Retirement Planning Tag

How to do Retirement Planning?

byfintooMay 14, 2021

Retirement Planning – We may have reached our goals of owning a car or enjoying foreign vacations. But when we have retired and don’t have any stable income, how are we supposed to maintain this lifestyle? Retirement Planning helps us to invest well in advance considering the amount we wish to receive in future.

Inflation is the biggest wealth killer if we don’t plan our retirement considering the Inflation impact on the same.

Related Article: Start Early To Retire Early – Retirement Planning

Also, the markets are always subject to risk. Now we do see a visible impact on the economy due to pandemic, which has resulted in job loss, lesser production and lesser disposable income.

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Quick tips for financial planning in 2021

byfintooFebruary 25, 2021

Financial planning in 2021 – The year 2020 was one of such nightmares which many of us would definitely like to forget at all costs. Nevertheless, this year also taught us a lot about many aspects of life which we almost pay no attention to. In all, with the announcement of the vaccination drive for COVID-19, the year 2021 has rung a bell and has shown us a ray of hope in the gloomy times. 

But has everyone learned the lesson for good from the year 2020 and has started acting upon it. New year resolutions have not gone stale yet and we would like to remind you as to how you can make the year 2021 the best year.

As we have steered ahead in Unlock 2.0, now slowly the finances, economy, employment markets, stock markets are beaming up. But until and unless you understand how to carry out financial planning for this new year 2021, you won’t be able to achieve much this year too.

So, let’s learn some quick tips for financial planning for 2021:

1. Make financial resolutions for 2021 and stick to it

New year resolutions are really fun and motivating, but how to ensure that we stick to those? Try to mix consistency in your daily routine and reap the benefits of a loyal disciple of your own resolutions. 

You could build a budget which may be designed to help you achieve some goals which may be 

• Tax saving 
• Retirement planning 
• Vacation planning
• Emergency fund arrangements 
• Wealth building for the long term 
• Cutting back on unnecessary spending and shopping etc.

The list is exhaustive but it is always recommended that you should build a financial budget to ensure that at least 3 of your financial goals are achieved. Sticking to the budget is very easy and there are also some tools and apps available for your convenience.

2. Tax Planning 

Most people usually interpret tax planning as last-minute investments into anything which will suffice the deduction limit. However, there is much more to tax planning. Not all tax-saving instruments are made up to suit everyone’s risk appetite and investment goals. Let’s take the example of Mr. A who needs to invest in tax-saving instruments. Mr. A also wants to make most of it even where he is ready to accept moderate risk. Mr. A should invest in ELSS – Mutual Funds (blue chip or large-cap typically), which would allow him to claim deduction under section 80C. One more advantage is that Mr. A will be able to earn around 12-13% with moderate market risk.

3. Investment Goals 

If there is no goal, then there could be no financial planning. Ideally, financial planning would be divided into 3 types of goals

• Short Term Goals 

Tax planning or contingency fund planning is usually the short-term financial goal. Short Term goals cover the time period of 1-3 years. The investments with a lock-in of 3 years period or investments with maturity for such a short period would be suited to meet certain annual cash flow or expenditure. A most suitable example of such expenditure would be insurance payments or school fees payment etc.

• Medium Term goals 

A most appropriate example of a medium-term goal would be buying a house or school fees till graduation. Vacation planning can also be carried out in the medium term.

Related Article: 5 Reasons Of Having Your Own Financial Advisor From An Early Age – (fintoo.in)

• Long Term Goals 

Retirement planning would be peculiar examples of Long term financial planning. Investments having longer payment periods or with maturity/redemption expected at a much later date than 10 years would mostly be suitable. Equity investments would be also suitable for long-term financial planning.

4. Medical Insurance

With COVID 19 in the background of the year 2020, the upcoming year 2021 would also be witnessing some ups and downs in the health security area. Following points to ensure that you are on the safe line.

• Revisiting the medical insurance coverage 
• Check whether the current insurance cover is sufficient to cover hospital admission, room rent, etc. 
• Check whether the medical insurance covers the major and terminal diseases
• Understand that it is better to pay the premium now and reduce the bigger cashflow at the time of the actual incident.

5. Take care of your health 

The year 2020 was a lightening effect to make us understand the benefits of good health. If you have good immunity, then you can definitely save yourself from multiple diseases and in turn much of your money too.

Subscribe to the Yoga class, take admission to Gym, take out time for a healthy jog. Break the routine of Work from Home and try to get out for fresh air. This will reduce mental stress and as well as add to the health benefits.

6. Revisit the retirement plan 

With COVID 19, many of us saw the actual job loss and pay cuts. This shows how critical it is to ensure that we revisit our retirement planning. While you assess the retirement plan, here are few things to check on

• Inflation factor 
• Increased expected medical expenditure 
• Reduced pay or no income in some cases 
• Liquidity crunch etc. 

7. Create an Emergency fund 

It is a known fact that a fund equal to six months of your income should be maintained as a liquid investment so that it could be used in the event of no active income source. Ideally, an emergency fund can be created by investing in short-term fixed deposits or recurring deposits, or mutual funds.

Related Article : Personal Financial Planning – Why Is It mandatory For All ? – Fintoo Blog

8. Learn something 

Learn something new which will help you either in getting-

• an increment in the current job or
• a new job or  
• promotion etc. 

This new skill may also help you add an additional income stream which you could use as an emergency fund.

9. Strengthen your credit score 

Try to pay off loans with the highest interest rate first. Also, avoid buying things on credit cards. Once you default on loan repayments, it hampers your credit score badly. So always make sure that you are not defaulting on repayments. 

10. Say no to unnecessary investments and tips 

Most of the investors usually go out and make investments based on insider tips or commission agents’ advice. Try to take the help of a professional if you can not do it yourself.

These 10 Tips will help you out in building a sustainable financial plan for the year 2021. These pillars will help strengthen financial health in the coming years. Having said so, just building a plan is not enough. You will need to ensure that you stick to the Financial Resolutions to make it work for you.

To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP

Retirement through Equity Linked Savings Scheme

byfintooJanuary 22, 2021

Retirement Planning through Equity markets, really? Sounds pretty much like you won’t be thinking is possible, right? But what if I tell you that Retirement Planning through ELSS is very much possible and optimal option.

Let’s see why you should plan for your retirement first.

Why there is a need for Retirement Planning?

We enjoy and spend as much as we can afford when we are earning in our youth. But what happens when we retire and we don’t have an active income source which would be accruing and can be used for settling the commitments?

Retirement Planning helps us deal in a financial sense with the Post retirement expenditure and Lifestyle requirements as mentioned below : 

• To maintain the current standard of living even after retirement 
• To manage the increased burden of medical expenditure 
• To allocate and mark up funds arrangement for vacation planning 
• To maintain independent financial health and plan for succession 

What is ELSS?

ELSS refers to Equity Linked Savings Scheme which means the mutual funds which invest primarily in Equity or stock market. 

• ELSS allocate their 80% funds towards stock markets or equity instruments 

ELSS are actually called Equity Linked since most or all of the money of the investors is invested in shares and securities. 

• ELSS have tax benefit on investment

This means that investors can opt for tax deduction under section 80C for the amount invested in ELSS.  If you redeem the ELSS after the expiry of lock-in period, then the proceeds will also be exempt from Income tax if the gain is less than 1 lac. Otherwise 10% of gain needs to be paid as taxes.

• Lock-in Period of 3 years

Since ELSS are tax-saving instruments, they come with a lock-in period. Once you invest in ELSS, you block your money for 3 years at least if you wish to save on tax.

• ELSS earn more than your regular deposits 

Bank deposits are yielding lower interest rates right now and the Stock Market is beaming high. Even where all the ups and downs are considered, a decent wealth-building plan would definitely earn you more than Fixed deposits. 

Related Article : FD vs. ELSS – Where does Mr. Gupta invest and why?

• Invest in SIP or in Lumpsum 

You can opt for SIP route where you will investing in ELSS monthly or you can invest aa single amount in a lump sum.  

• ELSS does not provide stable returns 

Having said that ELSS earn more, it is because of the fact that these are based on the dynamic stock market. ELSS will not provide you fixed income however, you can decide to invest in ELSS based on various parameters which can give you leverage over this risk.

How can ELSS and Retirement Planning go hand in hand?

• ELSS allows you to track the value and much more at any time 

Investors can easily track the value of their investment and the NAV of their investments at any point in time when they opt for ELSS. This allows them to check whether their funds have underperformed or are at optimal levels.

• ELSS helps you switch to other funds too

If you are unhappy about the performance of ELSS then you can use the switch option to divert your fund to the most eligible option, subject to conditions. This is possible in the same AMC and only after the lock in period is over.

• ELSS are professionally managed 

Investors having an urge to invest in stock markets due to its lucrative returns, often back off due to lack of knowledge. However, ELSS helps you deal with this insecurity since those are managed by the qualified and experienced Fund Managers 

• ELSS are transparent 

All information related to inception, their composition, fund managers, returns, other parameters etc. is always available on public domain w.r.t ELSS. So there is nothing which is hidden about the ELSS.

What should you consider while doing Retirement Planning through ELSS?

• Expense Ratio 

Expenses ratio refers to the expenditure with respect to the administrative structure which also includes a fund manager’s salary. ELSS with lower expenses ratio will always earn more just because the actual return earned by the fund is little eaten off by the costs of the ELSS fund management.

• Benchmarking of performance 

This is a tricky one since the ELSS performance should always be compared with

1. Its own historical performance 
2. And peer performance 

These two criteria will always allow the investor to filter out the best ones.

• ELSS has dual advantages of tax saving and wealth building 

ELSS are a very optimal investment option considering that it allows you to reap tax benefits as well as helps in wealth building. If you select an appropriate ELSS then you are sure to get inflation factored returns. 

• AUM (Assets Under Management) and their composition 

This data is always available on the public domain, so it is advisable that one should check these before investing in the same. Higher the size of AUM, greater are the chances of higher returns on the same. 

Even with all these, ELSS is the most favourite tax saving instrument and can also be used as a tool for Retirement Planning. However, you will always need to check the corpus of retirement funds, desired ROI, Inflation rate impact and tax benefits. And once you are done with the evaluation, you should always jump in at the right moment to start earning early with ELSS. 

To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP

How Mr. Sharma Plan his Retirement? COVID-19 Impact On Your Retirement Planning?

byfintooJanuary 8, 2021

Mr. Sharma seemed quite tense while having a morning walk, which was either his work stress or retirement or something else maybe. I tried confronting on the same; “Hey Buddy, you look worried. Is there something you wish to share with me?” “Oh yes! I am not quite sure how to share my concern. But I can talk  to you as a friend and maybe you can advise me as my Financial Planner.” Mr. Sharma and we both share a professional relationship.

Then he went on about his concern about retirement planning and also was unsure about COVID’s impact on retirement planning. He is a private sector employee earning decent earnings but the uncertainty and panic clouded his mind about his retirement planning with COVID on rising. 

“I have worked for almost 15 years for XYZ Ltd. and would be willing to continue for 5 more years. But with this COVID 19 impact on the global economy, I am not sure whether I would be able to survive the market.”

It is indeed true that these are uncertain times and we should strive to look for any fallback alternative. I assured him to help on Retirement Planning considering COVID 19 Impact. 

Let’s see why Mr Sharma is worried about his Retirement Planning even when he is still investing and try to come up with a suitable retirement planning.

Why is that you should do the Retirement Planning? There are two basic reasons:

• To maintain the current lifestyle 

We may have reached our goals of owning a car or enjoying foreign vacations. But when we have retired and don’t have any stable income, how are we supposed to maintain this lifestyle?  Retirement Planning helps us to invest well in advance considering the amount we wish to receive in future. 

Related Article – Financial Planning – Tips For Every Generation

• Inflation factoring and other relevant disruptions

Inflation is the biggest wealth killer if we don’t plan our retirement considering the Inflation impact on the same. Also, the markets are always subject to risk. Now we do see a visible impact on the economy due to pandemic, which has resulted in job loss, lesser production and lesser disposable income. 

How COVID 19 has impacted Retirement Planning?

• Job loss or pay cuts 

Covid 19 has affected the Job markets since lockdown resulted in shutting off of various businesses like hotel businesses, schools, colleges, Gyms etc.

A very huge section has suffered business losses or has suffered pay cuts or have lost their jobs, leading to lesser cash flows towards retirement planning.

• Increased medical and sanitization expenditure 

Most of the businesses are trying to keep up with Unlock, however, the increased burden of the sanitization and medical expenditure (medical insurance) has again impacted the disposable income.

• Impact of Moratorium and loan restructuring 

The government had declared Moratorium for all types of loans, however, with Unlock 1 and 2, banks are also expecting a payback. It is unsure how they would restructure the loan considering the EMI deferred in the Lockdown period.

• Stock markets uncertainty

Stock markets kept tumbling due to stress caused by COVID 19 induced Lockdown. However, again the markets started to surge with Unlock 1 and 2, leaving the retail investors in awe. This has created a what-if question in the investor’s mind.

How Mr Sharma Plan his retirement in the wake of COVID 19 impact in the Retirement Planning?

• Mr Sharma should try to defer retirement or try to earn some extra income in case of pay cuts

Mr Sharma was thinking of early retirement with a small business set up within the coming 5 years in a Pre-COVID setup. However, COVID 19 impact is yet to subside and it would be better if he could postpone his retirement by at least 5 more years to compensate deficit income. 

He could as well try to look at some simultaneous earnings options if he could manage the same. This will help him balance his Corpus investment in retirement Planning even in COVID 19 scenario.

• Mr Sharma should reassess his Risk Appetite and Investment threshold

With the increased medical premium for COVID cover and sanitization expenditure, Mr Sharma needs to revisit his existing investment plan towards Retirement Planning. The interest rate of bank deposits have soared low and markets are beaming due to news of COVID vaccine. 

However, it would be pertinent to assess whether he could take the risk to invest in markets or mutual funds at this juncture.

Related Article – 6 Retirement Planning Mistakes To Avoid – Fintoo Blog

• In no case, the contingency funds are to be touched 

Every family maintains a contingency fund which might be in the form of Fixed Deposits, Gold or some government securities. Mr Sharma should not divert these emergency funds towards allocating his retirement planning. 

• Mr Sharma will need to reduce unnecessary expenditure

Dining outside or multiple OTT platform subscriptions were okay in Pre-COVID scenario. However, Mr Sharma should cut down on all unnecessary expenditure which would burden his investment portion. 

When there is cut back on the expenditure, Mr Sharma could easily tap the usually drained out funds which could be easily allocated to Retirement Planning.

• Mr Sharma shall think of loan restructuring 

RBI had come up with the facility of deferring the EMI payments for a certain period of time considering the COVID impact. Now, the interest rates have soared much on all loans. This calls for loan restructuring and the deficit in retirement planning would be filled in with the money so saved in interest.

• Never put all eggs in one basket

Once Mr Sharma is done with Risk profile assessment, he can think of diversified investment towards retirement planning. It is a seen and verified fact that bank interest rates are diving lower and markets are shining. 

If emergency funds are already invested in safe instruments, then Mr Sharma should think of setting aside funds and investing in Mutual Funds and Stocks. The COVID cover is also necessary until vaccination materializes. This will cover the financial health as well as will not hamper the Retirement planning aspect too.

To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP

Why do you need to make health insurance part of your retirement planning?

byfintooJune 12, 2020

The wealth earned by us is indeed determined by the quality of our health. The increasing medical costs makes it extremely difficult to sustain the corpus acquired by us throughout our life if we do not make adequate planning for health insurance. This is why financial planners focus on the importance of health insurance in retaining the viability of your long run financial goal. For benefitting out of the same, you will have to select the right health insurance plan which can last throughout your retirement life and hike up the value of your financial plan.

Importance Of Having Medical Insurance In Place

All of us yearn for a secure future both in terms of financial and health-related matters. A medical expense might seem manageable in your 30s with a regular income source for adding to your corpus. But the entire story changes once you enter the golden age of your life. With limited or even nil income sources, you need to bank on your earlier saved corpus to mitigate the rising medical costs. This is why it always pays to have health insurance in the first place.

Medical emergencies do not come with a prior warning. It also has a tendency of increasing with every passing day. Keeping such things in mind, it pays to have a health insurance policy in place. You can ensure the same by ear marking a certain portion of your savings to pay the premium starting today itself. A sound health insurance policy can assist you in handling all unannounced health expenses in a smooth fashion without causing a dent in your regular finances.

Purchasing a health insurance plan and aligning the same with your financial goals can be of great assistance in shielding you from unannounced medical expenses that can arise during your golden years. With a limited income source, it becomes extremely difficult to cater to the same. This is where a health insurance policy comes in as a complete blessing by providing for treatment expenses and hospitalization charges. Some of the policies also offer comprehensive plans to cater to a more versatile set of requirements.

Let’s see health insurance benefits in detail:-

Health insurance plans also serve as an important tax saving tool. An assessee can claim deduction under section 80D on the premium paid by him for securing the health of his family and parents. This deduction can be claimed as follows:

• For Self & Family – Maximum deduction of 25000 INR per annum on health insurance for self and family. Maximum deduction of 50,000 INR per annum if you are a senior citizen.
• For Parents -Maximum deduction of 25,000 INR per annum on health insurance premium paid on behalf of parents. Maximum deduction of 50,000 INR per annum on premium payments incurred for senior citizen parents.
• A deduction of 5000 INR can be claimed per annum on health check-up related expenses. This is applicable to all the family members of the taxpayer including his/her spouse, children and parents. This deduction is part of 25000/50000 as the case may be.

It takes years of hard work to gather adequate corpus which can bring you in line with your ultimate retirement goal. However, a sudden medical emergency can squeeze out all your hard-earned funds at one go. Nothing matches up to the importance of human life and that is why we try our level best to provide ourselves and our loved ones with the best of medical treatment. 

Having a medical insurance policy can guard your back in such a case by preparing you to face all sorts of emergencies without worrying about the financial setback caused by the same. However, this is possible only when you opt for a health insurance policy which has adequate cover size and tenure to render protection against all sorts of illnesses.

Real Life Examples

Let us take the example of a middle-aged man in his 30s who falls ill and has to spend 10 lakh INR on treating his illness. He does not hold a health insurance plan and finances his expenses partly from his savings and partly by taking a loan. Once he recovers from the illness, he needs to start paying back his bank debt. This will be followed by saving money to primarily meet the earlier gap in savings for fulfillment of his ultimate financial goals.

Had he taken a health insurance policy which could cover his entire medical costs, then he wouldn’t have had to face such a scenario in the first place. The premium for gaining coverage worth 10 lakh INR would have varied somewhere between 10000-15000 INR per annum approximately. He could have even got a family floater policy covering two adults and two children by shelling out a little more yearly. Spending this nominal amount could have buffered him in times of medical emergency without derailing him from his ultimate financial objective.

Read More :- 6 Retirement Planning Mistakes To Avoid

Conclusion: 

Health insurance comprises the lion’s share of retirement planning and it is time individual investors understand the same. Increasing medical expenses and future uncertainty is making it mandatory to have a medical insurance plan in place for buffering you from further troubles. 

It is also necessary to maintain good physical and mental health in order to attain your ultimate financial goals. This is why financial advisors advocate these medical insurance plans to individual investors from a very early age so that they can gain more coverage by shelling out a relatively smaller premium.

Emergency Fund – What it is and Where to invest?

byfintooMay 7, 2020

Emergency Fund as the word itself says it is a fund which can be utilised in case of an emergency. Emergency can come anytime. You will not know in advance what unforeseen event is going to knock on your door. It could be a job loss or medical emergency with any family member or yourself. In the worst case it could be an unexpected demise of an earning member in the family.

The interesting thing about emergencies is that you cannot predict what will come and when. For instance, nobody would have ever imagined the emergence of a highly contagious and deadly disease all over the world and that it would spread exponentially affecting global economies. The impact is not limited to health but also wealth. People are losing their job or experiencing substantial pay cuts or leave without pay. In such a situation, we realise how important it is for everyone to keep an Emergency Fund. It will help you to manage your expenses without borrowing or affecting your other ongoing investments.

Now that we realise the importance of having an Emergency Fund, let’s understand where we should invest this money.

The two most important factors to be considered while making an investment for emergency fund are –

1. Liquidity – One of the most crucial things is that this money should be readily available. Whenever you need, you should be able to encash it immediately. This means that you cannot invest this money in a PPF account or real estate. Because when you will need it, you will not be able to encash it because of no or low liquidity in these options. Therefore, look out for highly liquid assets.

2. Low Risk – The second most important thing is that this money should be invested in a low risk asset class. It implies that you should not be investing this money in the share market. Although the share market is highly liquid, the volatility is also very high. We would not want to withdraw from such investments by booking losses. You should know that equity market investment is for the long term and is highly volatile. So there might be a situation where you need money but the market is down so you will be forced to withdraw at a loss. This is happening currently with investors who don’t have any emergency corpus.

So based on these two factors, what are the options available to us?

1. Saving Bank Account  

Many people prefer to keep emergency funds in their savings bank account. No doubt, it is highly liquid but it gives hardly any returns. Currently, the saving bank accounts are offering 3-5% p.a. which is not even covering the inflation cost. So it’s not a good decision to keep your entire money in a savings bank account.

2. Fixed Deposit

A fixed deposit (FD) is a financial instrument provided by banks, that provides investors with a higher rate of interest than a regular savings account, until the given maturity date. The defining criteria for a fixed deposit are that the money cannot be withdrawn from the FD.

The level of liquidity is low. But you have the option to withdraw with the penalty. To compensate for the low liquidity, FDs offer higher rates of interest than savings accounts.

3. Liquid Mutual Funds

A liquid fund is a type of mutual fund which invests primarily in money market instruments, like treasury bills, commercial papers, certificate of deposits and term deposits. They allow Investors to park their funds for a few days or months as they have maturities up to 91 days.

Liquid funds can be made liquid at any time and earn returns for the holding period. Because they earn a return from market instruments, liquid fund’s returns can rise or fall depending on the market rates. For very short debt, Market interest depends on the liquidity situation.

  Read More :- Importance of Continuing SIPs Amid COVID-19

Let us compare Liquid Mutual Funds with Fixed Deposits

1. Liquid funds are easily accessible as compared to bank FDs. Bank FDs would penalize you for premature withdrawal. Liquid funds do not have exit loads.

2. As per past records, liquid funds prove to give better returns than fixed deposits. It would range between 6% to 8% per annum. On the other hand, bank fixed deposits offer returns depending on the tenure. Lower the tenure, lower the interest rates.

3. Since liquid funds invest in short-term securities, it has lowest interest rate risks. When interest rates fall, bond prices go up. When interest rates rise, bond prices fall. The negative relation between bond prices and interest rates is stronger for long term bonds. This means that the longer the maturity of a bond, the more it responds to changes in market yields. Since a liquid fund invests only in short term securities, it’s market value does not respond much when interest rates change in the market.

4. Tax treatment:  If you sell them before 3 years, any gain needs to be added to your income and you need to pay income tax based on your tax bracket. Fixed deposits are also taxed the same way even if it is more than 3 years. However, if you redeem liquid mutual funds after 3 years so will have to pay tax of 20% with indexation benefit. This will be fruitful for investors in the higher tax bracket.

Conclusion

If you want to park your money for a short term or immediate requirements, liquid funds would be the best bet for you. Consider the above factors before investing in such funds. Investors can choose good liquid mutual funds based on past years performance, low expense ratio, high Assets under Management (AUM) and well diversified portfolio. 

So don’t wait any longer, create your emergency fund today by investing in Liquid Mutual funds. You can do this by downloading the Fintoo App.