Give your retirement a priority

Most of us push back the very thought of retirement and give it the least preference in one’s scheme of things in life. A retirement survey shows nearly 78 percent of Indians haven’t planned their retirement. But then, ignore it at your own peril. With increasing life expectancy and rising cost of living, can you expect to maintain the same lifestyle you are used to now, leave aside enhancing it? Act now, before its too late. Sit down and design your retired years with lots of traveling, spending, and relaxing in mountains and beaches, all through your retired years. You should plan in a way that you are never short of funds even during the retired years and certainly not dependent on anyone including your children.

 Start Early, Start Now

 And to achieve that comfortably, you need money. If you are one of those who haven’t started saving towards retirement, planning it is simple especially if you start early. The earlier one begins to save for retirement, the lesser is what is required. See, how Radhika had to save considerably less than others to create same corpus in “Starting Early: Compounding at its Best”.

 Small Start to Big Corpus

 Small amounts, if invested wisely and with discipline, could end up as a healthy sum when you retire. There are fund houses with schemes that ask for as low as Rs. 500 to start with. Start now, as it helps building a financial discipline. Start with a smaller amount and over time when income rises, increase your savings. Saving a few thousand rupees every month doesn’t require much of an effort, so devise a plan and stick to it. Putting aside 10 per cent of take-home cheque in a retirement basket shouldn’t hurt. It’s seen that launching a retirement program when you are 55 is 18 times more expensive than when you are 25.

Compounding Magic

Even if you are starting late, you probably need to re-look the magic of compounding. Simply put, under compounding, your savings would multiply exponentially as interest earns interest over long term.  If you start investing early, the time you give your earnings to earn further is more.

The Vehicle

 Once you decide to make regular investments towards your Retirement Pension Plan, be sure to exploit the full potential of equities as it has delivered the most among all asset classes in the past. Equity mutual funds have proved to be the ideal vehicle for retail investors to take advantage of the excellent long-term growth of stock markets.

Many of us procrastinate and do not give importance to retirement until they are 40 plus. They have a misplaced confidence that they could manage from a late start. Their perception is that a little extra amount of savings would be enough. The reality is, starting late could make you invest more than double than someone starting early. More the number of years to retirement, more is the boost to your retirement corpus!

Source: http://www.bajajcapital.com/blog/Give-your-retirement-a-priority.aspx     

How to choose an effective retirement insurance company

Life is all about racing hard. Whether it is day-to-day activity, schooling, career, job, married life responsibility or even old age; we all want to win the competition in the end. It is a never ending race. But over the period of time as we gradually grow old at some point we all are going to retire from the working life phase. A break will be put on our race and it might directly shift into the first gear of life where things have to be taken care off in more relaxed and conscious manner. Be it a business man or a salaried professional our regular flow of income will come to a halt and we will have to look back at the savings that we have build over the years. So, everyone needs a sufficient retirement plan that will help them survive their old age and fulfill their incomplete dreams in life.

Each one has its own way of securing their olden days; the best way to create a qualified retirement plan is to approach the professional financial planners. A qualified professional have loads of knowledge and experience over the years and they can guide you properly for creating a well-balanced plan. It is the lack of knowledge due to which most of the people fail to formulate a good retirement plan.

Today, markets are pooled with loads of retirement products catering to the clients across the nation, but the one plan which allows you to save systematically and build up the much needed lump sum to provide yourself a regular income after your retirement is “retirement insurance plans”. In these plans, a person pays fixed amount, known as the premium, to the insurance company over a pre-determined period of time, known as the term of the policy. While part of it goes for insurance cover the rest is invested in various instruments to earn returns and build a corpus over the term of the policy. Investors who would like to maximize their returns can consider using a combination of aggressive, debt-oriented and hybrid funds along with the plans of insurers for the purposes of earning a pension. 

Now that you aware of retirement insurance concept you must be looking out for the best company to finalize a retirement plan? It is advisable when you search for a retirement insurance company or a professional to finalize your plan first make sure that the company or the person has healthy experience in planning retirement. You should try to know how they strategize, finance for your retirement and on what equity, debt or balanced funds do they recommend to invest. They should be well-versed with financial knowledge and counter the losses if any, in your funds to give you balanced results in the end.

A well reputed retirement insurance company will do everything on right note, but still you need to look into certain aspects of the company. The first thing you should look is the client base of the company and how good is the relationship with their client. If possible try to get feedback from the existing clients or try calling up customer service and understand how friendly and proactive the team is. Are they able to mitigate your concern on time? Apart, from this you should also look into the general suggestion they make on the issues like financial planning, planning for set interval of time and more.

Once you finalize the company or the individual you should make sure that they formulate a clear strategy and are putting out plan that will maximize the return on your investment. Keep a regular updated on the entire move Retirement Fund makes and the planning they do on maximizing your investment. Before finalizing the plan make them aware of your personal financial commitment towards your family and the financial strength or capacity that you can invest for. This will help them formulate a financial plan in a way that it does not affect your present situation and also helps you to invest in your future, this kind of balanced investments are very much important.

To get a basic idea you can also use a bit of internet too. Today, online sites are a great place to start as they help you easily to compare the cost of insurance and also let you get a glimpse on retirement insurance company reputation in the markets. If you can’t afford to devote your valuable time on research then you can entrust the job to a well known insurance agents. It is one of the reliable ways to ensure that you get best insurance quotes in less time without having to go through the hassle and tedious task calculations. 

A Quick Thumb Rule for Retirement Planning

1.      

Total Financial Savings Required at the time of Retirement

With this saving, you should be able to deal with your income needs after retirement

Note that, with average life expectancy expanding, you may need to plan for a good 30-40 years after retirement

The objective is to ensure you have sufficient savings not only at the point of retirement, but also to maintain your future standard of living adjusting for inflation

Financial savings does not include the house that you live in, but all other form of savings including Debt, Equities, any real estate beyond the house that you stay, PF, etc

2.       Current Annual Expenses

This is your current household expenses and assumes you own the house that you stay in

Therefore, do not include your EMI towards your house in this

This would not include ‘goal based’ expense planning like Child’s college education or marriage – which needs to be planned separately

Objective is to simply ensure the family – husband and wife – have sufficient income available to maintain their life on retirement plans

Note that this is a quick thumb rule to ensure same standard of living. Child’s education expense at the age of 40 will be replaced by medical or ‘travel’ related expenses at the age of 60.

3.       1.07 ^ Number of years to retirement

Here we try to project expenses at a future point in time, assuming a 7% rate of inflation

Though inflation has been higher in the past few years, it should settle at about 7% for the next few years. This rate is closer to the zone for comfort for the RBI.

4.       X 25

It is important one understand why you need to have 25 times your annual expense at the time of retirement

This assumes that your portfolio makes close to 10% pa at the time of retirement – therefore assumes you have a reasonable mix of equity, debt and real estate at the time of retirement – as debt alone cannot generate real inflation adjusted returns

Of the 10% that your portfolio makes, you can use 4% for your annual needs. The balance 6% needs to be invested back in the portfolio to maintain your income for future inflation protection.

We hope this is useful. This is a quick thumb rule and you specific life situation may have unique needs. But as long as your planned financial savings is at least 25 times your inflation adjusted expense requirement, retired life should be fun.

Source: https://scripbox.com/blog/a-quick-thumb-rule-for-retirement-planning   

Top 6 Reasons Explaining the Importance of Retirement Planning

The concept of retirement in India has undergone a paradigm shift in the last couple of years. Retirement opens a whole new chapter for many individuals, when they pursue the ‘work they love to do’ and convert their hobbies to professions. There’s an increasing trend of individuals opting for voluntary retirement as they reach the other side of 40s and live for over 85 years.

Earlier this year, a survey titled Life Value Notes Life Freedom Index was conducted in 11 tier 1 and tier 2 cities to understand the current state of financial planning in urban India. The survey revealed that consumers are skeptical about the adequacy of their financial plans to meet their desired standard of living throughout their lifetime. In fact, only 13% of youth and women are extremely confident that they have adequate retirement planning in place. Though the wisdom investor segment (45 years and above) scored better in the level of confidence, their percentage stood at only 24%.

There are many reasons why planning for retirement is important like any other goals:

1.       Increase in life expectancy: Our generation will live longer than previous ones due to improved medical and healthcare, implying the need to gather enough funds that can sustain longer life. This also implies that the healthcare needs and expenses are likely to haunt us.

2.       Shortfall in Employer Funded Pension/Pension Funds : The employer or government funded pension schemes are less likely to sustain the income needs post retirement. The pension that one may receive from these schemes will not be sufficient to maintain the lifestyle. This is the reason many individuals worldwide supplement their state or employer funded retirement plans with self-funding- i.e. pension plans.

3.       Change of social structures: In spite of family support, many retirees don’t prefer depending on the relatives or children for meeting post retirement expenses. Maintaining independent lifestyle is sustainable only when backed with a financial cushion.

4.       Lack of social security system: There is no social security system in our country. Hence one has to plan to build the entire corpus to help meet the regular income or any contingency post retirement.

5.       Desire to remain contributor: The want to contribute to the family by providing and supporting the kids or grand kids at milestones of their life remains even after retirement is inevitable. Starting an independent venture is also an emerging trend. These can be fulfilled only when one is financially self-reliant.

6.       Rest and relaxation: After fulfilling all your responsibilities, you may want to build a retirement corpus to go on holidays, to pursue a hobby etc.

Keeping these key points in mind, it’s advisable to seek guidance from a financial planner for his expert views on your financial plan. Retirement is not just about age, it’s highly dependent on the kind of lifestyle you’re living and wish to continue living.

How to Save Tax With Insurance

We all give considerable thought to tax saving. This is an important aspect of financial planning. We’ll give you a quick guide to understanding how to save taxes with insurance products.

Life Insurance 

Life Insurance is an integral part of your financial portfolio. A Life Insurance plan is your family’s financial safety net in your absence.

There are different Life Insurance plans available ranging from term plans, whole life plans and money-back plans to unit-linked plans and endowment plans.

Additional Reading: No-brainers before you take Insurance

Different Life Insurance Plans. One Benefit.

All Life Insurance plans have one major benefit. Tax saving.

You can claim tax deductions on the premium that you pay for your policies.

More about the Tax Benefits of Life Insurance 

You can claim deductions up to Rs. 1,50,000 on your Life Insurance policies under Section 80C of the Income Tax Act.

My policy has matured. Do I get a tax deduction?

Yes. Under Section 10D of the Income Tax Act, any sum that you receive from a Life Insurance policy, including any amount through a bonus will be exempt from tax.

Pension Plans

Pension plans are another type of Life Insurance. Here’s the difference. While the objective of Life Insurance is to protect your family after your demise, pension plans give you and your family an income during your retirement years.

Additional Reading: Tax saving with the National Pension System

How Pension Plans Work

There are two stages in a pension plan. The accumulation stage is when you put aside money while you are earning. Your retirement is when you get to enjoy the withdrawals phase.

Tax Benefits of Pension Plans

You can enjoy tax benefits on pension plans only in the accumulation phase.

A maximum deduction of Rs. 1,00,000 can be claimed under Section 80CCC of the Income Tax Act.

Tax Benefits on Maturity of Pension Plans

When your Retirement Pension Plan matures, 1/3rd of the total amount is exempt from tax.

The remaining 2/3rd portion is considered as income and is taxable.

The total amount is exempt from tax on the beneficiary’s death.

Health Insurance or MediClaim

A Health Insurance policy gives you tax benefits and is a useful tax saving investment option.

Additional Reading: Lesser Known Tax Saving Tips

How is Health Insurance beneficial as a tax saving option?

We’ll make it simple with an example. If you pay Rs. 25,000 as the premium on your own policy and Rs. 30,000 for your senior citizen parent, you can claim a tax benefit of Rs. 25,000 + Rs. 30,000 which is a total amount of Rs. 55,000.

Senior citizens can claim Rs. 30,000 and others can claim Rs. 25,000 as tax deductions under Section 80D of the Income Tax Act.

The maturity amount received under a critical illness policy is exempt from tax.

So there you have the various tax saving options with insurance policies.

7 Common Employer-Sponsored Retirement Plans

There is an assumption by many people that employer-sponsored retirement plans are generic. The fact is that there are several types of retirement plans which an employee can operate with an aim of saving for retirement.

Choice of retirement plans:

Your choice of a Retirement Plan Company is determined by several factors about your employer such as, what economic sector the employer is involved with as well as the size and type of that employer.

An employer-sponsored plan for saving towards retirement can be used by both the employee and the employer. By having money directly deducted from the pay check, both parties get a chance to save even before they start on spending the pay check. Some employers even go an extra step of matching their employees’ contribution, something you wouldn’t mind, now would you? Plus this will definitely act as a direct incentive to save more.

The seven most popular employer-sponsored retirement plans and their features are:

1. SEP Plan (Simplified Employee Pension)

This retirement option is mostly offered by small businesses to their employees.

As an employee you can also set up one yourself.

Typically known as a SEP-IRA plan, it is based on Individual Retirement Accounts.

Annual contribution limit is pegged at 53,000 dollars.

2. SIMPLE Plan (Savings Incentive Match Plan for Employees)

Offered by small employers to their employees.

As an employee you contribute an amount of your choice and your employer can match that amount up to 3% of your salary.

There is a limit to how much contribution one can make in a year, for instance, for 2016, it stands at 12,500 dollars. If one is 50 years and above, there is a provision for a ‘catch-up’ contribution which also has a limit ($3,000 for 2016).

3. 401(k) Plan

Is mostly offered by large businesses.

It is funded by an employee but the employer may also contribute a matching amount.

The account is wholly managed by the employee including choice of how to invest the funds. These contributions are usually tax-deferred up until the time withdrawal is done at retirement age.

If the funds are withdrawn before retirement, one is penalized.

There is a limit to how much one can contribute annually, for instance the limit for 2016 is 18,000 dollars.

4. Roth 401(k) plan

The benefits are the same as with a Roth IRA and the contributions by an employee are similar with a 401(k) plan.

Employee contribution limits are also the same as those of a 401(k) plan, which is better than for a Roth IRA.

Any contribution into this plan is not tax-deductible.

All earnings accumulate tax.

5. 403(b) Plan

This is identical to the 401(k) plan save for the fact that it is designed for NGOs.

403(b) Plans are funded by employees primarily with tax-deductible contributions.

Employers can match contributions but to a certain percentage.

Contribution limits are the same as those of 401(k) plans with earnings accumulating on a tax-deferred basis.

6. 457 Plan

These plans are similar to 401(k) plans and are offered to local and state government employees.

They have identical characteristics with 401(k) plans including contribution limits.

The main difference is that if an employer offers both a 401(k) Plan and a 457 Plan, as an employee you can contribute fully to both plans hence the benefit of a doubled limit.

7. Defined Benefits Pension Plan

The plan is also known as a traditional retirement plan.

It was more common in the 1970s.

The plan is controlled fully by the employer and the employee has no control at all over the funds. The employer is responsible for supplying the employees’ contribution and the monthly benefit given to him/her.

Plan Your Retirement The Smart Way!

Staying young is everyone’s eternal dream, but the harsh reality of life is that old age is inevitable. Hence it important to plan it well in advance so that one can live stress-free during the golden years of one’s life. Old age brings with it its own share of medical problems that mostly don’t have any cure except managing them and learning to live with them. And such unpleasant surprises always cost a lot of money. For those elderly who retire with the expectation that they will survive with their modest savings and decent amount of pension come in for a rude shock when a medical calamity falls on them and most of their savings are spent on getting the basic possible medical treatment.

You may wonder then what the solution is for this problem! Especially when you are nearing retirement and you still haven’t made any plans!

The answer is simple: invest in a senior citizen health insurance plan.

The best thing about it is that as per the IRDA guidelines, the insurance companies have to provide insurance to a person up to the age of 65 years old! And such plans cover you for the period between 65-80 years of age! Sounds interesting?

Yes, it is! The reason being all insurance companies have various plans to offer you so that you can buy a policy that meets your requirements. And there lies the catch: to find out the best policy and the best insurance company so that you don’t have to suffer due to inadequate insurance coverage or poor customer service.

How To Go About It?

Even though there are a host of insurance agents to help you out with, the best thing to do before approaching them is to do your own research. There are websites that act as a platform to display all insurance products by all insurance companies at the same place. This way, you can find out about various plans, do a comparative analysis about their terms and conditions, benefits offered, insurance coverage and premium due. Once you have shortlisted a couple of plans, then you can consult the concerned companies to clear your doubts and get more information before you zero down on the best plan that fits your criteria.

Things To Consider While Selecting A Plan

The important factors to keep in mind while checking out various plans are:

A) Insurance Cover: do check what the insurance cover is offered to you based on your age, per-existing diseases etc. Obviously, select the one that offers you maximum cover with least amount of premium along with the best benefits out of all.

B) Maximum Age At Renewability: This is an important factor so that the policy doesn’t lapse before you get to utilise it.

C) Co-Payment: Check out how much is the co-payment. This is mostly charged to ensure that people don’t misuse the insurance policy by going for medical treatments that are not necessary!

D) Diseases Covered: This part has to be studied in full keeping in mind the diseases you are suffering from and the ones you’re genetically inclined to suffer in later ages. Only take the policy that covers all major diseases so that you’re not denied claim later on.

E) Waiting Period: Every policy comes into effect after a waiting period that varies from company to company. Hence, find out when your policy will come into effect so that you don’t miss out on getting the medical claim.

What Are The Benefits Of Having Such A Plan?

This Retirement Plans offers a host of benefits that can make your life really easy:

A) The complete hospitalization is taken care of by the insurance policy provided you have bought an adequate cover for it.  The only condition being that you need to be hospitalized for more than 24hours.

B) Expenses incurred during pre and post hospitalization are also provided for by the insurance company except the number of days being covered will be different for each insurance provider.

C) Even those expenses are covered that don’t require you to be hospitalized for more than 24 hours, but involve procedures like chemotherapy, dialysis etc.

D) A lot of companies cover per-existing diseases as well, but you have to read the fine print to know the exact details.

E) Tax benefits are also to be derived out of buying an insurance policy. You can claim such expenses and get rebates on them.

As you can see, having a senior citizen health insurance policy can work wonders for you and help you to meet the medical costs without any hassles. The only thing you have to do is to plan about it right now so that you can gain maximum benefits out of it. Starting early will ensure you pay less premium compared to those who buy a policy near their retirement age.