Financial Planning for retirees in india

financial planning for retirees

1. Financial Planning Post Retirement

2. Introduction The world is currently facing a retirement crisis in varying proportions from country to country The United States have been affected the worst owing to the subprime crash of 2008 Indian retirees are yet to face any substantial challenges due to many fixed income securities available at high interest rates Financial planning pre and post retirement is however of the utmost importance as evident from the learnings worldwide A decreasing interest rate scenario makes it vital to foresee the financial conditions prevailing after 10-15 years in the Indian context

3. Agenda Need for planning and common mistakes Steps in planning SMART goals Investment strategies Available instruments Importance of annuities Investment scams Conclusion

4. Need for planning and common mistakes A solid financial plan for retirement can help you maintain your standard of living and avoid any debt burdens. Having your finances charted out after the age of 60 can help you be prepared for any emergencies when it comes to healthcare. Leaving behind a legacy for loved ones is only possible if financials are planned well. Mistakes seniors do while planning for retirement: Not considering healthcare costs Retiring with debt Not having a balanced portfolio Not understanding taxation on post-retirement savings Underestimating life expectancy and the consequent effects of inflation

5. Steps in planning Basic thumb rules of financial planning are as follows:

6. SMART goals Incorrect approach Correct approach Specific You need to know exactly what you want to achieve and when you want it. I need to gift something nice for my granddaughter next year I need to set aside 10,000 for my granddaughter’s birthday next year Measurable A goal should be measurable so that you know when you will achieve it. I will save money I will save Rs 48,000 each year by putting aside Rs 4,000 a month. Achievable Your goal should be within reasonable reach I will pay all my debts next month I will settle debts worth 90,000 in this quarter Realistic Your goals need to be based on resources and tasks that you can reasonably accomplish. If I invest in some stocks with huge upside potential, I will become a millionaire in no time I will expect 10-12% average returns on equity and plan my investment goals accordingly Time-bound Goals with timelines allow you to track your progress and encourage you to keep going until you reach your goal. I will be financially stable soon I will pay off my debts in this year and increase my monthly income by 6% every year via planned investments

7. Investment Strategies Finding the right balance among available options is crucial Some of the common dilemmas are mentioned below: Savings vs investment Loans vs investment High risk high return vs safe and low return Stocks and bonds vs equity and debt funds Increase income vs reduce expenditure

8. Available Instruments Instrument Pros Cons Fixed deposits Guaranteed and safe, higher interest rates for seniors Reinvestment risk, amount only upto 5 Lac insured in case a bank fails Mutual funds Higher returns, better liquidity, lesser taxes, many asset options like equity, bonds, REITs, money market, etc Need good understanding of financial assets, inherent risk even in case of bond funds, zero capital guarantee Insurance plans Tax benefits, capital guarantee in case of traditional insurance plans, better flexibility and liquidity in ULIPs post lock-in period Very high mortality charges at higher age, low returns for guaranteed products, hidden charges SIPs Average out effect during investment which helps to reduce risk, tax benefits on ELSS schemes Long timespan required to accumulate wealth, other cons same as mutual funds Real estate, Gold Very stable and safe, tangible assets free from financial market instability Returns generally don’t beat inflation, liquidity might be a big issue depending on the situation

9. Importance of Annuities Very simple, basic, and easy to understand by all age groups No hidden charges Currently one of the highest interest fixed income instruments Highest longevity amongst any fixed income instruments Zero reinvestment risk Liquidity in the form of loan options and critical illness benefit Forms the safety net of a retiree as the annuity amount is guaranteed for life with little to no consequences in case the annuity issuing company liquidates GST benefits if annuity opted from NPS proceeds Help in legacy planning via return of corpus options

10. Investment Scams Retiree groups are the most susceptible to investment scams for the following reasons: Large liquid funds in account Investments mostly done through social recommendations Keeping up with up to date technological advancements is difficult On the lookout for high return investment schemes to fulfill dreams Some common scams are categorized as follows: Pump and dump (stocks, crypto, etc) Boiler rooms (upcoming IPOs) Pyramid schemes Transaction scams (KYC, UPI, Internet banking, etc)

11. Conclusion Financial planning post retirement is as important as pre retirement Limited new income opportunities make it crucial to make financially safe and sound investment decisions Inflation is not understood well by majority of the retiring population which leads to depletion of retirement corpus in the initial stages Medical costs are underestimated and not well planned fo r Life expectancy and depreciating value of money is underestimated Annuities tackle majority of the issues faced by providing a safety net as well as liquidity in difficult situations Some portion of investments should be made into liquid and higher risk reward profile instruments to maintain a diverse portfolio