RETIRING IN 1980’S

 Higher interest on Bank Deposits  Existence of Joint Family System  Lower aspirations in post retirement period

 Lower life expectancy

RETIRING IN 2011  Bank Interest rates are market linked and volatile  Nuclear Family set-up ( 3 out of 5 households in India are nuclear )*  Growing aspirations to maintain pre-retirement standard of living  Higher life expectancy * NFHS survery 2005 .

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RETIREMENT PLANNING A NECESSITY  Inflation  Life expectancy on the rise  Increased Medicare exigencies  Increasing aspiration to maintain pre-retirement standard of living  Desire for early Retirement .

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0% 8.6% 1997-03 2003-07 *2010-11 4.org.0% 10.rbi.3% 9.EXPENSES ON THE RISE BECAUSE OF Year 1950’s 1960’s 1970’s 1980’s 1990-91 1991-97 Inflation % 1.4% 9.6% Source – www.in Inflation .5% 9.2% 6.6% 5.

976 49.000 35.686 96.064 Today 5 10 15 20 25 30 Inflation assumed @ 7% p.179 25.742 68. .a.306 135.INFLATION – IMPACT ON YOUR EXPENSES Inflation keeps increasing your monthly expenses 190.

212 6. .921 9.417 18.649 25.INFLATION IMPACTS YOUR INCOME Inflation keeps reducing the value of your income 50000 35.568 Today 5 10 15 20 25 30 Inflation assumed @ 7% p.122 12.a.

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LIFE EXPECTANCY SINCE BIRTH – NORTH AMERICA 70.37 years 78.2011 .96 years 81.37 years 76.47 years CIA world fact-book as on 1.1.

19 years 72.17 years 78.19 years 80.1.07 years 81.54 years CIA world fact-book as on 1.LIFE EXPECTANCY SINCE BIRTH – EUROPE 80.2011 .50 years 81.90 years 80.05 years 76.05 years 80.

00 years 74.51 years 82.73 years 82.80 years 75.33 years CIA world fact-book as on 1.14 years 71.68 years 66.LIFE EXPECTANCY SINCE BIRTH – ASIA 66.06 years 66.1.29 years 68.2011 .25 years 70.

20 77.00 78.70 69.00 2021-26 2031-36 2041-46 2051-56 2061-66 2071-76 2081-86 Source – prb.00 82.70 82.org .40 75.00 68.YEARS 84.00 80.00 70.00 62.00 64.00 76.00 72.70 79.00 80.20 72.00 74.00 66.PROJECTED LIFE EXPECTANCY IN INDIA LIFE EXPECTANCY .

Are you ready for the 30-30 challenge? .

Are you ready for 30-30 challenge?  People retiring by 2020 will have expected life span of 20yrs or more  This number may rise to 25 to 30 yrs in the coming decade  30yrs of working life 30yrs of retired life .2000 .Project OASIS report .

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2011 “Medical bills rising faster than inflation” Business Today March 3.Rising Health Care Cost  Government Fund allocation for the health sector recorded a 20% increase in 2011-12  Medical costs rising at over 10% for last four years  Demand for healthcare in India to increase at a staggering rate of 25% per year -Towers Watson survey 2011  Higher medical cost due to new medical technologies  Heavy health care burden on middle class *“Rising healthcare costs enough to make you sick” Times of India Mar 1. 2011 .

HEALTH COST  78% of total health expenditure in India is Privately funded by patients  In 2004 around 30% in rural India didn’t go for any treatment purely for financial reasons. the percentage for urban India is 20%  Around 47% of hospital admission in rural India and 31% in urban India were financed by loans and sale of assets  Between 1986 and 2004 average real expenditure per hospital admission increased 3 times in Govt. & Private hospitals Medical Journal – Lancet Financial Health care for all : Challenges & opportunities .

How does retirement in future looks like? MORE YEARS POST RETIREMENT INCREASE IN MEDICAL EXPENSES INCREASE IN COST OF LIVING DUE TO INFLATION .

OLD AGE POVERTY – BE CAREFUL

If eminent personalities can suffer then think about middle class !

A STUDY OF ELDERLY PEOPLE

 Average monthly income of elderly is approx. Rs. 12,045  59% of Elderly have a monthly household income of less than Rs.10,000

 45% of the Elderly have pension as their main source of income
 57% of the Elderly are Financially dependant on their Son  46% are financially dependant on others
- Report on Elder Abuse in India, Help Age India, May 2010

THE RISE IN THE OLD AGE POPULATION
In millions

Age Group

2000

2015

2025

2030

2035

2040

2050

0–14 years
% 15–59 years % => 60 years %

347
34.14% 593 58.31% 77 7.55%

345
27.68% 782 62.76% 119 9.56%

337
24.63% 865 63.15% 167 12.22%

327
23.08% 895 63.16% 195 13.76%

313
21.53% 919 63.17% 223 15.3%

300
20.2% 937 63.1% 248 16.7%

285
18.6% 938 61.26% 308 20.14%

 The % of elderly in the total population of India, keeps on increasing  By 2050, it would reach 20% of the total population  By 2015, there would be about 120 Million above the age of 60 in India
*Source – Population Division, Dept. of Economic & Social Affairs, United Nations Secretariat

Total*

1,017

1,246

1,369

1,417

1,455

1,485

1,531

09% in 1992-93 to 8.37 88.42 6.5 88.4 3.2 3. NFHS survey-2.2 Female 3.91 91.1 3. who are living alone between NFHS 1.8 2.09 88.6 Urban – NFHS 1 Male 1.8 8. 1998-99 . Held in 1998-99 The number of urban elderly males living alone has risen from 6.4 2.6 9 86. held in 1992-93 and NFHS 2.NFHS 2 Male 1.78 Rural .5 3.5 6.5 4.26 Urban – NFHS 2 Male 1.THE RISING TREND OF LONELY ELDERS Rural – NFHS 1 Male Female Alone 1.6 3.6 5.06 91.7 86.6 3.59 2.8 Female 2.1 3.5 2 Members – Alone With Family Others   The figures clearly indicate the jump in % of elderly.3 Female 4.76 3.3 80.3% by 1998.

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PERCENTAGE DISTRIBUTION OF INCOME IN USA – AGE 65 YRS & ABOVE Income from Assets 7% Others 9% Earnings 30% Employer Benefit 9% Social Security 45% Source – Social Security Administration. USA – March 2008 .

TACKLING RETIREMENT USA WAY Social Security is largely a state subject and following are the benefits provided by the state:-  Social Security  Traditional Individual Retirement Account (IRA)  Roth IRA  401 K  Medicare above 65 years  Disability benefit .

of Beneficiaries (in million) 3 Amount ($) 0.TACKLING RETIREMENT USA WAY The burden of social security on U. USA Data on Social Security beneficiaries since 1950 .9 1960 1970 1980 14 26 35 11 31 120 1990 2000 2008 39 45 50 247 407 615 Source – Social Security Administration.S government has risen from $1 billion in 1950 to $615 billion in 2008 which is not tenable going ahead In Billions Year 1950 No.

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The 3 Universal Pillars of Comprehensive Pension Scheme Pillars of Comprehensive Pension Scheme  Pillar I –Standardized State run Pension Scheme  Pillar II – Employer & Employee contribution  Pillar III – Voluntary Private Funded System ( Personal Savings ) .

RETIREMENT – THE INDIAN SCENARIO  India has 80 million elderly population and is growing at 3.8% p. 12%  12% of the workforce is covered under Retirement Benefit Scheme.org . Composition of Workforce  Population is growing at 1.pdf . 88% Unorganised sector Organised Sector Source – pfrda.MARCH_2008739214703.8% p.a.a  88% of the workforce is from unorganized sector not covered by any form of Retirement Benefit Scheme.

Retirement funds are generated by the following methods:-  Contribution towards Employee Provident Fund  Contribution towards Pension Fund  Gratuity  Super-Annuation .RETIREMENT SOLUTION IN ORGANIZED SECTOR Retirement benefits are largely unfunded by the Govt.

Retirement funds are generated by the following methods:-  Contribution towards Public Provident Fund  Insurance Annuities  Pension Plans  NPS .RETIREMENT SOLUTION IN UN-ORGANIZED SECTOR Retirement benefits are largely unfunded by the Govt.

.SHORT COMINGS OF INDIAN SOCIAL SECURITY  Absence of Social Security systems  Medicare facility absent  88% of India’s workforce is not covered for post retirement benefits  Retirement funds are invested in fixed income securities.

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.RETIREMENT CONFIDENCE SURVEY OF USA Do you know? Even after having Social Security system 50% of the workers are not confident of a comfortable post retirement life.

RETIREMENT CONFIDENCE IN USA .

RETIREMENT CONFIDENCE IN USA .

POST RETIREMENT CONFIDENCE IN USA Do you also know? Even when 74% of retirees had saved money for retirement 38% were not confident of a comfortable retirement life .

POST RETIREMENT CONFIDENCE IN USA .

POST RETIREMENT CONFIDENCE IN USA .

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RETIREMENT PLANNING– A SOCIAL WELFARE ACT Retirement Planners :  Help their clients take on the 30-30 challenge Help clients to avoid  Get opportunity to become investor’s financial advisor for life .

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.GUIDE TO RETIREMENT PLANNING  Arrive at house hold expenditure post retirement using your current age. current house hold expenditure and expected long term inflation   Provide for medical expenses / contingencies Calculate the corpus needed to take care of the retirement needs based on the returns expected.  Work backwards and calculate the amount required to generate the wealth for retirement based on returns expected.

STEPS IN RETIREMENT PLANNING Equity Debt Cash Asset Allocation Understand your client Set Financial Goals Retirement Corpus Monitoring Plans .

. attitude. etc. required/expected returns on investments. intentions.ASSESSMENT OF CLIENT’S FINANCIAL BACKGROUND  Information from clients basically comprises of the following components:  Personal information  Existing investments and levels of income  Investment objectives  Risk profile.

It is based primarily on the investor’s attitudes and beliefs about the investments ( various asset types ).PERSONAL RISK PROFILING  Helps in advising appropriate mix of risky and non risky assets Risk taking ability: Risk tolerance is the financial ability of the client to tolerate notional losses for an extended period of time. Risk Profile = Risk taking ability + Risk preference . more insurance against unexpected occurrences Secure job. Factors affecting risk taking ability: Higher assets than liabilities.    Risk Preference:  It is the willingness of the individual to bear risk.

analyze current expenses  Categorize expenses as Discretionary and Non-Discretionary expenses  Non – Discretionary expense : Expense which are necessities  Discretionary Expense: Expenses which are not necessary but are incurred because you want to enjoy certain benefits  Even a small savings of Rs.m can result in savings of Rs.1.SETTING FINANCIAL GOALS If you can’t measure it.9 lacs over a period of 10yrs if invested at the rate of 10% . you won’t be able to achieve it Step 1 : Estimating the expenses required post retirement To estimate future expense. 1000 p.

Ajay is currently 25yrs of age and will retire at age 60.04 lacs) Where.CASE STUDY.FUTURE VALUE OF EXPENSE Ajay’s current monthly expenses include the following: Household groceries – Rs. 25. inflation rate = 7%. of years to retire = 35 yrs. 2500 Total : Rs.66.000 . 2.000 Utilities charges Rs.25. Current expenses = Rs.914. Solution: Future value of current expense = Rs.54 per month ( Annual approx =32. no. 20. The inflation rate for the period is assumed at 7%.000 So how much will be his expense when he retires. 2500 Personal expense: Rs.

inflation rate = 7%.e.914 Returns during post retirement period = 9% ( Assumed rate ) Rate of inflation during post retirement period = 7% Life expectancy post retirement = 75 yrs ( 15yrs from retirement ) As per the above info.19 crores Where. Post retirement life = 15 yrs. 4.66. 2.914 Return on Post retirement corpus = 9% . Ajay would need = 4.66. Rs.CASE STUDY – ESTIMATING RETIREMENT CORPUS So how much corpus should Ajay have when he retires? Future value of current expense = Rs.19.31.2. Future expenses = Rs.478 i.

185 Let’s have a look at our Retirement corpus calculator . 4.CASE STUDY – ESTIMATING SAVINGS REQUIRED FOR RETIREMENT CORPUS Now that we know Ajay needs Rs.19 crores Here substituting the values we get = Rs.255 Or For Lump sum = Rs. 20.4. The next calculation required is to know how much monthly or lumpsum investment should be done by him today to generate the corpus of Rs.54.19 crores. 14.

Based on US pension fund data 1977-1987. . PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Roger G. 2. Ibbotson. January/February 2000. Singer and Beebower. May/June 1991. “Determination of Performance II: An Update. Real results may vary. .ASSET ALLOCATION Asset allocation is the highest contributor to risk reduction in a portfolio which results in a higher risk adjusted return Impact of Asset allocation on return variability ( Risk Reduction) Asset Allocation Strategy 91% Security Selection 5% Market Timing 2% Other Factors 2% Source: 1. Based on US pension fund data 1977-1987.” Financial Analyst Journal.” Financial Analyst Journal. 90 or 100 Percent of Performance?. “Does Asset Allocation Policy Explain 10. Brinson. Studies that employ different statistical interpretations produce different results.

7% 16.40% 5.INVESTING IN APPROPRIATE ASSETS Asset classes ( Post-Tax Returns) Gold 10-year treasuries Bank fixed deposit Property (across 7 cities) Equities (BSE Sensex) CAGR in WPI Index Avg.5% 13.6% 13.30% Performance of various assets class over a 15 year period.7% 5.2% 16.7% 5.6% 13. equities remain the best performing asset class over the past 15 years.2% 5.0% 4.50% 15Y CAGR 8.50% 6.8% 5.8% 4.40% 5.4% 6. Source : Morgan Stanley Research 9th Feb’11 .6% 6. However.1% 6. Annual Inflation Rate 5Y CAGR 17.20% 10Y CAGR 15. Gold is the best performing asset over the past five and 10 years.7% 6.

IMPORTANCE OF ASSET ALLOCATION Different asset classes react differently to different stages in the economic cycle Slowdown Cash Neutral Bonds Positive Equities Negative Economic Growth Boom Cash Bonds Equities Positive Negative Positive Recession Cash Negative Bonds Positive Equities Negative Recovery Cash Neutral Bonds Negative Equities Positive Image source: Internet .

500.000 34.000 136.900.25.Rs.000 12.000 67. post retirement return on corpus – 9%.000 6.000 6.000.500.000 With more delay in retirement planning the savings required increases  Retirement benefits do not fulfill all the savings requirement for post retirement period  The early the individual starts saving for retirement the lesser the burden on cash flows Curr exp .000 5.000 15.000 Age 55 45 35 25 Shortfall 2.000.500.500.TYPICAL RETIREMENT PLAN – ORGANIZED SECTOR Expenditure at 60 35.400.100.000 41.000 5.000 9.000 SIP Required 31.000.500.000 4.000 Retirement Corpus 5. inflation – 7%.500.600. Pre-retirement return -12% Retirement benefits are assumed For Illustration purpose .000 Retirement Benefit 3.000 21.000 267.000 10.

000 21.400.400.000 p.000 21.000 7.000.Rs.100.000.000 p.000 67. inflation – 7%.000 11.000 5.000 0 41.000 21.000 10. who is not covered  A young individual will always have low burden of savings even if no retirement benefits accrue to him as can be seen in the 25yrs age group.100.000 10.m.000  People who do not have retirement benefits should start saving early for their retirement  As can be seen a person who is 45yrs of age with retirement benefits had to just save Rs.21.000 25 267. as compared to Rs.12. post retirement return on corpus – 9%.500.TYPICAL RETIREMENT PLAN – UN-ORGANIZED SECTOR Age Expenditure at 60 Retirement Corpus Retirement Benefit Shortfall SIP Required 55 45 35 35.m.25.000 136.500. Pre-retirement return -12% For Illustration purpose .000 0 0 0 5.000 67.000 41. Curr exp .000.

WHAT’s IN IT FOR ME?    Retirement investments are long term products Investor’s Retirement Plan will take care of your Retirement Clients will be able to win the 30-30 challenge Your clients will be able to avoid .

Thank you for your time Disclaimer: 1) This presentation is for information purpose only. . 3) No investment decisions should be taken based on the information contained in this presentation. 2) This shall not be used for soliciting business for any schemes of Tata Asset Management. It aims at understanding the importance of Retirement Planning.

Statement of Additional Information (SAI) and Key Information Memorandum (KIM) of the scheme for applicable loads. 1 lac made by them towards setting up of the Mutual Fund. .Statutory Details: Constitution: Tata Mutual Fund (TMF) has been set up as a Trust under the Indian Trusts Act. 1882. Sponsors & Settlors: Tata Sons Limited. liquidity risk. settlement risk. credit risk and liquidity risk • Investment in mutual fund units involves investment risk such as trading volumes. the Sponsors or its group affiliates is not indicative of and does not guarantee the future performance of the schemes • The Sponsors are not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the contribution of an amount of Rs. Tata Investment Corporation Limited. default risk including the possible loss of capital. For scheme specific risk factors and other details please read the SID/SAI/KIM of the scheme carefully before investing. Investments in debt securities are subject to interest rate risk. Risk Factors • All investments in Mutual Fund and securities are subject to market risks and the NAV of the units issued under the schemes can go up or down depending on the factors and forces affecting the capital markets • Mutual Fund and securities investments are subject to market risks and there can be no assurance and no guarantee that the objectives of the scheme will be achieved • Past performance of the previous scheme. Kindly refer Scheme Information Document (SID).