Planning your Retirement the smart way

Foreword
Dear friend, If you are reading this guide – then Congratulations! You already understand that Financial Planning can help you get your retirement life or second life in order. You want to take a planned approach to achieving financial success and be independent even in your non-earning years. But building a Financial Plan for your retirement can seem confusing – not only are you too close to the project since it involves your own finances, but also it is a complex process which takes into account a number of pieces of your personal financial information – like a large puzzle where each piece is your own financial data and requirements. These puzzle pieces include: Your Assets Your Liabilities Your Cash Inflows Your Cash Outflows And most importantly… Your Financial goals and dreams Every person needs his or her own financial plan in order to enjoy his or her “second life” – so why live your entire life without properly planning your finances? And we at PersonalFN would like to help you do just that – with our own knowledge and expertise poured into this Guide – in as simple and easy to understand manner as possible. Read on… Warm regards, Team Personal FN

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com .PersonalFN.Planning your Retirement the smart way Index Section I: Introduction Need for planning your finances!! Section II: Retirement Planning – The First Steps How does financial planning aides retirement planning? The importance of starting early in retirement planning Section III: Case Study Learning by an example Section IV: Role of different asset classes in retirement planning Equity Debt Gold Section V: Insurance a must in retirement planning Section VI: Already retired? Then this is what you have to follow? 15 15 16 18 22 12 07 09 05 4 www.

We are committed to offering you simple products. Investment in mutual fund units involves investment risks such as trading volumes. Nariman Point. 1882.00. (liability of Sponsor limited to Rs. SID / KIM / SAI can be obtained at the Investor Service Centers of AMC or office of AMC or on website www. settlement risk. Regent Chambers.QuantumMF. Click here to claim your FREE booklet of “The Quantum Theory of Investment” NOW! We were established as the 29th fund house in India. Investment Manager: Quantum Asset Management Company Private Limited (AMC). including possible loss of capital. . 1956. Fact: We are India’s first and only direct-to-investor Mutual Fund. 1.com QUAN T UM ADVISO R S P VT. Past performance of the Sponsor / AMC/ Mutual Fund does not indicate the future performance of the Scheme(s). default risk. we have a unique approach to wealth generation. We did not launch numerous schemes to please distributors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return. We have eliminated distribution commissions by going directly to investors.000/-) Trustee: Quantum Trustee Company Private Limited. Come. and a long term perspective towards wealth generation. click on the direct path to profit with process. Equity | Fixed Income | Gold SMS: ‘Quantum’ to 56677 | Toll free: 1800-22-3863 | Email: Info@QuantumMF. but were one of the first to focus on the needs of the investor. LT D . 5th Floor. complete transparency. Trustee and Investment Manager are incorporated under the Companies Act. Please read the Scheme Information Document (SID) /Key Information Memorandum (KIM)/ Statement of Additional Information (SAI)/Addenda carefully before investing. Wealth generation and path to profit does not mean guaranteed future results.com The cost of this advertisement is not paid for by the investor.Myth: Quantum Mutual Fund is just another mutual fund. Risk Factors: All Mutual Funds and securities investments are subject to market risks and there can be no assurance that the Scheme’s objective will be achieved and the NAV of the Scheme(s) may go up or down depending upon the factors and forces affecting securities markets. Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act. Sponsor: Quantum Advisors Private Limited.400 021. The Sponsor. so that more of your money works for you in the stock markets. Mumbai . At Quantum Mutual Fund. : P RO U D S P O N S O R OF I N D IA’S FI R ST AN D ON LY D I R E CT-TO -I N VE STOR M U TU A L F UND. liquidity risk. 503. Because every Rupee saved is a Rupee earned.

An example to bring out the point: Monthly Household expense today: ` 30. However.. Something that costs you ` 100 today could cost you ` 110 tomorrow.” Noel Whittaker Need for planning your finances Let’s make it simple at the very beginning. putting money together to buy a home.a.com . discretionary expenses. Why do you need to plan your finances? Financial Planning is a process whereby you will have a roadmap of your personal and financial life. It is easy to say that as long as you are earning. EMI payments. children’s school and college fees. which will help you to meet all your life’s expenses – both the expected… (household expenses. your monthly salary will cover your expenses. to maintain the same lifestyle: a staggering ` 95. I can guarantee you one thing. Household expense at the time of retirement.Planning your Retirement the smart way I: Introduction “Life is full of uncertainties. you will have enough set aside to live the rest of your life maintaining a good lifestyle. and on your retirement. and whatever you save you will invest. those who put an investment program in place will have a lot more money when they come to retire than those who never get around to it. hopefully.165 per month 5 www. Future investment earnings and interest and inflation rates are not known to anybody. creating a safety fund to compensate for loss of a job.PersonalFN.. Imagine what it would cost you when you retire after so many years. saving and investing for your retirement and so on)… and the unexpected…(medical contingency.000 Years to Retirement: 15 Inflation Rate: 8% p. But we all know that there are 2 things that go against this thought: The first is Inflation – the one thing that kills the value of your money. and so on).

com . consider that you might have been better off investing into the equity markets perhaps by way of a tax saving mutual fund – thereby getting the benefit of equity over the long term and also saving on tax. it is absolutely essential to have a strong Financial Plan that will give you awareness on where you stand today. It is the improper investment of your surplus funds that can reduce the power of your money to maximize your wealth. you perhaps with the help of your planner. and then assess your cash flows to see how to allocate funds towards your goals in a manner that your goals are suitably achieved. and you choose to lock them into a 5 year FD to save on tax. The recommendations for investments are the last piece to fit into the financial plan. wherein they believe that doing your tax saving investments during the year is the same as doing financial planning. purchase of an asset such as a house or a car. and what steps you need to take to achieve your future financial goals. Absolutely a myth!! Making tax saving investments is often misconstrued as proper financial planning but financial planning is a lot more than this. For example. planning for annual family vacations and any other goals you may want to achieve. Once a plan has been created by taking all your personal financial requirements into account. then you would begin investing towards the goals. tax saving investments are only a small part of overall financial planning.PersonalFN. These recommendations may also include tax saving investments. Because of these 2 major factors. When doing financial planning. Thus as you see. your child’s education and marriage. will first determine and quantify your goals. 6 www. This is what can kill the potential future value of your money when it is needed the most. Financial Planning involves planning for your life goals such as your own retirement. We have also come across a common mis-conception among investors today. if you have surplus funds which you will not need for the next 5 year.Planning your Retirement the smart way The second is the improper investment of your money.

"I really don't care where I get" replied Alice. Generally most of us get a complete physical health check up once a year. Debt to Income Ratio Total monthly outgoings on liabilities (EMIs) Debt to Income Ratio = Total monthly income from fixed sources 7 www. when dealing with your personal finances. "That depends a good deal on where you want to get. first your finances needs to be planned and invested properly so that you can enjoy the benefits during your retired life. Measuring your Financial Health Your financial health in present terms will aid you and your financial planner to derive a course of action to achieve a sustainable retired life plan. it is therefore important to start by knowing how financially healthy you are today.PersonalFN.Planning your Retirement the smart way II: Retirement Planning – The First Steps "Would you tell me which way I ought to go from here?" asked Alice. and can treat any ailments before they cause any damage. especially after a certain age. "Then it doesn't much matter which way you go. This is done so that we know our health issues if any." said the Cat. Your finances are as important to you as your health." said the Cat. Lewis Carroll. Alice's Adventures in Wonderland How does financial planning aides retirement planning? Financial Planning is a comprehensive term which includes retirement planning. Thus. To put it simply. to see where you stand today.com . Here we will cover 3 simple personal finance rules that you can start with. and deserve at least the same amount of care and attention.

But the beginning of all this is to start keeping track. your debt to income ratio should not be higher than 30% as it means you are straining your income. ultimately building more wealth. Also. test the 3 financial rules on yourself – assess your savings to income ratio. This means you should not be spending more than 30% of your income on paying loans / interest on loans. Your budget will help you monitor and track your money flow on a month on month basis. you will have greater awareness on where your money is going and you will be able to streamline your expenses to increase your investments.Planning your Retirement the smart way Ideally. Maintain your budget.com . Go over your cash flows for the month and see how your money is flowing between your four segments. Once you implement these simple rules. Contingency Reserve Contingency Reserve = 6 to 24 months of living expenses You should set aside 6 to 24 months of living expenses as a contingency fund to be used only in times of emergencies. Remember – it is better to first invest. and how much on luxuries. and then spend out of what is left.PersonalFN. This should include any EMIs that you may have. your debt to income ratio (if you have liabilities) and see if you have enough of a contingency reserve set aside. You will be able to see how much of your money is spent on necessities. and then invest out of what is left. By the end of one month. you will find that your finances are more in your control and manageable. rather than to first spend. 8 www. You can use PersonalFN’s free online tool – MyPlanner – to start maintaining your personal budget. you should be saving at least 20% of your monthly income to save and invest. Savings to Income Ratio Total monthly savings Savings to Income Ratio = Total monthly income Ideally.

` 20. It gives you the opportunity to explore various investment options and avenues. Longer time horizons enhance the compounding benefits. among asset classes. so why rush?” Unfortunately. starting early and ensuring that you have sufficient time on your side is the key to successful retirement planning.e. most of us fail to realise that postponing is their biggest enemy when it comes to making retirement plans. • Power of compounding The single biggest advantage which can be derived from making an early start is the opportunity to benefit from the power of compounding. The key here is “longer time frames”. making an early start is imperative. while the same is 20 years for Mr.88. property and bonds over longer time frames. On the other hand. Jai postpones and starts investing after 10 years. However. In fact. Put simply. he invests twice the amount i.459 Maturity amount (`) At 60 years of age. Jai. Hence if you wish to gainfully utilise the power of equities. this is the ability of an asset to generate returns. Mr. giving Mr. Raj and Mr. Raj has a corpus of ` 12. Despite doubling the investment amount. An illustration will help us better understand the same.PersonalFN. Raj Mr.Planning your Retirement the smart way The importance of starting early in retirement planning An often-heard excuse for putting off retirement planning is “I have enough time to go before I retire. Raj. Mr. Jai fails to match the sum amassed by Mr. Raj an investment horizon of 30 years. For example. Both the individuals would like to retire at the age of 60 years. Mr. which are reinvested for generating higher returns. over shorter time periods equities can be the most volatile asset class.000 20 8 9. Raj starts immediately with annual investments of ` 10. Jai.000 earning a return of 8% pa.459 as compared to ` 9. Mr. In fact starting early provides you with a lot of benefits: • Greater flexibility Having adequate time grants a degree of flexibility to your retirement plans.88. equities are known to outperform others like gold.23.com . The 9 www.458 Amount invested (` per annum) Tenure of investment (years) Returns (% per annum) 10. Mr.23. Jai 20.000 30 8 12. wish to make investments to build a corpus for their retirement.000 at 8% pa.458 accumulated by Mr. Mr. However to make up for the lost time. Jai (both 30 years of age).

27. the higher the amount has to be set aside for meeting your retirement needs.760. 20 years and 10 years away from your retirement. But there is also a need to understand why many fail to get started. In our view.979 2.249 708 Annual investment (`) Monthly investment (`) In case 1.000 30 12 9. As a result.502 will be the monthly investment amount. however with passage of time. the right course of action is to start off with what you have and make up for the deficit at a later stage. 10 www. not all. if you decide to simply wait for an ‘opportune’ time. Lesser the time at your disposal. when you are just 10 years away from your retirement. Instead. delaying the same can cost you dear! We have discussed how it helps to start early and how not starting early could prove to be an expensive proposition. wherein you are 30 years. For those who start late or postpone their investments Those who delay their retirement-related investments are likely to have a tough time in meeting their defined objectives. Finally in case 3. They can contribute only a part of it. Not only can the same be hard on the wallet. The message is clear – give your investments sufficient time to grow and you can gain from the power of compounding. the pre-determined investment objective might have to be toned down.PersonalFN. for some it may not be a feasible option.000 20 12 30. Suppose you decide (after taking into account your present income and expenses. Case 1 Case 2 25.502 Case 3 25. the monthly investment required will be ` 10.000.00.197 10.00. it grows exponentially.com . At times individuals are not able to set aside the requisite amount of money needed for their retirement.760 Target amount (`) Tenure (years) Returns (%) 25. ` 2.Planning your Retirement the smart way longer investment tenure (30 years vis-à-vis 20 years) makes all the difference. Moral of the story – Not only does it pay to start early. As a result. the monthly investment amounts to approximately ` 708 to achieve your target amount. it might be too late by the time you start. On the other hand. this is a wrong approach. Now let us consider 3 scenarios.00. As a result if you start investing for retirement as in case 2. 20 years before the due date. they end up postponing their plans.00.000 10 12 1. We will assume that investments made will yield a return of 12% per annum. the likely increase in both) that on retirement you will need a corpus of ` 25.

perhaps.com . While the importance of satisfying present needs cannot be denied.Planning your Retirement the smart way Another reason for failing to start is that a significant amount of money is often spent on providing for one’s present lifestyle i. it does make sense to take care of your future as well. However such mindsets need to change.e. Maybe the thought of growing old and leading a rather sedentary lifestyle brings with it a certain degree of discomfort and discourages some from working towards their retirement plan. The solution lies in accepting retirement as an eventuality and being adequately prepared for it. You should strive to strike a balance between the two. Finally. making a retirement plan and putting money aside for the same acts as a reminder of the eventuality – retirement. And making an early start is your best bet at being prepared! 11 www.PersonalFN. shopping and entertainment binges. Looking the other way will only worsen the situation. leaving very little for retirement.

Let us now get acquainted with the retirement planning process of an individual. Mr.000 per month. as a software developer. He is earning ` 60.000 a year for medical expenses Maintain the same level of life-style post his retirement. Roy (our scenario review subject) is aged 45 and currently is working with ABC Ltd. 12 www.000 a year for an annual vacation with his family (excluding the above) ` 25. and also earns around ` 1.PersonalFN.m. Mr.000 p. Roy wishes to retire at age 55. Life expectancy as 85 years (assumed) Children are already educated He is adequately insured and has created a contingency corpus of 12 months of living expenses and is maintaining this corpus in liquid funds and partly as cash in the bank. An ongoing process because what we are aiming at is not fixed (our standard of living. ` 75.00.com .Planning your Retirement the smart way III: Retirement Planning: Scenario Review “Planning is bringing the future into the present so that you can do something about it now” Alan Lakein Before we get on with discussing the scenario. you will require the services of a financial planner. income and goals Current house hold expenditure is ` 25. For you to be able to draw up a personalised retirement plan. Details of expenditure. which we are aiming to secure will change over time) Our aim therefore in discussing this scenario is to understand how you can get started in planning for your retirement. it is important to highlight that retirement planning is • • A very personalised process that is unique to every individual.000 every year as incremental bonus.

medical) Pre-Retirement Return Post-Retirement Return Corpus Required at retirement 45 years 55 years 85 years ` 25.00. The next question in Mr.669 ` 98. let us see how much will his total achievable corpus be at retirement? Gratuity at retirement EPF Maturity Value Future Value of existing Mutual Funds Future Value of Ancestral House (7% p.000 7% 10% 15% 6% ` 3. Roy is worried about how much corpus he is going to need and whether or not he will be able to build this corpus in his remaining 10 working years.000 ` 75. Roy’s mind is how to achieve this huge corpus. Mr.757 ` 92. 13 www.47.Planning your Retirement the smart way As he is nearing retirement.com . growth) Maturity Value of SIPs TOTAL RETIREMENT CORPUS ` 25. Roy has a shortfall of approximately ` 28. Taking into consideration the above information. Mr.96. keeping retirement in mind he has invested ` 12 lakhs in mutual funds (current value) so far and has allotted his ancestral property of ` 50 lakhs (current value) to his retirement goal. Over and above this.826 So now Mr.11.05.40 crore to maintain his lifestyle in his post retirement period.00.000 ` 25.35.000 ` 48.54.PersonalFN.000 surplus savings per month that can be invested (in mutual funds expected to grow @ 15% p.636 ` 3.a. He also has ` 35.) towards his retirement.51 lakhs. He is expecting to get gratuity of ` 25 lakhs and expects his EPF maturity to be ` 48 lakhs.40.a.062 From the above table it is evident that Mr. Roy’s age Retirement Age Life Expectancy Current Monthly Expenditure Annual Expenditure (Vacation) Annual Expenditure (Medical) Inflation (household) Inflation (Vacation.000 ` 48. Roy knows he needs to achieve a corpus of ` 3.

that upon the end of his 85th year. To reduce his expenditure post retirement c. It is important to note however. To save and invest a higher amount today and going forward By choosing one or all of the above solution options. Hence it is always better to assume a longer life expectancy and plan accordingly – rather than run the risk of outliving your wealth and then being dependent. the funds will have been entirely utilized. To post-pone his retirement by some time i. Mr. Mr.com . 14 www. Roy will be able to build the retirement corpus that he needs. Roy has 3 options in the above situation: a. to live his golden years in financial freedom.Planning your Retirement the smart way Thus. increase his number of earning years b.e.PersonalFN. The corpus that is built by his retirement can be invested into fixed income products and kept away from any market risk / volatility.

Planning your Retirement the smart way IV: Role of asset classes in Retirement Planning Mutual funds have historically offered safety and diversification. exposure to well proven mid cap funds from the stable of fund houses following prudent investment systems and processes may be considered to give that extra push to returns generating ability of the portfolio. Again. As you near your retirement age. By taking exposure in equities through equity mutual funds. And they spare you the responsibility of picking individual stocks Ron Chernow As you may have observed in the above scenario review. large cap funds can be derived at. equity mutual funds. By nature equities are volatile and risky investments.com . However. if one lacks the expertise and skills of analysing and selecting the right stocks. exposure to mid cap funds. over here you need to select the right mutual funds to benefit in the long run.e. The different asset classes have different attributes which help in maintaining the required balance in one’s retirement portfolio. Based on your risk appetite.PersonalFN. You should look at not only the quantitative parameters but also qualitative parameters like the fund management style. make sure your exposure to debt oriented mutual funds is increased so as to protect the corpus built up over the years and reducing the risk of the overall 15 www. Thus a prudent approach followed in selecting the right mutual funds for your retirement portfolio may work wonders in generating stellar returns. Let us now. whether the fund house is driven by strong investment systems and processes etc. the risk and volatility of this asset class is reduced to a considerable extent. then he can adopt the indirect route of investments to equities i. However. • Debt Debt as an asset class is known for its ability to provide stability to one’s portfolio and also emphasise on generating regular income stream (which is extremely important during your retired life). understand the benefits of the below mentioned asset classes in one’s portfolio: • Equity Equity as an asset class has the ability to beat inflation and provide alpha returns over longer time horizon. Again over here the category of debt oriented mutual funds can be of immense help to provide stability or to generate regular income as required in one’s portfolio. exposure to different asset classes (having inverse relationship with each other) is imperative in building one’s retirement portfolio. Generally your exposure to equity mutual funds should be more of large cap funds as they are able to provide stability to the portfolio during economic turmoil.

liquid plus funds. if you have a medium term investment horizon (of over 6 months) you may allocate your investments to floating rate funds. Liquid plus funds (Ultra Short Term Bond Funds) can be considered if you have a 3 to 6 months horizon. if one has a longer investment horizon (of say 2 to 3 years).PersonalFN. gold over years has shown a secular uptrend. you should transfer your corpus to a debt oriented mutual fund from a fund house having a proven track record of strong investment systems and processes. we strongly believe that gold as an asset class makes a strong case for inclusion in one's retirement portfolio (as it would insure / hedge your portfolio against the various risks it is exposed to). the price of gold was about U. But if you have a short-term time horizon (of less than 3 months) and need to keep the principal intact. income funds. • Gold Gold has been historically considered as an important asset class mainly for three reasons: Hedge against inflation Adds stability to ones investment portfolio Asset Allocation avenue And as an asset class. There are various categories of debt oriented mutual funds like liquid funds. 2011) it is U.S. For instance. In 1971. However. even the central banks across the globe take refuge in this classic asset class (considered as a safe haven) to ward off the ill effects of an economic turmoil. Historically gold has enjoyed an inverse relationship with equities and this makes it a strong bet in one’s portfolio. if the then interest rates are at elevated levels and close to peaking out. Generally when you are nearing your retirement. However. Some of them are as below: 16 www.556 an ounce – which indicates that price of gold has gone up by 49 times over the last 40 years. on April 30. Hence taking into account the fundamentals for gold presented above. please keep in mind that taking into consideration the prevailing market conditions at that time you may have to shift your corpus to any of the debt mutual fund categories as mentioned above. floating rate funds. dollar 32 an ounce and today (i. gilt funds etc. which you can pick and choose for investment based on your investment time horizon. you may take exposure to short term income funds or pure long term income funds as longer tenor bond papers look attractive.e. then you would be better-off investing in liquid funds. dollar 1. Moreover.com .Planning your Retirement the smart way portfolio. Longer duration funds (preferably through dynamic bond / flexi-debt funds) can be considered. As an investor you have various ways in which you can take exposure to this shinning asset class.S.

Planning your Retirement the smart way 1. World Gold Mining Funds Gold mining funds are feeder funds that invest in offshore funds investing in stocks of gold mining companies. However. This gold is held on your behalf by an appointed custodian for the ETF. now to simply put. ETFs are instrument. In our opinion the smart way to invest in gold is through Gold ETFs due to the advantages offered by it. a GETF is an instrument that represents an ownership of gold assets. 17 www. Hence. feel and see” along with the choice of converting the gold coins and bars collected by you into jewellery at some point in time.PersonalFN. Physical Gold If you are an hardcore believer of investing in physical gold. this passion of investing in gold in the physical form has some disadvantages which are as under: High Holding / storage cost Quality / Purity under question at times Sold at a premium by jewellers and banks Discounted Resale Value Attracts Wealth Tax 2. investing in Gold Exchange Traded Funds (GETFs) today is a very simple and a lucrative exercise. The investments in gold mining fund is linked to both gold price movements and volatility in equity markets. Gold ETFs For gold bugs. the only advantages which it can offer you is “touch. offered by mutual fund houses and are listed on a stock exchange. commodity or asset. They represent ownership in an underlying security. as these funds bet on stocks of gold mining companies. GETFs offer a host of benefits which are as under: Convenience in buying / selling Premium Quality Low holding cost No Wealth Tax 3.com .

” Edward Coke What is insurance? Insurance in its purest sense is protection against a financial loss / uncertainty which includes the risk of illness.50. with inflation. Hence. How to calculate HLV The first step towards calculation of HLV would be to determine the net annual income of the person after deducting the amount spent by him for his personal use. both of whom would require `10 lakhs for their education i. 18 www.000 per annum on himself. This would be the maximum amount for which a person can seek insurance protection. For Example: Mr.e. Therefore. This amount will be the amount that he affords to his family annually. In Mr.a. and the most final of them all – one’s demise.a.000 per annum and spends `4. for 1 year of life expenses. a total of `20 lakhs. damage to property. Sinha’s life. Sinha has a son and a daughter. Furthermore. he earns a net income of `10. his family would require `10. The amount of insurance you require can be calculated in a few different ways –but a comprehensive method of calculating this is the PersonalFN’s HLV method. this amount is still required such that the children’s education do not suffer. Sinha.Planning your Retirement the smart way V: Insurance a must in retirement planning "Precaution is better than cure. aged 40 years.com .000 p.50. the family’s expenses would proportionately increase. Hence this goal amount can be added to the financial value of Mr. Each year. But it becomes necessary to evaluate a human life in terms of money.PersonalFN. The value of your loved one’s life is a very sensitive issue as your loved ones are priceless. disability. as income replacement. earns `15. The calculation will also include specific goal related expenditure. Sinha’s absence. for his family. which must also be taken into account. Human Life Value (HLV) of an earning member in the family could be defined as the amount that the family would require to retain the same standard of living in the absence of the earning member.000 p. assuming Mr. in order to safeguard from problems caused by under-insurance.50.00.

the next step is to choose the appropriate insurance product to cover your needs. At Personal FN – we recommend opting for pure term plans. They are very cheap compared to other insurance policies. it is not a comprehensive policy. you should buy a term plan for the maximum tenure available. Ideally. It is important to assess the available products and select the right insurance for your needs. Individuals would do well to check these aspects before finalising on such plans.Planning your Retirement the smart way Once the HLV has been calculated. which can help take care of finances in the absence of the breadwinner.PersonalFN. it is believed that since the insurance is available only for a particular term after which there is no cover. as there is only a death benefit. Term Plans A term policy is a simple pure life insurance which provides a sum assured in case of the policy holder’s unfortunate demise. The maximum tenure available as well as the premium charged differs across insurance companies. But the reality is that term policies are the purest form of insurance available today. Term 20 Years Age Insurance Company LIC Max New York Birla HDFC Bajaj Reliance ICICI ING Vysya Kotak SBI Sum Assured (`) 10 L 4613 NA 4103 3579 3894 3952 3464 3787 2655 3775 25 L 8500 5875 8934 8675 8493 9131 7098 8617 4770 5786 50 L 17000 11000 13071 14196 15746 17762 13093 16868 8603 10761 1 Cr 34000 22000 22832 25237 30250 35024 25082 33736 16269 18765 35 (Source: Company website) 19 www. There are a number of insurance products available in the market today – from term plans to ULIPs to endowment plans and so on. Most people are not in favour of a term policy. Also.com . It helps you to focus on the retirement planning exercise without having to worry about the ‘financial condition of your dependants in your absence. The term plan does this by providing for a large sum assured (corpus in the event of death of the policyholder) at a lower cost. A term plan plays an essential part in your retirement planning.

Personal Accident Policy – this will cover you from loss of income in case of an accident. This policy can be opted for by any member of the 20 www. which could otherwise have been invested in better performing avenues. which leads to an inefficient use of your funds. ULIPs etc.PersonalFN. it is also never too late to buy a term plan. in addition to your term policy: Health Insurance (Mediclaim) – this is a must have for every family member. the policy holder pays premiums (or a single premium) of which part of the money is invested and another part goes towards providing the life insurance cover. at the end of which the sum assured is paid back to the policyholder.e. the cheaper it turns out to be. it is not advisable to opt for them. It can be taken as an individual policy or as a family floater. In these policies. But then. An endowment policy covers risk for a specified period. it is seen that traditional policies such as endowment policies and money back policies provide very poor returns.Planning your Retirement the smart way The earlier a term plan is bought. This will cover regular hospital expenses in case of any hospitalization. what should you opt for? It is recommended to always opt for a pure insurance product rather than combining insurance with investments such as what is done by way of market linked insurance policies i. Endowment Policies These are traditional policies floated by Insurance companies. Until these products become transparent. The returns on endowment policies are typically very low – approximately 3% to 4% per annum – and often do not beat inflation. Also. Unit Linked Insurance Plans These are insurance policies with an investment component. Products like ULIPs and the like have hidden charges and high commissions. Critical Illness policy – this will pay out a lump sum upon diagnosis of any critical illness from the defined list of illnesses stipulated.00% to 3. along with the bonus accumulated during the term of the policy. giving a yield of 3. we believe taking a straightforward term policy is the best insurance you can take. This is a common policy for those who are employed as the policy partly covers you from loss of income. At PersonalFN.50% per annum over the entire term. Having said that. It is also advisable to opt for the following policies. This does not even match inflation and hence it is not recommended to go for these products. ULIPs therefore combine insurance protection with wealth creation opportunities.com .

In case of an unfortunate circumstance.Planning your Retirement the smart way family – it is not meant only for people who are employed. as critical illness might strike anyone. insurance can be a financial boon to you or your family members. It is advisable to opt for insurance because it is a cover from risk – and while you might believe that something will not ‘happen to you’ – that is often exactly what your neighbour is thinking.com . 21 www.PersonalFN. and costs incurred in case of such illnesses can be very high.

• Senior Citizens Savings Scheme (SCSS) As the name suggests. The minimum investment amount is ` 1. Hence high-risk investment avenues like equities or equity funds should either be excluded or be allocated a very modest portion of the portfolio.500. He must use it.50% of the deposit balance amount is deducted.PersonalFN. an amount equal to 1. A termination after completion of 2 years attracts a penalty of 1. Firstly. A man can't retire his experience. the importance of capital preservation gets magnified manifold. the portfolio should be structured in such a manner that it grants a high degree of liquidity to the investor.Planning your Retirement the smart way VI: Already retired? Then this is what you have to follow! Age is only a number. The implicit assumption was that individuals have time on their side and can use the various strategies for planning and conducting their retirement in a better manner. 22 www.a.e. what you really need is a retirement solution.00% p. individuals above 60 years of age. So. The retirement corpus at the investor’s disposal has to provide for him henceforth.000 while the upper limit has been capped at ` 1. If you are already retired. those above 55 years are also permitted to invest subject to fulfilment of certain conditions. With no alternate options like salary or business income to fall back upon. the scheme is a dedicated investment option for senior citizens i.00% of the balance amount.000. Premature encashment is permitted after completion of 1 year from the deposit date. Bernard Baruch All through this issue of the Money Simplified. we have dealt with issues pertaining to retirement planning. The scheme runs over a 5-Yr period and offers a return of 9.com . a cipher for the records. However there is a segment for which this advice might have come a bit too late – the retirees. now let us discuss the various investment options available to retirees and find out how they measure up. If the investment is liquidated before expiry of 2 years. Let’s begin by discussing the uniqueness associated with building a portfolio for retirees. on a quarterly basis making it the most attractive investment option in the peer group. Liquidity assumes significant importance.

POTD offers investors a number of options in terms of investment tenures ranging from 1 year to 5 years. The investment tenure for POMIS is 6 years and investments earn a return of 8.Planning your Retirement the smart way • Post Office Monthly Income Scheme (POMIS) Another popular investment avenue for investors seeking regular income.00% p.50. Albeit terms and conditions set by the issuer governing premature encashment. the returns range from 6.00. POMIS is operated from post offices and offers assured monthly income. Though they have assured returns but on the flip side. some of them tend to lag when it comes to beat the inflation and earning an inflation-adjusted positive rate of return.00% of the deposit amount.25% to 7.a. also a 5.00% bonus is paid on maturity. Also fixed deposits are known to offer a higher interest rate (generally 0. Interest payouts are made on quarterly. The norms for premature withdrawal are rather stringent. So far the investment options discussed were of the assured return variety. Also liquidating the investment before completion of its stipulated tenure entails loss of interest. Interest payments are made annually. It is important to note that all fixed deposits do not offer liquidity or premature withdrawal facility. Premature withdrawals can be made after the completion of 6 months and before 1 year. Premature withdrawal after 1 year will attract a penalty of 2. Premature closure of account after 3 years from the opening of such account will attract a deduction of 1.500. however investors have to bear a loss of interest. • Fixed Deposits Retirees can also consider making investments in fixed deposits schemes are offered by Banks. thereby making them attractive investment options.50% on a quarterly compounding basis. NBFC’s and Corporates. While the minimum investment amount is ` 200 (and in multiples of ` 200 thereafter). 23 www.50% more than the regular rate) to senior citizens. (payable monthly).00% on the interest fixed at the time of opening the account. the upper limits have been set as ` 4. • Post Office Time Deposits (POTD) POTD is essentially the fixed deposit variant from the small savings segment. Our preference is for fixed deposits with a ‘AAA’ rating indicating a high degree of safety.000 and ` 9. however 2.com .PersonalFN. annual or cumulative basis (based on the offering) throughout the tenure of investment.00% of the deposit amount will be deducted if the account is closed on or before expiry of 3 years from the opening of such account. it is generally permitted only after completion of 3 months from the date of deposit. Similarly. semi-annual.000 for single and joint accounts respectively. The minimum investment amount is ` 1. there is no upper limit on investments. Premature withdrawals are permitted after 1 year.

don’t undermine the importance of a qualified and experienced investment advisor. The decision to invest in any of the aforementioned schemes and the allocation to each scheme should be a factor of the investor’s risk profile. although a dividend distribution tax is indirectly borne by the investor which is held back by the fund house before distribution of dividend. equityoriented funds emerge as a feasible option. Likewise. the investment tenure goes up.PersonalFN. For example. as does the opportunity to take on higher risk. the retiree’s requirements will also play an important role in the portfolio creation. Retirees who are not averse to taking on a higher degree of risk can make more allocation to MIPs or even consider adding diversified equity funds to their portfolios. Instead he might be keen on investing for his grandchildren and other family members. those who attach greater importance to capital preservation should invest predominantly in assured return instruments.com . MIPs are equipped to deliver superior returns as compared to its assured return peers. quarterly. Also the returns are not assured. a retiree who is well off and supported by his family may not need to fend for himself. MIPs expose the investor to higher levels of risk vis-à-vis peers like POMIS and POTD. half-yearly and annual dividend payout options or the growth / cumulative option. Conversely. In such a scenario. Finally. Powered by his expert advice and prompt service. dividends received from MIPs are tax-free in the investor’s hands. a good investment advisor can ensure that your postretirement investments become a hassle-free affair. Also it scores on the liquidity front as there is no fixed investment tenure (an exit load may be charged if investments are liquidated within 6 months from the investment date). Finally. Investors can choose between the monthly.Planning your Retirement the smart way The option mentioned below may be considered by a retiree only if he or she is willing to take that extra bit of risk in pursuit of higher returns: • Monthly Income Plans (MIPs) Monthly Income Plans typically invest 15%-25% of their corpus in equities and the balance in debt instruments. However it should be understood that on account of their market-linked nature. 24 www. neither is there certainty in terms of capital preservation. On a positive note.

com . We are sure that most of you have not taken your own retirement seriously till now because you feel that it a tedious job but actually it is one of the most important part of your life. We hope this Guide has been a useful read for you – and congratulations once again for taking an interest in improving your personal finances and getting your financial life in order. Team PersonalFN 25 www. please feel free to write to us at info@personalfn. But once it is achieved it will ensure that you have sufficient income every month to make your day to day expenses. So. so what? You need to plan for retirement at this very moment. Please remember. This is because you have sufficient number of years to save money for your retirement and it is most likely that you would achieve your retirement goal.Planning your Retirement the smart way VII: Conclusion "The value of an idea lies in the using of it. And even if your age is around 45 – 50 and have not thought about retirement planning. the key to a successful retirement planning is to start early in order to make the most of your financial life! If you have any queries.PersonalFN. Retirement Planning is an ongoing. You might be 25 today. lifelong process that takes decades of commitment in order to receive the final pay-off. you should start it immediately otherwise you might not be able to achieve your retirement goal and hence you might have to work a little bit longer than you would have thought off.” Thomas Edison So now we have come to the end of the PersonalFN Guide on Retirement Planning. Warm regards.com or simply contact us.

Dalamal House . Mumbai .PersonalFN. Nariman Point.com 26 www.com .Planning your Retirement the smart way Contact us Head Office Mumbai 503.400 021. Tel: +91-22-6136 1221 – 1222 Email: info@personalfn.