What will Retirement cost me?

Conventional financial planning suggests taking your current expense levels and inflating them by the prevailing consumer price index, to arrive at expected expenses post retirement.

There is more to estimating your expenses at retirement than just simply inflating your current expenses at the Consumer Price Index.

Conventional financial planning suggests taking your current expense levels and inflating them by the prevailing consumer price index, to arrive at expected expenses post retirement. The next step is to then arrive at a corpus or sum of money that you need to put aside that will provide for the given expenses. However, the Big Decisions inflation index as shown in the table below, shows the more likely expected inflation levels in a given age band.

Our index indicates a lower than conventionally expected inflation of expenses for retirement and, therefore, a lower amount of savings and investments will help the family's primary income earner to meet the goal.

Let's see how the two approaches differ for a 35 year old man who is the main income earner of a family of four people, expecting to retire at the age of 60 and whose current family expenses, including an EMI for their home is Rs 75,000 per month.

Conventional Retirement Plan Company would suggest that the family's expenses would inflate @7% a year for the next 25 years, resulting in their expenses becoming a little over Rs 4,00,000. Even if the family expects to earn a post-tax return of 8%, the primary income earner will need to plan to build a corpus of over Rs 9 crore, requiring him to save more than Rs 90,000 per month.

Taking the BigDecisions.com index into account, the family can expect expenses to inflate only at 3.5% per annum for the next 25 years, resulting in the family's expenses being under Rs 2 lakhs per month. To prepare for this, the family will need a corpus of under Rs 4.5 crore and a monthly saving of less than Rs 45,000 per month.

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The methodology used to compute this index was to look at 20 years of daily expense data of a given household,remove one-time expenses to arrive at how increase due to inflation, combined with reductions in consumption, impact the effective inflation rate for a household. These results are meant to be indicative and may vary across different households.

[Source: https://www.tomorrowmakers.com/articles/retirement/what-will-retirement-cost-me]

5 Things to never do after you Retire

Here are unpleasant surprises to avoid in your golden years, when you are looking forward to enjoying life. Starting to save later, neglecting your health among other things, can lead to some nasty surprises once you get there.

Avoid these nasty surprises:

1. If you need to get yourself a dream home or a car, banks will queue up to lend to you. Education loans for your children are also fairly easy to get. But no one will lend to you, to lead a comfortable retired life unless you are willing to reverse mortgage your house.
   
   So realizing that you do not have enough after you have retired is a problem to say the least! Some estimates say that Rs 1 crore to Rs 5 crores is required. It’s not a one-size fits all kind of situation. Sit down with a financial planner and figure out what you will need to save without letting these numbers intimidate you.
    
2. On the flip-side, unlike most other goals mentioned above, you have a greater influence on how much you need or what things cost. So, how much your children’s education is going to cost you, is much more in the institute’s (the one he/she decides to go to) control than in yours. Likewise, for your house, the real estate market is not in your control. We are not suggesting that you adopt a ‘chalta hai’ attitude but rather that you keep things in perspective.
   
   However, your future expenses do not inflate as several estimates might suggest. Some things like family size, daily commute and leisure plans can change your consumption of several items. In a way, future inflation gets balanced with your altered, more toned down lifestyle.  So, stop worrying too much about inflation, and get started saving for retirement right away, with however little per month as you can manage.
    
3. Retirement is the worst time to start taking your health seriously. Healthy eating and exercise habits go a long way in reducing your expenses as you grow older. Conversely, healthcare costs (especially given recent inflationary trends in this area) can dig a huge hole in your savings, if you don’t have adequate health insurance (see how much you should have here).
   
   Health insurance is too expensive if you decide to buy only after you retire. Taking your health seriously right away, is the best decision you will ever take. Not relying on your employer (since they won’t be there for you after you have retired anyway) is a very distant ‘next best’ option!

 

It is also not the right time to churn your portfolio and Retirement Insurance Policy in a more aggressive manner. If anything, this should have been done years before you retire. Later you should be more conservative with your money. Playing the stock market at this stage of your life, will leave you with no buffer if you lose money, as you no longer have a steady income coming in.

4. Don’t co-sign loans or put up your savings/investments/property as collateral for anyone. 

Do these things well in time and protect yourself, and you are all set to enjoy your retirement years in a carefree manner.

[Source: https://www.tomorrowmakers.com/articles/retirement/5-things-to-never-do-after-you-retire]

Start Early to Retire Rich

Starting early and sticking with a disciplined saving habit is perhaps the only way to tide over the huge problem of unfunded retirement that most Indians are likely to face in their twilight years.

While the world has slowly come to terms with the damage caused by the sub-prime crisis, many financial analysts are now warning that even greater economic threat is looming – the massive shortfall in funding for workers’ retirement. Sample this: In the US, consumers and government organizations would need to add $6.6 trillion to their existing funds to allow pensioners to maintain their standard of living.

A report commissioned by the European Central Bank states that across 19 of the EU nations, state-funded pension obligations total approximately $37 trillion, about five times more than their combined gross debt. It will be much more difficult for Indians, as a large majority is not touched by any kind of pension scheme. The previous generation had to save for retirement but the current generation will have to invest for a comfortable post-retirement life. Given the fact that Indians are living longer, 75 and above, coupled with high inflation, the need for retirement planning is increasing at a fast pace.

In India, families are becoming smaller and due to geographical labour mobility, children are increasingly likely to be separated from their parents. Changing social values have made the joint family unattractive for the urban younger generation. Most likely, this is only going to get worse. This means, those who are now in their 30s and 40s need to take retirement planning as the most important goal and start working towards it before it is too late. Gone are the days when one could completely bank on their children to take care of them.

Earlier, public provident fund (PPF) and fixed deposits along with post office savings were considered the smartest way to save towards Retirement Plan Company. Times have changed now. With increasing consumption demand, the prices are shooting through the roof. This leads to the question: Is it possible to retire rich and if yes, how? Many couples, when they meet a financial planner for the first time, get excited when they are told that a Rs 10,000 monthly SIP in an equity fund can grow to Rs one crore in 20 years’ time at a 12% annualized return. The excitement soon vanishes when they are told that given their current expenses, it’s only one-fourth of what they would actually require.

It is not difficult to retire rich, provided one starts early. Though investment planning is a complex process, especially planning for retirement, disciplined investments done for a long time will ensure you are able to sail through comfortably. There are many other options, which one can explore alongside investing in mutual funds, such as pension schemes, in stocks, and investing in hybrid products. Keeping it simple is the mantra along with making cosmetic changes from time to time, based on change in income and various life stages.

You may get yourself in an extremely difficult situation if you depend on your children for your post-retirement life, and they neglect you when you need them most.

[Source: https://www.tomorrowmakers.com/articles/retirement/start-early-to-retire-rich]

Why do in I need retirement planning?

Retirement is long way off, why should I start planning now…

When your life lies ahead of you with miles to go and milestones to cross, retirement remains a distant speck and is usually the last thing on your mind. You probably think its ok to push the decision for later. But unlike other goals like housing, your child’s education and marriage that can be met by borrowing, retirement expenses cannot.

Why do you work till you drop all your life because post retirement you wish to live the comfortable life that you always envisaged, lazing in a recliner in Goa and enjoying the breeze blowing through your hair. Unwise planning can sadly put you in a spot. Especially if you realize that you have not saved enough at the brink of the retirement.

Also, there is a Retirement Insurance Company which planning for retirement means planning for as many as 25 to 30 years, which is as long as Sachin’s career. Turning your children to take care of you is not really an option as running two household in not easy. But wait it’s not all the downhill, the key is to start saving early so that you have enough for your golden years.

Start today with small monthly contributions to build up your ideal fund. However, the more you defer it, the more you will need to save every month to build the same fund.

Also, experts may tell you that your expenses will inflate astronomically in your later years. But the truth is that with a reduced family size no daily work commute and a simpler lifestyle, it may not be that bad.

You can heave a sigh of relief now and wipe the sweat off your brow. What you will spend post retirement determines how much you need to save today.

There is more to estimating your expenses at retirement than just simply inflating your current expenses at the Consumer Price Index.

Conventional financial planning suggests taking your current expense levels and inflating them by the prevailing consumer price index, to arrive at expected expenses post retirement. The next step is to then arrive at a corpus or sum of money that you need to put aside that will provide for the given expenses. However, the Big Decisions inflation index as shown in the table below, shows the more likely expected inflation levels in a given age band.

Our index indicates a lower than conventionally expected inflation of expenses for retirement and, therefore, a lower amount of savings and investments will help the family's primary income earner to meet the goal.

Our well-researched tools, blog posts and videos help you navigate this decision.

Retire from your job, not from the lifestyle you always desired and deserve!

[Source: https://www.tomorrowmakers.com/articles/retirement/why-do-in-i-need-retirement planning]

Retirement Income fund- securing future

Retirement income fund means any kind of investment product which is available to every kind of people as a stable means of saving for the near retirement. It is popularly known as RIF and is mainly investments in the form of mutual funds. The different types of mutual funds include large or mid-cap stocks and bonds. The portfolio balancing of RIF is done by allowing monetary gains moderately through orthodox approach, this is done so that the bond retains its values in its process of providing a source of income to the people who have invested in the various RIF.

Understanding RIF

RIFs are very important as they provide stable average growth of different assets of the people which they keep aside for retirement purposes and for this reason these funds are vigorously maintained. One thing people should keep in mind about RIF is that they are not treated specially by the tax department but are treated as normal mutual funds and thus are open to all kind of market risks. Although they are a traditional investment they do not guarantee secured income after retirement. Other than mutual funds there are few other types which pay at regular intervals either on monthly basis or six monthly basis and they require minimum investments.

Types of retirement income funds

There are mainly three types of income funds for retirement. These are as follows:

Target date funds: this type of income fund is designed in two ways. 1. They are designed to help people who have invested for Retirement Pension Plan to get through retirement ages. 2. Another way in which they are designed is such that by investing in a number of mutual funds people retire to profit from these investments. This type of investment yields low income but it gives people appreciation as this type of investment provides good exposure among the beneficial classes.

• Income replacement funds: are also known as reverse target date funds. In this type of income fund the investment company slowly returns the investor’s invested money plus any kind of capital gain before the company investment policy terminates in any particular year. This kind of income funds has both its pros and cons as people can either gain highly from this investment as the income yield is high or can go through major losses as the loss in this type of investment is steep.
• Managed payout funds: this type of income fund investment is a safe bet as it provides monthly income and there is also a scope for growth in investment. Like all over mutual funds, managed payout funds too are subjected to market risk but one advantage of this is during market lows this kind of investment can either cut its payout amount or can return the investor’s capital. An idea can be formed on how much income this type of fund will yield by looking into its yearly yields.

Overview

As retirement income funds are managed by professionals, one does not have to worry about the income distribution strategy, balancing of the income when the market changes or about the allocation of one’s assets. RIFs not only pays a stable amount of return but also keeps up with the rising or falling inflation. The best thing about investing for the future is that people can get lifelong monthly income without giving up hold on their assets.

[Source: http://whenwilliretire.com/retirement-income-fund-securing-future/]

Do variable Annuities Make sense for Retirement saving?

What I would really like is what state government workers get, i.e., a pension that starts sending me monthly checks when I turn 65 years old and adjusts those checks to account for inflation. So far I haven’t found a product like that. Does it truly not exist? If so, it is interesting that Detroit thought that they could provide this to their workers without going bankrupt. If Goldman Sachs and the rest of the Wall Street geniuses can’t figure out how such a product should be priced, why did states and cities think that they could do what the world’s most sophisticated financial services industry could not?

Insurance companies offer annuities, but they start paying immediately and don’t adjust for inflation. I’m 50 now. By the time I am 65 what seemed like a fat annuity check today might be the price of a Diet Coke. (Note to folks who ask why insurance companies can do this without going bankrupt as Detroit did… life insurance companies save money on their insurance policies when human lifespan is extended so they can use those savings to keep paying annuities that they have promised. When General Motors went bankrupt their oldest pensioned worker was 115 years old and GM had no way to benefit financially from people living longer.)

The “variable annuity” is something that I can’t figure out at all and I want a reader to explain it to me. The basic idea of a variable annuity is that you put money into it today and the investment returns compound tax-free until you decide to start taking money out for Retirement Plan Company. Vanguard sells them at what they claim (source) are low fees. It turns out, however, that “low” means at least 0.5 percent per year more than the fee on a corresponding index fund. As the S&P dividend yield right now is 1.9 percent (source) that means that one quarter of the yield is raked off to pay Vanguard and its insurance company partner. This sounds suspiciously like paying taxes on qualified dividends plus the new Obamacare rake. If yields were 10 percent and tax rates on dividends were 40 percent this product would make sense to me. But if all of the benefits of tax deferral accrue to the insurance company and/or Vanguard, why go to the trouble and take the risk that the insurance company (think AIG!) will go bankrupt between now and when you need the retirement income?

Are people still buying variable annuities in this low-yield environment? If so, why?

[Oh yes, if you’re looking for a little humor from the financial services industry, here’s a gem from the Vanguard web site: “Note: The American Taxpayer Relief Act of 2012 (ATRA) raised the top marginal income tax rate to 39.6% and the top capital gains tax rate to 20%.” (Emphasis added)]

[Source: https://blogs.law.harvard.edu/philg/2013/12/22/do-variable-annuities-make-sense-for-retirement-saving/]

Is a Retirement Cheaper than Assisted Living?

There’s a rumor that’s been making the rounds for years – have you heard it? If you spend your retirement on a cruise ship, or as a permanent resident of the Holiday Inn, it’ll be cheaper and provide better service than your average senior living or assisted living facility. That’s what the rumors say, anyway. We’ve done some research of our own, looked at the hard numbers about assisted living costs, and here’s what we’ve found. Learn more.

A Cruise Ship Retirement

It’s important to note that not all types of senior housing are created equal. Life on a cruise ship might compare favorably to expensive dull nursing homes portrayed in popular media, but the reality is quite different, and in fact, luxury senior housing and retirement communities offer many of the same perks that a cruises ships do: entertainment, chances to socialize, and customized senior nutrition, to name just a few. And they aren’t as expensive as you might think.

Nursing homes and memory care, which provide skilled nursing on a 24-hour basis, are the pricier options. But for seniors who don’t need constant care, retirement communities and independent living are far less expensive – and yes, they generally cost less than a hotel or a cruise: sometimes as little as $1,500 a month.

Impractical Realities

The logistics of living permanently on a cruise ship seem more than a little impractical. First of all, you can’t bring more much more than a suit case worth of possessions on a cruise. You can forget about packing your favorite sitting chair or a painting. That issue aside, it’s not as if one could just move on to a cruise ship and live happily ever after. Passengers must disembark when the cruise ends, and make arrangements while the ship is at port.

 Keeping these temporary arrangements month after month would be more than burdensome.

Another consideration is that seniors who move to assisted living facilities and nursing homes require help with activities of daily living such as bathing, toileting, dressing, and grooming. Yes, you may be able to get breakfast in bed on a cruise ship or hotel, but the staff are is not prepared or able to help provide hands-on personal care.

Health Risks for Seniors on Cruise Ships

Furthermore, many seniors have a high-risk of falling because of mobility problems. A cruise ship certainly wouldn’t be the best living environment such a person, as even very large ships can list violently in bad weather.

Cost is not the only factor in making a decision about Retirement Pension Plan for seniors, particularly for those who might want to stay close to family and friends, or who might have care needs requiring skilled nursing. Cecil Adams, author of the newspaper column “The Straight Dope,” points out that “the elderly are going to have a lot more medical issues than cruise ships are set up to handle.” And while there is such a thing as a hotel doctor, they generally don’t live on-site, but rather make potentially costly house calls.

Not only that, hotel doctors and on-board medical personnel likely won’t include geriatric specialists. Cecil points out: “If an emergency arises that they’re not ready for and you can’t wait till the ship reaches the next port, your ambulance ride is almost certainly going to be an airlift, which can be expensive and logistically problematic.” In light of how drastic contagious illnesses can be in a confined environment like a cruise ship – an emergency might be more of likelihood than we care to consider.

Even if it’s not an emergency, health care concerns are still important. If you take another look at Joy Bricker’s story, you’ll note that she had to leave her hotel room once her health began to decline. And hotels and cruise ships aren’t equipped to deal with ongoing dementia care, nor do they offer increasing levels of care, as do facilities that specialize in housing seniors.

[Source: http://www.aplaceformom.com/blog/2013-2-2-cruise-ship-retirement-assisted-living/]

Why Do Retirees Need Deferred Lifetime Annuities?

Deferred lifetime annuities can fill a significant product gap within the retirement market, and only life insurers offer them.

Annuities are a unique product type that promise to provide retirees with an income stream through the later stages of their life.

This is especially important for Australians – now amongst the longest-living people in the world – who face the real risk of outliving their own retirement funding.

A specific type of annuity, called a deferred lifetime annuity, is ideally placed to help people manage the risk of outliving their retirement funding (often referred to as longevity risk).

What is a deferred lifetime annuity? Simply, they are a product that provides an income stream once the person reaches a certain age, say 80 or 85.

But due to regulatory hurdles, deferred lifetime annuities remain too expensive for consumers to be attractive and thus there is virtually no effective market for them in Australia.

Life insurers want to help manage retirement risk

A big regulatory hurdle for life insurers to bring deferred lifetime annuities to market is that they need to provide what is called a ‘minimum surrender value’ (MSV), a form of cash back in certain circumstances.

And retirees would be more attracted to deferred lifetime annuities if they shared the concessional tax treatment enjoyed by other super products with supporting income streams.

The former Labor government had given the green light for deferred lifetime annuities to have the same concessional tax treatment as other super products with supporting income streams as of 1 July 2014.

However about Retirement Pension Plan, the new coalition government has put this on hold, pending a fuller review of tax reforms for the financial services sector.

TAL also argues that overly prescriptive regulations governing how income payments are made need to be lifted to encourage better product development.

Remove regulatory barriers

Instead of only providing for fixed percentages or increases to CPI/inflation, TAL wants regulations to allow links to the share market index or other measures that would expose income streams to potentially higher rates of growth where there’s greater appetite for risk.

If these barriers were removed, the overall cost of deferred lifetime annuities would be considerably less.

TAL is calling for regulatory changes so deferred lifetime annuities can become more attractive and help people manage their retirement risk.

[Source: https://www.tal.com.au/voice-for-life/retirement/why-do-retirees-need-deferred-lifetime-annuities]

Life Insurance for Retirement Can Offer a Big Boost

Many people only view life insurance as a way to take care of final expenses. While that is an important component, life insurance for retirement can also offer major advantages when it comes to planning out your Golden Years.

Two life insurance products used in retirement planning are permanent life insurance (coverage that’s in place your entire life that may build cash value) and annuities (a safe investment alternative that includes guaranteed interest rates, tax deferral and an option to have guaranteed income for life).

Even if you have options through your workplace, there are some definite advantages to permanent life insurance and annuities.

Advantage 1: Tax-free death benefit. While 401(k)s and traditional IRAs provide great incentives to save money, their benefits are taxable. This applies even after death—and estate settlement fees and probate fees can eat away at assets you earmarked for your loved ones.

Life insurance death benefits pass on totally tax-free. Meanwhile, interest and cash accumulations generated from a permanent life insurance policy or annuity are tax-deferred. (This means you can generally postpone paying taxes on the interest until you use the money.)

Advantage 2: Liquidity. Typically, you’re subject to an early withdrawal penalty if you use money from your 401(k) or IRA before age 59 ½. In contrast, you can typically borrow against the cash value of your permanent life insurance policy or annuity without facing a penalty.

Advantage 3: Flexibility. Traditional IRAs, Roth IRAs and 401(k) have annual deposit limits that restrict how much you can contribute each year. IRAs also have income restrictions. Permanent Retirement Pension Plan life policies and annuities can be structured to allow you to deposit as much money as you want, regardless of your income.

Advantage 4: Affordability. It is estimated that 58 million Americans are uninsured or underinsured when it comes to life insurance. Many forgo coverage because they overestimate the price by as much as 300 percent. Life insurance policies come in a wide range of prices to fit any person’s budget.

Advantage 5: Security. In addition to a tax-free guaranteed death benefit, permanent life insurance can also offer a guaranteed cash value. Annuities, which can offer a guaranteed payout for as long as you live, also offer a high degree of security.

Does life insurance for retirement sound like something you could benefit from? If so, contact an insurance professional like an Erie Insurance Agent to learn more.

[Source: https://www.erieinsurance.com/blog/2014/life-insurance-for-retirement]