s where the other factors come in. 80.104. Even a small amount every month will build up over time.000 40. putting off saving is a big mistake. it’s up to you to check the terms of the account to see if you’ll be penalised for withdrawing or transferring your money. That way money will go into your account before you have a chance to spend it – with luck you won’t even realise that it’s gone. Some of them offer tax concessions. If your savings account has an interest rate of 2% a month (remember. if you desperately need to get at your emergency fund.000 30. The earlier you start. 100 into your savings bank account. they will quote an annual rate which will be very low compared to this example ).in . So where should we be stashing our savings? When you’re deciding on the best home for your short-term savings. 102 in the first month.04.04 – more than the month before. 7 Produced by Aviva India www. you don’t want to have to give sixty-days notice. For example. This chart shows how the compound interest effect really kicks in the longer you have to save. as compound interest will make your savings grow. It makes sense.000 Rs. it’ll put a dampener on things if you have to pay a penalty to withdraw your money. doesn’t it? Tax rules may change in the future. Likewise. Recurring deposit Accounts don’t always make it easy for you to get at your money.

Whatever you’re thinking.six-steps. who’s going to pay for it? Step 4 tackles the big one: saving for retirement. These investments are long term. you will almost certainly get tax relief on your contributions. bonds and. We have to face it: we need to be saving too. yes. Now how are you going to get there? Don’t put all your eggs in one basket Say ‘retirement planning’ and most people will immediately think of pensions. But pensions aren’t the whole story. And most of us aren’t doing anything like enough. it’s likely that you’ll have more time to do it as we’re living longer. you should be looking at two main areas: investments (shares. your home and investments such as shares and bonds • The three main types of pension are the EPS pention. It may be one of the elements that makes up retirement income but it’s not much It’s not going to buy a lot by the time you retire – it might not even be around. pensions) and property. Balancing your investments is vitally important. fill in the retirement planner on www. The basics • The EPS pention is important but you shouldn’t rely on it for everything • You’ll need to build up long-term savings for financial security in retirement • Work out your savings target • Don’t put all your eggs in one basket – spread savings across pensions. In fact. If you just want a rough idea. it doesn’t currently increase in line with inflation and it might not even be around in a recognisable form when you retire. When you divide your assets between savings and 8 Produced by Aviva India www.in . multiply whatever income you want by 20. past performance isn’t a guide to the future and they do carry the highest risk. Shares have traditionally produced better returns than any other type of investment. True or False The EPS pension won’t be enough True Too right It’s not much. We can’t rely on the state pension – we need to be saving too. occupational pensions and personal pensions • If you contribute to a occupational or personal pension. com.invest for the future It’s essential to invest in long-term savings. tax efficient and put your money where you can’t get your hands on it before you retire. So who’s going to pay for it? The Employee Pention Scheme (EPS) state pension won’t be up to it. your employer may well make contributions too • Your home is an important taxefficient investment. And most of us aren’t doing anything like enough. How do you see your retirement? Not really thought about it? An opportunity to travel a bit? More importantly. print it out and take it to a financial adviser who will help you work out a more detailed target. The first thing you need to do is to work out a savings target.six-steps. However. Otherwise.

Investments We’re not talking about savings bank accounts here. such as mutual funds are the low risk way to invest in equities.six-steps. you have to be prepared for the times when you can’t get tenants – you’ll have to be covering that mortgage yourself. What’s more. For instance. What everyone does agree on is that most of us aren’t putting enough into our pensions. Not only are their returns low but.property. Instead. Every time the inflation rate goes up. In theory. which can provide you with additional rental income but this is subject to tax.six-steps. a little more complicated. Property-as-investment has its drawbacks. and inflation can cut into the purchasing power of the income they provide. Property Owning your own home is one of the key investments you can make. You can also invest in buy-to-let property. this is pretty straightforward. 9 Produced by Aviva India www. including savings and pensions. You can’t say that about a pension. a good idea for most people. They also promise to pay you a certain rate of return each year. a few companies have failed to pay up what they owe. Bonds are a bit like IOUs – they’ll take your money and promise to pay you back. Corporate bonds are issued by companies and gilts by the government. you’re spreading any risk and giving yourself the best possible chance of a secure retirement. in the long term. Bonds do involve risk. over the years. you’re only making 2% interest. it’s best to aim for a balance of assets. it’s an investment you can live in too. True or False My property can replace a pension Let’s take a look at each of the elements. It’s also worth remembering that pension contributions are tax efficient. as you might expect. The confusion partly stems from the various types of pension around – essentially. House prices can rise dramatically. you should also be investing in a pension. Collective funds. as you don’t have to pay capital gains tax if you sell it. if your account pays 4% interest and inflation is at 2%. You save throughout your working life. there’s a pension to provide you with a regular income. historically. However. Your return comes not only from any growth in value of the shares themselves but also from dividends – regular payments companies make to shareholders. Many people invest in shares – also known as equities – either through collective funds like mutual funds or directly in individual companies. They are run by professional fund managers so you get the benefit of their expertise and spread your risk across everything they’ve chosen to hold in their fund. If you do go in for buy-to-let. Tax rules may change in the future. This balance shouldn’t remain the same throughout your life – check with your financial adviser. Of course. House prices can fall too.in . especially if you’re only going to hang on to them for a few years. property’s an important part of your financial planning. Their value can go down as well as up. As shares fluctuate in value. they’re a high risk investment. You may find that a lot of your money is tied up in a single investment. There’s more about pensions on www. If you’re investing for the long term. what you actually get for your money will fall. That makes your home a tax-efficient investment. you’re giving yourself time to recover from dips in the stockmarket. In practice. they’ve given a far better return than any other type of investment. of course. However. And when you retire. how the money is saved and how they provide you with money once you retire. rising inflation will eat into the value of what you’ve saved.com. And. False Your home is an important long-term savings vehicle but you’re right not to rely on it to fund your retirement. And you can’t get your hands on the money until you retire. it is. Employee Pension Scheme occupational and personal – as well as who pays into them. Property is a relatively inflexible investment. look to bonds and shares.

Insurance can protect you when things go wrong. Could you replace all your things if they were stolen or damaged by fire? Think about it… how much would it cost to replace all your CDs and DVDs? What about your furniture? Your sofa may be old and saggy. Yes. Or if you suddenly lost your income because you were ill and couldn’t work. and you might reckon that you could easily spend the money for all those premiums on something a lot more fun. but a new one would cost several thousands. such as jewellery. Don’t get so carried away with sorting out your future that you forget what might be just around the corner. just think about how you’d cope should you have to replace all your stuff in one go. you’d definitely appreciate that boring old insurance policy should you need to call on it. You can read about some of the simple things you can do in the manage your tax feature. You should check your lease. When you buy an insurance policy. Well. your money and your stuff. The basics • Always shop around for insurance • If you’re a homeowner. just to make sure. If you’re renting. you’ll need buildings insurance • Contents insurance protects your possessions – don’t under insure • If you have a car. subsidence and flood. your landlord will most likely have this one covered.in . There’s another side of protection to consider and that’s protecting what you have from the taxman. To see that value destroyed is one risk you don’t want to run. Even if you’ve paid off the mortgage. your mortgage company is going to insist on buildings insurance – protection for your home and the land it stands on against risks such as fire. you are paying to be insured against specified risks for a specified time. That’s where the fifth step comes in. the policy will pay out. it’s common sense. If the worst happens during that time. the computer or the TV. Insurance certainly has a boring reputation. Your possessions It’s really easy to underestimate just how much stuff we’ve got. 10 Produced by Aviva India www. Yes… it’s time to talk about insurance. your home is probably going to be your most valuable asset.six-steps. This isn’t sharp practice. your family.protect yourself Look after yourself. you have to have motor insurance • Income protection insurance or critical illness cover could help pay the bills if you’re ill and can’t work • Life insurance pays out a tax-free lump sum to your dependants when you die • If you pay into a pension you’ll almost certainly get tax relief on your contributions • Buying your own home is a taxefficient investment But what should you think about protecting with insurance? Your home If you own your own home. and you are covered by the terms of the policy. And we haven’t even started on the expensive one-off items yet.

All things considered. it protects the other people involved. if anything happens to your car. However. too bad.six-steps. Life insurance is sometimes available through pension schemes. The most basic sort of motor insurance is third-party – should you have an accident. in the long run it could save you money. So. Critical illness cover gives you a taxfree lump sum should you develop a serious illness such as cancer. whether you’re renting or a homeowner. contents insurance is definitely worthwhile. And don’t underestimate another benefit: that all-important peace of mind. Third party. As usual. Most people under insure. but there are some restrictions on the types available. you should consider life insurance. fire and theft insurance is an obvious step up. This pays out a lump sum when you die. some sort of motor insurance is a legal requirement. Tax rules may change in the future. 11 Produced by Aviva India www. You should also check your existing policies and see if they cover you for the right things– don’t just automatically renew that contents insurance every year. how would they cope financially if you died suddenly? This all might sound rather gloomy but we do need to think about such things. Fortunately. One type of work. you should check the small print to see which illnesses are covered – not all of them will be. Again. You won’t be covered. Options well worth thinking about are ‘new for old’ cover and protection against accidental damage and for your belongings outside the home. Fully comprehensive insurance covers you for everything and is always the best bet if you have a new car. If you have people financially dependent on you. Although insurance can seem like an unnecessary expense. Yourself What’s the most important thing you need to protect? You! How would you pay the mortgage/rent if you became ill and unable to work? If you have dependants. Your car If you’ve got a car. insurance companies are more than happy to provide some options. so think about how much it would cost to replace your stuff and make sure you’re covered for the right amount. as you might expect). it’s just a question of what kind. Going this route means that you’ll get tax relief on your premiums (subject to certain limits.in . you should speak to your financial adviser to get further information and see what’s the best option for you.

12 Produced by Aviva India www. So. it’s probably a good idea if this is the first time you’ve really taken control of your financial planning. Go with what makes you feel comfortable. • Tied agents can only recommend products from one financial services company. You’ve got different types of adviser to choose from. • Always do your homework – you’re the one who has to make the decisions • Take your paperwork to the meeting and check your plan afterwards • Ask questions – if you don’t feel comfortable. The sixth and final step brings on the financial advisers and looks at how to make the relationship work for you. walk away. Perhaps you want to talk it over with someone. That’s fine too. • Insurance Brokers are going to give you the most choice. and making pension decisions is only a part of it. you can quote the six steps in your sleep. They can recommend products from any company.in . The basics • Financial Planning Adviors are tied agents working for insurance companies • Brokers can recommend products from any company and must offer you the option of paying via a fee • Tied agents recommend products from a specified range • Tied agents can only recommend products from one company • Make an appointment just to talk to an adviser before you commit to anything • You can leave your contact details in this website to get personal recommendation from our advisors. the financial plan’s sorted and you feel confident about putting it all into practice? Great! But maybe that’s not quite how it is. What you need is a financial adviser. You’re always going to face a lot of options when you plan for the future. You can leave your contact details in this web site to get personal recommendation from our advisors. So. In fact. Although you might find it reassuring to talk to friends and family.get advice Talk to a financial adviser about your plan and how to make it happen. they’re not really the ones you should be asking for financial advice. if you’re planning longterm investments or for a major change in your life (such as retirement). you should think about getting some advice. or if you have a lump sum to invest.six-steps. • Tied agents can recommend products from a specified range of financial companies.

what kind of a return you’re looking for and how you feel about risk.six-steps.com comes in. how much you can save or invest.six-steps.The more work you’ve put into thinking about a financial plan. then that’s a great basis for talking to an adviser. And that’s where www. You can also do your homework by exploring some of the links in the info centre on www. Don’t forget to save the information in the retirement planner. 13 Produced by Aviva India www. you should have an idea of what you want to achieve. tried out some of the tools and started to fill in the retirement planer.in . Ideally. the more you’ll get out of talking to an adviser.six-steps. If you’ve worked through the six steps.com. and go back to update it regularly – particularly when your circumstances change.

six-steps.Notes 14 Produced by Aviva India www.in .

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