Wealth Management & Personal Financial Planning

Retirement Planning
- Future is closer than you think
DO YOU HAVE A PLAN FOR RETIREMENT ?

• “Are you crazy ? i am just 25 ! you retire if you

want to, not me!”
• “I am still 35. Retirement is for my dad. I have
long way to go.”
• “Do you want me to retire? I am just 43. Let
me take care of my kids education now. Let
me think of retirement after that.”
DO YOU HAVE A PLAN FOR RETIREMENT ?

• “Yes. I should be doing something. I am

nearing it . just 8 more years to go. I do have
something with me. God will take care.”
• “ I am now at 65. You should have asked me
this question when i was 25. Its late now.”

• This story is not about retirement. Its about

retirement planning.
 Why Retirement Planning ?
• Longer life span
• Uncertainties
• No fixed return
• Inflation – Silent killer
• Nuclear family set up
• Rising medical costs
• No government support
• Newer interests in life
Retirement planning process - Steps
•Step 1: Analyse the present financial situation,
meaning, how much you are spending now and what
is your present net worth (meant for Retirement).
(Source: Cash flow statement & Balance sheet)

•Step 2: Plan the possible time period over which you

are willing to retire. (Sooner to retire, more to save)

•Step 3: Assuming a reasonable inflation and standard

of living, check up the amount required for you to
survive post retirement.
Retirement planning process - steps
• Step 4: Accordingly calculate the corpus
required.
• Step 5: Find the gap between the present net
worth (meant for retirement) and the corpus
to be built over a period.
• Step 6: Identify the assets to invest in,
considering your risk and return profile.
• Step 7: Keep monitoring and revising the
portfolio in the light of the developments.
Retirement planning process - Example
CURRENT EXPENSES Rs 40,000 per month
NEED AT RETIREMENT 90%
INFLATION EXPECTED 8%
RETURN EXPECTED DURING 14%
INVESTMENT PERIOD
RETURN EXPECTED POST 10%
RETIREMENT
PRESENT AGE 40 Years
EXPECTED TO RETIRE 60 Years
LIFE EXPECTANCY 80 Years
PRESENT NETWORTH No amount meant for retirement
Retirement planning process - Example
MONTHLY EXPENSES
EXPECTED AFTER 20 YEARS

CORPUS REQUIRED UPON

RETIREMENT

PRESENT VALUE OF THE

CORPUS (to be invested in
case of Lump sum)
MONTHLY INVESTMENT TO
BE DONE (in case of SIP)
Retirement planning process - Example
MONTHLY EXPENSES =FV(8%/12,240,,-36000)
EXPECTED AFTER 20 YEARS =Rs 1,77,365

CORPUS REQUIRED UPON =PV(1.85%/ 12,240,-177365)

RETIREMENT = Rs 3,55,57,620

PRESENT VALUE OF THE =PV(14%,20,,-35557620)

CORPUS (to be invested in = Rs 25,87,234
case of Lump sum)
MONTHLY INVESTMENT TO =PMT(14%/12,240,,35557620)
BE DONE (in case of SIP) = Rs 27,328
 How to do it in VIP?
• Let us calculate the initial amount, assuming
r = 1% and g = 0.5%
• So Vt = C x t x (1 + R)t where R = (r+g)/2
• Rs 3,55,57,620 = C x 240 x (1+0.0075)240
• C = Rs 24,655
• Instead of Rs 27,328, you can now start with
Rs 24,655 and then grow it over a period of time
 Establishing value path
• Having known the amount to begin with, let us
know the amount to be accumulated at the end of
every month (assuming r and g constant) to reach
the goal in time.
• Vt = 24,655 x t x (1.0075)t
• V1 = 24,655 x 1 x (1.0075)1 = Rs 24,840
• V2 = 24,655x 2 x (1.0075)2 = Rs 25,026

• As the amount is set, decide how many shares or

units to buy / sell to reach this level
 Points to note
• Investments done before (pre) retirement for
the sake of creating a retirement corpus is
different from investments done post
retirement for survival.
• Net worth meant for retirement purpose alone
should be deducted from the corpus required,
so as to know the amount to be invested.
• You have other goals too, apart from
Retirement planning for which your present net
worth may be earmarked.
 How to create corpus ?
• Defined Benefit Plans
– Gratuity
– Leave salary
– Retrenchment compensation
– Voluntary compensation
• Defined Contribution Plans
– Employee Provident Fund
– Public Provident Fund
– New Pension Scheme
 How to create corpus ?
• Other avenues
– Pension Plans of Insurance Companies
– Pension Plans of Mutual Fund
– Investments in Growth Schemes of Mutual Fund
– Investments in Exchange Traded Funds
– Investments in Direct Equities
– Any other avenue possible
Investment avenues during post retirement survival

• Post Office Monthly Income Scheme

• Senior Citizen Savings Scheme
• Bank Deposits
• Mutual funds - Hybrid Funds
• Mutual funds – Debt Funds
• Reverse Mortgage
• Annuities
 Reverse Mortgage
• In a normal mortgage, a property is given as
collateral security and loan is taken in bulk
amount from the lender. It is repaid in
instalments over a period of time.
• But the reverse happens in Reverse Mortgage.
• Periodically an amount is given by the lender for
the mortgage done and at the end bulk amount
is paid to clear the loan.
• Only senior citizens are eligible for this facility.
• The tenure can be life long
 Reverse Mortgage
• Borrower need not service the loan during his life time
• On the borrower’s death, the loan is repaid with
interest by sale of property or
• The legal heirs can repay the loan with interest and
release the mortgage
• The maximum monthly amount that can be received
under this scheme is capped at Rs 50,000 (with
exceptions) and maximum initial lump sum is minimum
of 50% of loan eligibility or Rs 15 lakhs (mainly for
medical needs)
 Reverse Mortgage
• Example: Assume a house carries a market value of
Rs 1 crore, with a loan to value ratio of 60% a
borrower will be eligible for Rs 60 lakhs loan
• Under Reverse Mortgage, the borrower is eligible
to take 50% (of Rs 60 lakhs) or Rs 15 lakh (which
ever is lower) as a lump sum amount.
• For the balance amount, two options are available
• One, balance Rs 45 lakhs may be invested in
annuity schemes of Insurance companies which
will provide periodic returns (no limit on amount)
 Reverse Mortgage
• Two, for the balance amount an equated monthly
instalment can be taken from bank (the amount
based on prevalent interest rate) subject to a
maximum of Rs 50,000 per month
• All receipts are exempt from Income tax
• It is a good way to unlock the power of Real Estate
• Seniors can live in their own house till they die and
also have revenue stream from the same without
selling.
Happy Learning

Thank You