[Voodooblaster]

Originally Posted by snan

Annuities can be simulated through a mix of Dividend payout mutual funds which will turn out to be much much cheaper. And you've full control of how much risk appetite you take and accordingly fix the debt-equity portions in the portfolio ; for retirees better to stick to safe bonds (e.g. treasury) and large cap equity MFs. And if you think you do not have the expertise or time to do that, go for a financial advisor who is a fee- only financial advisor and do not sell any product.

The article is meant for the people who are on the brink of retirement. For them, Annuity is better as capital is relatively safer compared to equities.

Originally Posted by pugram

Thanks for a nice thread.

One more option I came across, which requires help of a financial advisor, is investing in Mutual Funds till the retirement age and then setting up an Systematic Withdrawal Plan (SWP) depending on how much you require at that time. Of course market risk is involved. Advantage here is that your principal is not locked and if the advisor is shrewd the funds can be moved to the most efficient fund. It is also said this method is tax efficient.

I am somehow not convinced by these annuity plans as they lock your funds and the payout is around the general interest rate provided by Banks.

This post is for people ready to declare their first innings for whom preservation of capital is more important. While the return on annuity is not much better than Bank FD's for now, remember that Bank FD rates are falling year on year. Once an annuity is purchased, the Insurance company is liable to pay irrespective of market conditions

Originally Posted by sagarpadaki

I would suggest not to go overboard with debt instruments for long term goal.

Investing in PPF/VPF/SSN is fine. But maxing them out just to get tax benefits is like missing the wood for the trees.

For 10+ year goals, one should have good amount of investment in equity(direct/indirect) .

Asset allocation is most important. Periodically tracking the investments and re-balancing the equity:debt ratio is necessary. So is the step-wise reduction of equity exposure and increase the debt part as one nears the goals.

PPF/VPF/SSY and other government interest rates are reducing and will continue to reduce. The government has realized that it cannot give such high rates when the market is not reflecting the sentiments. So if one relies only on such debt instruments for long term goals then the investment would not even beat inflation YoY.

Stay away from NPS . If you are compelled to invest in NPS(Govt employees are) then choose the debt plans and not the equity. NPS equity plans have the lousiest returns.

The thread is mainly aimed at the people on the verge of retirement and have a reasonable corpus at hand. Hence the focus was more on Debt instruments as they are better from a capital preservation point of view.

Originally Posted by RockingHorse

The other professionals like your CAs, lawyers, tax consultants, share brokers, bank managers are not necessarily adept at providing you with a tailor-made and independent financial advice. Agents who are middlemen for selling MF and insurance products are no good either.
Financial planners are a blooming and much required professionals in India. So better pay them a pre-set fees and get set up financially.

Concisely elucidated

Originally Posted by bluevolt

-

• Drop Gen X, Y, Z attribute of replacing everything often be it phone, car, home appliance etc.
• Keep your car for at least 10 years to extract the maximum value of your money.
• Don't buy high-end phones (flagships) every 1-2 years! I buy a good phone and keep it until it is broken.
• No debts, no car loans. Will not buy if I can't afford.
• Avoid flashy lifestyle. It is not necessary to replace your shoes every six months, your watch every year and so on.
• Just live within your means, don't let advertisements fool you.

Very correctly explained

Practicing these in life will ensure that your Stretch Your Retirement Nest Egg stays intact longer

[dearchichi]

It's always a pleasure to read your work, Mr. Narayan. Clear, concise, sensible, prescient. I know you have contributed to discussions around retirement on Team-Bhp, but if you have more elsewhere that folks like me could benefit from, please point to them.

Thanks. :-)

Originally Posted by V.Narayan

A first class topic to discuss especially for members/readers over 30 years of age and most essential for those over 40 years of age. If you are not in Government service be rest assured the uphill climb to adequately save for your retirement is steeper than you think. I say this as one of the very few members of Team BHP who is on the other side i.e. gleefully retired.

[knrn]

Originally Posted by Raghu M

Can't agree more on this. Will share my experience.



My great grandfather bought a piece of land and constructed a simple house on it. He passed away without writing a will and my grandfather lived there for a while and later vacated as it turned out to become a busy commercial space (area)to.

Very rightly said. One does not realise that a simple paper can be so valuable. And when times come one has to run from pillar to post and it is a big hassle. Good to know that you sorted it out.

@Vodooblaster. This a nice thread you have started. Would go a long way in helping people. I see this thread as becoming a long and legendary one gradually just like an FD.

[sagarpadaki]

Originally Posted by Voodooblaster

The thread is mainly aimed at the people on the verge of retirement and have a reasonable corpus at hand. Hence the focus was more on Debt instruments as they are better from a capital preservation point of view.

If one is on verge of retirement then even the debt instruments will not allow you to build up the corpus needed for retirement. Retirement planning is a long term goal(15+ years) . So one needs to put money into equity to get inflation beating returns. That is why i mentioned the importance of asset allocation. Just maxing out on PPF/VPF/SSY is not sufficient to get inflation beating returns on the long run.

[Voodooblaster]

Originally Posted by sagarpadaki

If one is on verge of retirement then even the debt instruments will not allow you to build up the corpus needed for retirement. Retirement planning is a long term goal(15+ years) . So one needs to put money into equity to get inflation beating returns. That is why i mentioned the importance of asset allocation. Just maxing out on PPF/VPF/SSY is not sufficient to get inflation beating returns on the long run.

I was suggesting ways to use the existing corpus safely.

I would suggest putting away income from post retirement jobs to equities after ensuring one has a decent amount for routine expenditure. However equity exposures need to be closely monitored , underpefomers weeded out, and riskier bets cancelled.

Since life span after retirement is unpredictable, it's safer to have some solid safe investments to fall back on especially considering the current economic turmoils

[V.Narayan]

Originally Posted by dearchichi

It's always a pleasure to read your work, Mr. Narayan. Clear, concise, sensible, prescient. I know you have contributed to discussions around retirement on Team-Bhp, but if you have more elsewhere that folks like me could benefit from, please point to them.

Thanks. :-)

Thank you for your kind words. You could use the 'search' function on the top menu bar and do a search for 'çareer advice' and 'retirement' and you'll probably find what you are looking for. I will not be able to pull out posts of mine from a list of 2.4k posts. Sorry about that. But if you or any other member has a specific question I'm sure other members , including me, would be pleased to try and help.

[srini1785]

I firmly believe that dying on the last day of work by an induced heart attack with a hefty insurance payout is the best retirement plan.

[LonelyPlanet]

Will it be possible for people to share their % allocation in each bucket ?
I know needs might vary but it still gives a good enough indication of where people have parked their corpus

[dipak1406]

I am 46 yrs. In 1994 when i started working Rs 2500 to 3000 per month was excellent money to live decently in Middle Class family. Bank FD was about 12%

Come 2020 need is Rs 40000 per month again to live decently. This amounts to inflation of 11.5% per annum from 1994 to 2020. Bank FD is about 7%

Pre Condition - house of your own and zero loan liabilities.

Estimation for 2050 -

USA Bank FD rate are 1.25
USA Inflation rate is at 2.28% per annum

Monthly requirement if we consider inflation at 8% till 2030, then at 5% from 2030 to 2040 and 3% from 2040 to 2050 = Rs 182,500 per month

Government schemes would gone by that time as Govt is focusing on cutting all its liabilities by privatizing.

Most preferable mode of investment by that time will be Equity. In USA about 50 to 55% population is invested in Equity or Mutual Fund

India is about 1.5% to 2.5%

Now if one plans to get Rs 182500 per month in 2050 then retirement corpus will have to be Rs 5.50 crores ( FD at 4% per annum) or Rs 7.30 crores ( FD at 3% per annum)

Considering that Equity / Mutual Fund would be the chosen mode of investment (Govt. will push everyone into this by changing policy) we should expect returns of 7.5 to 8% in 2050

Now this brings our retirement corpus to Rs 3 crore if we consider return of 7.5% and Rs 2.75 crore if we consider 8% return from Equity / Mutual Fund.

If one goes to Financial consultants which i did they mention retirement corpus as Rs 7 to 10 crores which to middle class is a dream and then they force person to invest in scheme of their choice always mentioning that Past Performance is no Guarantee to future

So basically they are absolving themselves as even they cannot see future.

Considering a person invests 10 lacs in Bank FD or safe Govt instrument and gets 7% for next 10 years and 5% then onwards then he will get Rs 49 lacs in 30 years.

If the same person invests Rs 10 lacs in Mutual Fund for 30 yrs and gets even 9% then his retirement corpus goes to Rs 1.21 crores which takes care of 50% of his / her future requirement.

To me the above is very much possible for an average Middle class person who has worked for 25 years. Am not even talking about saving every month. Just a lumpsum of Rs 10 lacs in equity / mutual fund and then just let heaven take care of you.

Let me know your views as i have been very conservative in calculations

Thank you, Deepak

[anjan_c2007]

Originally Posted by Voodooblaster

Public Provident Fund

PPF is not viewed as a normal retirement planning avenue. However, the factors that need to be considered are:

• The 15-year term can be extended in blocks of five years i.e. there is no limit on the term of a PPF
• Interest rate is usually on the higher side compared with the prevailing rate regime, currently it is 7.1%; tax-efficiency of the interest
• Section 80C benefit for contribution up to ₹1.5 lakh per year. You can also withdraw from the PPF as per rules.
• PPF is an EEE (Exempt Exempt Exempt) type investment. I.e. maturity amount is not taxable.


Considering the increase in life expectancy, a lump amount that accrues to us at 75 years is a huge advantage. Remember to deposit amount in PPF amount before the fifth of every month as Interest becomes payable for that month if the deposit is made. If possible Schedule FD’s to mature for 1.5 lakhs (Current PPF limit) on April of every year and deposit it in PPF to earn maximum interest.

I would consider PPF as the #1 in respect of safe investment and would request all friends (Indian citizens only) to open PPF accounts in their self and family members names. An account in one's name at or before attaining the age of 40 years (nothing specified and one can open an account at any age) will prove to be quite beneficial in the long run. For those who have crossed 40, there is no cause for any worry. They can also open one before it's too late. The interest rate is presently is 7.1 % wef April 1 to June 30th and has not been touched, after the 0.8 % reduction from 7.9 % till March 31, 2020. It is revised every quarter. But this interest is non taxable and so are withdrawals which offers the greatest benefit, as compared to most other savings instruments. The original tenure of this PPF account is 15 years and it can be extended eternally for 5 years at one go. That is 15+5+5+5... and so on. The minimum to be deposited every year is Rs 100=00 to keep the account active and the maximum is Rs 150,000. One can open accounts in their children's names too separately (joint name of the parent is mandatory till the minor attains the age of 18 years), but the total amount so depostied should not exceed Rs 150,000 for all accounts combined. Income Tax benefit u/s 80 C is available to the parent in whose joint name the account exists. The amount that is not immediately required subject to a maximum of Rs 150,000 can be parked in this account. After attaining majority, the parent and the child need to complete formalities to show that the child has become a major. And when the child starts working the account can continue and he can also save tax and save money. Withdrawals are allowed after completion of six years for a new account ,subject to 50% of the amount in balance at the end of three past financial years. Also repayable loan facility from the money in the acccount is available as per their rules. But unless there is a grave emergency, the PPF account should not be touched and allowed to grow. It can be opened at many designated post offices and designated branches of nationalised banks.

If the spouse is working, she can have a separate PPF account in her name to avail Income Tax benefits under Sec 80 C upto Rs 150,000 per annum.

If left untouched, with the addition of the principal of Rs 150,000 every year, plus tax free interest generated at prevailing interest rates, the amounts multiply faster than one can think of. Also one can note that being a Provident Fund, no court of law can attach a PPF account amount under any circumstances. The law of the land provides such a benefit for all provident fund accounts be it the PPF, EPF or the govt employees GPF even if the account holder is declared insolvent with huge liabilities.

[dearchichi]

Originally Posted by V.Narayan

Thank you for your kind words. You could use the 'search' function on the top menu bar and do a search for 'çareer advice' and 'retirement' and you'll probably find what you are looking for. I will not be able to pull out posts of mine from a list of 2.4k posts. Sorry about that. But if you or any other member has a specific question I'm sure other members , including me, would be pleased to try and help.

Thank you sir. I was only asking you have had authored similar material elsewhere (blogs, forums, articles etc.).

Originally Posted by dipak1406

Now this brings our retirement corpus to Rs 3 crore if we consider return of 7.5% and Rs 2.75 crore if we consider 8% return from Equity / Mutual Fund.

If one goes to Financial consultants which i did they mention retirement corpus as Rs 7 to 10 crores which to middle class is a dream and then they force person to invest in scheme of their choice always mentioning that Past Performance is no Guarantee to future

If the same person invests Rs 10 lacs in Mutual Fund for 30 yrs and gets even 9% then his retirement corpus goes to Rs 1.21 crores which takes care of 50% of his / her future requirement.

Thank you, Deepak

You have accounted for inflation to calculate the 2050 expenses, but ignore it there on.

- If you do so, and consider inflation to be 6%, ~Rs. 3 crores would be depleted in ~15 years assuming returns to be 8%.

- If your intent is to live off the returns of your corpus while not depleting it, and assume returns to be 8%, you'd need a sum of ~Rs.11 crore in 2050 rupees. Therefore, your advisor*who was quoting ~Rs. 10 crore (in 2050 rupees) was correct if these were the criteria.

- If you don't mind depleting all of your corpus in 30 years,*you'd need a sum of Rs.~ 5*crore in 2050 rupees.

- ~Rs. 1.21 crores is about 25% of the required corpus (~Rs. 5 crore) if you intend to exhaust it in 30 years.

Originally Posted by anjan_c2007

I would consider PPF as the #1 in respect of safe investment and would request all friends (Indian citizens only) to open PPF accounts in their self and family members names.

As part of the overall portfolio, investing in PPF would be a strategy to safeguard the purchasing power of the rupee, as in the long term its returns would be barely above inflation (~6%). Therefore, if one has a financial goal, the corpus to fund it in today's rupees and does not seek further returns from it, he/she could choose to invest it in PPF. But, please note that doing is not a strategy for building wealth. A mix of debt and equity instruments is generally recommended for that.

[V.Narayan]

Originally Posted by dearchichi

Thank you sir. I was only asking you have had authored similar material elsewhere (blogs, forums, articles etc.).

Another similar thread is here https://www.team-bhp.com/forum/shift...ng-thread.html (The Retirement Planning Thread) with many useful posts on a similar subject. You can search for posts of an author using the search button and then using the advanced search option.

A couple of my posts there are :

https://www.team-bhp.com/forum/shift...ml#post4438925 (The Retirement Planning Thread)

https://www.team-bhp.com/forum/shift...ml#post4709246 (The Retirement Planning Thread)

I don't write on other social media forums.

All,

@dearchichi's ball park assessments are correct. If you are 35 today and seeking to set up a corpus for your 65 to 85 age period then adjusting for inflation you will need some number between Rs 10 to 15 crores at least to sustain a moderate middle-class lifestyle plus an EMI free house and a robust health insurance. It may seem a daunting figure to you today but the Rs 15 crores being spoken of is in 2050 rupees and your income will also inflate with time as you earn between 2020 and 2050. So don't despair. Most of us, manage it. Your parents and folks like me did it with some common sense, some discipline and some back of the envelope calculations long before financial advisors came into existence.

[Simhi]

Originally Posted by dipak1406

Monthly requirement if we consider inflation at 8% till 2030, then at 5% from 2030 to 2040 and 3% from 2040 to 2050

Government schemes would gone by that time as Govt is focusing on cutting all its liabilities by privatizing.

Deepak, thanks for the detailed post. US is a developed economy and hence inflation has been steady at around 2% for many decades. I hope India becomes one by 2050. To be on safer side, I would consider average 6% inflation till 2050.
Government has already moved their biggest liability, pension, by having employees move to NPS. The good thing about NPS is that it has equity component. If a new government employee (around 30 years age) selects 'Auto' choice option, then NPS will provide the benefit of equity to the employees retirement corpus.

[Cooltronics]

Originally Posted by kavensri

The main reason for me to invest in NPS is the tax savings benefit (31.2%). .

I would say this is a very inaccurate barometer to invest because the 30% tax benefit for a specific sum of that particular year when extrapolated till your turn 60 is minuscule.
Also, you will never get full money back ever - the annuity percentage even today is much lower than debt rates and grossly inefficient.

Below is an excellent podcast I heard about NPS - may be you can view it.


https://www.capitalmind.in/2020/01/i...d-the-annuity/

[handsofsteel]

I have a basic doubt regarding MFs and SIPs. I have been investing in SIPs for the last 8 years. I always selected my SIPs with due diligence. Almost all of them gave me at least 15% returns which I kept liquidating and ploughing back (sometimes let them cross 25% if I was very sure). However, I have ploughed every penny earned from equity back into the market.
I did change several funds in the interim, however, kept the overall exposure in the sector constant. I monitor the performance of my funds once or twice a year.
Now I find myself in a predicament that almost all my funds are negative. While I am continuing my investments (don't pull out when the market is down), it is difficult for a layman like me to figure out which fund to continue betting on. What if, a certain fund folds and I lose a major chunk of the earnings over the last 8 years?
If I were to calculate returns now over the last 8 years, they hardly match FD rates from those times (FD was 10% in 2011-12).
Any advice? Is this a common dilemma? What should one do if the find value increases beyond your preset target? Encash and shift/ encash and plough back into other funds/continue investing? Please guide.