Your Guide to Easy Retirement - Money Simplified · your first step towards planning your retirement. This guide is exclusively for readers of Money Simplified – Your Guide to Money

Your Guide to Easy Retirement

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www.MoneySimplified.in

Foreword

Dear Reader,

Congratulations on downloading the Money Simplified Guide to Easy Retirement and deciding to take your first step towards planning your retirement. This guide is exclusively for readers of Money Simplified – Your Guide to Money & Mutual funds, an investor education initiative by Franklin Templeton Mutual Fund.

We know you understand that timely planning can help get your retirement life in order. You also want to take a planned approach to achieving financial success and be independent in your non-earning years as well.

But building a decent retirement plan can be complex as it takes into account a number of pieces of your personal financial information - like a large puzzle where each piece is your own financial data and requirements. These puzzle pieces include:

Your Assets

Your Liabilities

Your Cash Inflows

Your Cash Outflows

And most importantly…

Your Financial goals and dreams

Every person needs timely planning in order to enjoy his or her key life goal – Retirement. So why live your entire life without properly planning your Retirement?

Keeping this philosophy in mind, Franklin Templeton Mutual Fund, through its investor education initiative ‘Money Simplified – Your Guide to Money & Mutual funds’ would like to help you do just that - with a lot of knowledge and expertise poured into this Guide, in a simple and easy to understand manner. The guide also includes a case study to relate retirement planning to real life practices.

Hope you find it informative.

Warm regards

Franklin Templeton Mutual Fund

http://www.moneysimplified.in/


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Disclaimer

This Guide is for Private Circulation only and is not for sale. The Guide is only for information purposes only and Franklin

Templeton Mutual Fund or Money Simplified Services Pvt. Ltd. or MSSL (an associate of PersonalFN) is not providing any

professional/investment advice through it. The Guide does not constitute or is not intended to constitute an offer to buy or

sell, or a solicitation to an offer to buy or sell any financial products, units of mutual funds or other securities, insurance

product, etc. Franklin Templeton Mutual Fund disclaims warranty of any kind, whether express or implied, as to any

matter/content contained in this guide, including without limitation to the implied warranties of merchantability and

fitness for a particular purpose. Franklin Templeton Mutual Fund and its subsidiaries / affiliates / sponsors / trustee or their

officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user

as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this

guide. Franklin Templeton Mutual Fund or MSSL or Personal FN do not warrant completeness or accuracy of any

information published in this guide. Regulatory/ taxation details mentioned in the article are provided on a best effort basis

and are as per the existing laws and subject to change from time to time. The recipient is advised to consult its advisor/ tax

consultant prior to arriving at any investment decision. MSSL shall own all Intellectual Property Rights including but not

limited to trademarks, copyrights with respect to all the content on Micro-site including all the calculators, videos, guides

and any other content hosted / published on the Micro-site. However Franklin Templeton may use the aforementioned

intellectual property for the purpose of investor education on other website/mediums as Franklin Templeton may choose

for promoting it’s Investor Education initiative subject to due credit given to MSSL for the said intellectual property. . This

guide is for your personal use and you shall not resell, copy, or redistribute this guide, or use it for any commercial purpose.

All names, situations, ratios depicted in the Guide are purely for the purpose of illustration only.

Mutual Fund Investments Are Subject To Market Risks,

Read All Scheme Related Documents Carefully.



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Index

Section I: Why Retirement?

Why Retirement? 04

Need for planning your Retirement! 05

Section II: Retirement Planning - The Initial Steps

How does financial planning aide retirement planning? 07

The importance of starting early in retirement planning 09

5 reasons why you should plan your retirement well 10

Have you started planning for your retirement yet? 11

10 questions you should ask while planning for your retirement 13

5 steps you should take to build a decent corpus for your retirement 16

Section III: Role of Different Asset Classes in Retirement Planning

Equity 18

Debt 18

Gold 20

5 reasons why asset allocation is important while Retirement Planning 21

Section IV: Perils of Planning For Retirement Late – A Case Study

Learning by an example 23

Why many fail to start planning for their retirement early? 26

Section V: Insurance a Must in Retirement Planning 28

Section VI: Do Not Break Your Retirement Savings to Meet Emergencies? 30

Section VII: Passing On to Your Loved Ones by Timely Writing Your Will 32

Section VIII: 8 Golden Rules for a Peaceful Retirement 35



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I: Why Retirement?

“Life is full of uncertainties. Future investment earnings and interest and inflation rates are not known

to anybody. However, I can guarantee you one thing... those who put an investment program in place

will have a lot more money when they come to retire than those who never get around to it.”

Noel Whittaker

Did you know that from the very first day you receive money, not at your job, but the pocket money you received as a child, you have been an 'investor'? Think back to the first day you received pocket money. You most likely spent it on food, toys, games, movies and other entertainment, and travel. How much of it did you save? Not much, if you were like most children in school and

college. Instead of saving your money, you spent in instant gratification, as do most youngsters. From this young age, your activities, your spending patterns, formed a habit. Your investment behavior started to get set. Your investor psychology began to solidify. Then you got your first job and started to mingle in the workplace. At work, you interact with your colleagues. Slowly you hear about people making investments in Tax saving mutual funds, or PPF (Public Provident Fund). Your HR talks to you about EPF (Employees Provident Fund) so you know about that too. You glean investment facts from your colleagues without really verifying the data, make further investment decisions. For the next few years, your focus is mainly on saving tax and then you start to think about your life goals. You get married, have children, educate your children, somewhere along the line you also buy a home by taking a home loan. The expenses continue, and your saving, spending, or investing continues as it did earlier. Your investments receive just enough of your attention to feel like you are doing something useful about it. But are you doing enough? With each well-intentioned step you take along this path, your biggest goal of them all - Your Retirement suffers. The wealth that you could have built for this crucial goal, does not get built. What we don't realize is


http://www.woopidoo.com/business_quotes/authors/noel-whittaker/index.htm


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that the success of all our life goals, from buying a car, to our children's educations, to going on an international family vacation, to retiring young and rich, depends on our investment behavior.

Need for planning your Retirement

Let’s make it simple at the very beginning. Why do you need to plan for your Retirement? As you may know, financial Planning is a process whereby you will have a roadmap of your personal and financial life, which will help you to meet all your life’s expenses – both the expected… (household expenses, discretionary expenses, children’s school and college fees, putting money together to buy a home, EMI payments, saving and investing for your retirement and so on)… and the unexpected…(medical contingency, creating a safety fund to compensate for loss of a job, and so on).

It is easy to say that as long as you are earning, your monthly income will cover your expenses, and whatever you save you will invest for your retirement and other life goals, hopefully, you will have enough set aside to live the rest of your life maintaining a good lifestyle.

But we all know that there are two things that go against this thought:

Something that costs you Rs 100 today could cost you Rs 110 tomorrow. Imagine what it would cost you when you retire after so many years.

An example to bring out the point:

Monthly Household expense today: Rs 30,000/- Years to Retirement: 15 Assumed Inflation Rate: 8% p.a. Your household expense at the time of retirement, to maintain the same lifestyle: would be a staggering Rs 95,165/- per month

Say if you have surplus funds which you will not need for the next 5 years, and you choose to lock them into traditional investments with assured returns to save on tax. You may have been better off

The first is Inflation – the one thing that kills the value of your money.

The second is the improper investment of your money.

This is what can kill the potential future value of your money when it is needed the most.



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taking higher risk and investing into the equity markets perhaps by way of a tax saving equity mutual fund – thereby likely to benefit from equity related returns over the long term and also saving on tax.

You would realise that investing your surplus funds in traditional assured returns investment products may not be able provide inflation adjusted returns in the long term.

Because of these two major factors, it is absolutely essential to have a strong financial plan that will give you awareness on where you stand today, and what steps you need to take to achieve your key financial goals.

And for this, you need to first understand the scope of financial planning.

We have also come across a common mis-conception among investors today, wherein they believe that doing your tax saving investments during the year is the same as doing financial planning.

Absolutely a myth!

Making tax saving investments is often misconstrued as proper financial planning but financial planning is a lot more than this.

Financial Planning involves planning for your life goals such as your retirement, your child’s education and marriage, purchase of an asset such as a house or a car, planning for annual family vacations and any other goals you may want to achieve.

While doing financial planning, you perhaps (with the help of your planner), will first determine and quantify your life goals, and then assess your cash flows to see how to allocate funds towards your goals in a manner that your goals are suitably achieved. Once a plan has been created by taking all your personal financial requirements into account, then you would begin investing towards these goals.

Investments are the last piece to fit into the financial plan. Your investment portfolio may also include tax saving investments.

Thus as you see, tax saving investments are only a small part of overall financial planning.



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II: Retirement Planning - The Initial Steps

"Would you tell me which way I ought to go from here?" asked Alice. "That depends a good deal on where you want to get," said the Cat. "I really don't care where I get" replied Alice. "Then it doesn't much matter which way you go," said the Cat.

Lewis Carroll, Alice's Adventures in Wonderland

How Does Financial Planning Aide Retirement Planning?

Financial Planning is a comprehensive term which includes retirement planning. To put it simply, first your finances needs to be planned and invested properly so that you can enjoy the benefits during your retired life.

Measuring your Financial Health

Your financial health in present terms will aid you and your financial planner to derive a course of action to achieve a sustainable retired life plan. Thus, when dealing with your personal finances, it is therefore important to start by knowing how financially healthy you are today.

Generally most of us get a complete physical health check-up once a year, especially after a certain age. This is done so that we know our health issues if any, and can treat any ailments before they cause any damage. Your finances are as important to you as your health, and deserve at least the same amount of care and attention.

Here we will tell you about 3 simple personal finance rules that you can start with, to see where you stand today.

Debt to Income Ratio

Total monthly outgoings on recurring liabilities Debt to Income Ratio =

Total monthly income from fixed sources



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Contingency Reserve = 1 to 2 years of your living expenses or 6 to 12 months of income

Debt to Income Ratio shows the percentage of your monthly income that goes towards repaying your debt. Ideally, your debt to income ratio should not be higher than 30% as it means you are straining your income. This means you should not be spending more than 30% of your income on paying loans / interest on loans.

Savings to Income Ratio

Total monthly savings Savings to Income Ratio =

Total monthly income Savings to Income Ratio shows the percentage of your monthly income that goes towards your savings. Ideally, you should be saving at least 20% of your monthly income to invest for your future financial goals.

Contingency Reserve

You should set aside 1 to 2 years of your living expenses or 6 to 12 months of your income as a contingency fund to be used only in times of emergencies. This should include any EMIs that you may have. Once you implement these simple rules, you will find that your finances are more in your control and manageable.

Remember - it is better to first invest, and then spend what is left, rather than to first spend, and then invest what is left.

But the beginning of all this is to start keeping track. Maintain your budget. Your budget will help you monitor and track your money flow on a month on month basis. You will be able to see how much of your money is spent on necessities, and how much on luxuries. By end of the month, you will have greater awareness on where your money is going and you will be able to streamline your expenses to increase your investments, ultimately building more wealth.

Go over your cash flows for the month and see how your money is flowing.

Also, test the 3 financial rules on yourself - assess your savings to income ratio, your debt to income ratio (if you have liabilities) and see if you have enough of a contingency reserve set aside.



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The importance of starting early in retirement planning

An often-heard excuse for putting off retirement planning is “I have enough time to retire, so why rush?” Unfortunately, most of us fail to realise that postponing is the biggest enemy when it comes to retirement planning. In fact, starting early and ensuring that you have sufficient time on your side is the key to successful retirement planning.

Starting early provides you with a lot of benefits:

1. Greater flexibility

Having adequate time grants a degree of flexibility to your retirement plans. It gives you the opportunity to explore various investment options and avenues. For example, among asset classes, equities have historically displayed the potential to outperform others like gold, real estate and bonds over longer time frames. The key here is “longer time frames”. However, over shorter time periods equities can be the most volatile asset class. Hence if you wish to gainfully utilise the power of equities, making an early start is imperative.

2. Power of compounding

The single biggest advantage which can be derived from making an early start is the opportunity to benefit from the power of compounding. Put simply, this is the ability of an asset to generate returns, which are reinvested for generating higher returns. Longer time horizons enhance the compounding benefits. An illustration will help you better understand the same.

Rajesh and Jayesh (both 30 years of age), wish to make investments to build a corpus for their retirement. - Rajesh starts immediately with annual investments of Rs 10,000 assumed to earn a return of 8% pa. On the other hand, Jayesh postpones and starts investing after 10 years. However to make up for the lost time, he invests twice the amount i.e. Rs 20,000 per year at 8% pa. Both the individuals would like to retire at the age of 60 years, giving Rajesh an investment horizon of 30 years, while the same is 20 years for Jayesh.

Rajesh Jayesh

Amount invested (Rs per annum) 10,000 20,000

Tenure of investment (years) 30 20

Assumed rate of Returns (% per annum)

8 8

Maturity amount (Rs) 12,23,459 9,88,458

(The above table is illustrative)

At 60 years of age, Rajesh has a corpus of Rs 12,23,459 as compared to Rs 9,88,458 accumulated by Jayesh. Despite doubling the investment amount, Jayesh fails to match the sum amassed by



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Rajesh. The longer investment tenure (30 years vis-à-vis 20 years) makes all the difference. The message is clear - give your investments sufficient time to grow and you can gain from the power of compounding.

5 reasons why you should plan your retirement well 1. To cover daily living expenses

Have you wondered what would happen if your monthly pay checks would stop coming in? All of us have to bear the necessary living expenses in our households and the absence of our regular monthly income could become a night mare for most of us. It would create huge financial liabilities and during our retired years, we may even become a burden on our loved ones. Retirement planning works towards avoiding this night

mare from becoming a reality in the golden years of our life. Not many people get pensions or gratuities post retirement and even for those who do receive them; the amount is generally not big enough to cover all of their expenses. By planning and building a sizeable retirement corpus, you can ensure that your family’s standard of living is not compromised post retirement. 2. To cover medical expenses

As one’s age progresses, the number of health issues and emergencies also increase. As you might be aware, medical expenses bear the potential to create a huge hole in your pocket. Mind you, medical expenses may not always be related to you. It could even be for any health problem that your spouse or children may face. In fact, these days even dental treatments can cost you a small fortune. Mediclaim or health insurance policies may sometimes not cover all your medical expenses. In such a scenario, you would be forced to pay for these medical bills from your own pocket. Therefore your retirement corpus must be large enough to cover you and your spouse’s medical expenditure to avoid a financial crunch in the later years of your life. 3. To fight inflation

Inflation refers to the rise in the prices of goods and services. As some of you may be aware, it eats into our savings and reduces the purchasing power of our hard earned money. You see, prices have been on the rise constantly since the last few decades, and could continue to rise even after you reach your retirement age. This means that you would have to pay more for everything in the future. From grocery to travel to accommodation, it is more likely to cost you relatively more in the

future. Without a sound retirement plan which has an adequate retirement corpus keeping in mind inflation, life expectancy, rate of return and so on, it would be very difficult for you to achieve all your retirement goals.



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4. To deal with uncertainties

Life is quite unpredictable and uncertain. It can sometimes throw us in adverse situations and circumstances which we may not have expected. Some situations have the power to create a financial as well as emotional turmoil in our life such as natural calamities, loss of loved ones, loss of job, financial difficulties in the life of family members and so on. Having a sufficient corpus to take care of such contingent events can always come to your rescue. It is therefore imperative that you have a sufficient contingency reserve of around 1 to 2 years of your living expenses or 6 to 12 months of your income, so that any intermediate period of turbulence and turmoil can be managed better and not hinder your long-term goal of retirement. 5. To meet your retirement goals

Retirement goals are the objectives that you wish to achieve in your retirement years. These could be travelling and exploring new places or taking up hobbies that you have always wanted to pursue. For some people it could also be concentrating on fitness and improving their health. You might also want to give your loved ones some gifts, money, artefacts etc. in your retirement years as a token of appreciation and togetherness. However, if you do not plan and save for

all these retirement goals in your working life, they cannot become a reality in your golden years.

Have You Started Planning For Your Retirement Yet?

Assessing the gravity of the need for retirement planning from the points enunciated above, it is imperative that you plan for your retirement wisely assessing the life stage you happen to be in. Here’s how you should go about planning for your retirement at various stages of your life.

1. At a young age

Most individuals who are in their 20s and having recently started earning might think that retirement is a distant reality. For them, planning for retirement at this early age may seem like being overly cautious. However it is imperative and noteworthy for you to recognise that being young provides you a benefit that is not available to all – you have 'time' on your side. It is rightly said, "the early bird gets a bigger pie". Beginning to invest early in life will enable you to accumulate the necessary corpus required for your retirement through the power of compounding as seen in the example which we cited earlier. When you enter this stage, first determine the corpus you would require post retirement and then calculate the amount you should be saving each month to accumulate that desired corpus. Once you have determined the amount to be saved per month, it is vital that you also develop a plan to allocate and invest your savings. Being a young investor, you can allocate a large percentage of your portfolio into relatively riskier asset classes, such as equities and balance in relatively less



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risky instruments. This is because; you have ample amount of time and opportunities to recover from any possible setbacks in the value of the portfolio. But remember to invest prudently in these assets in order to lessen the probability of loss to capital and earn high returns for your retirement portfolio. Many young investors park their entire savings in safer instruments such as Government securities, fixed deposits etc., but they fail to recognise that investing in such instruments may provide only conservative or lower inflation adjusted returns which might not help in building the desired corpus in time.

2. Middle Age

In your 30s or 40s you are mostly climbing the corporate ladder and earning a higher income. But, you also have added responsibilities such as home / car loan, raising your children and saving for their future, taking care of your parents in their old-age and so on. When you are in this phase, it is important for you to have a clear picture of your financial goals. However, retirement planning should not take a back seat in lieu of meeting other goals. It is imperative to remain focused and maintain consistency in saving for your retirement. In fact, with an increment in salary or profits, you should also increase the amount of contribution you make to your retirement kitty. You should aim to never withdraw from this account for meeting other costs such as holiday expenses or children's college education. You see, planning and saving separately for other expenses including contingencies or medical emergencies such as accidents or illness, will largely help you in creating and retaining the desired retirement corpus. Thus if you are already middle age and have not yet started planning or saving for your retirement, then it is high time you begin.

3. Nearing Retirement

When you are in the 50s age group, you have reached the pinnacle of your earning potential. By this time, most of your major outlays in life such as home loans or children's college education are already behind you. Hence you can increase the contributions towards your retirement goal to a great extent and also save a large portion of your monthly earnings. Use this as an opportunity to give a last booster for enhancing your retirement corpus. However when you enter this life stage, asset allocation is something that you need to be overly cautious about. This is because you have fewer number of working years left to cover up any monetary setbacks that your retirement portfolio might suffer. Hence although some portion of your portfolio can be exposed to relatively riskier asset classes, a majority may be shifted to relatively less volatile asset classes such as debt.

4. Already Retired

It must be borne in mind that although you have retired or retiring very soon, the retirement planning process has not ended. You need to calculate the amount you will withdraw per month based on the corpus you have accumulated and your present health conditions. Some of you might also consider working part time post retirement or doing some small business of your own. You must review your investment accounts periodically and ensure those inflows, if any, are prudently parked. You should keep at least 6 months - 1 year of expenses in your bank account or in a liquid fund to meet day-to-day expenses. Moreover, most of your portfolio should be invested



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in relatively less riskier asset classes to protect it from market volatility. You don't want to see the savings of your lifetime get eroded and depleted due to turbulent market conditions, do you?

10 questions you should ask yourself while planning for your retirement

The best way to start with planning your retirement is to first sit down

with your spouse and figure out exactly what you’re spending on at

present. You need to consider things like your household expenses,

medical expenses, travel expenses, and the kind of lifestyle you want to

maintain during your retired years. Will you do more charity work after

you retire? Will you travel more? Will you both take up hobbies? And so

on…

Together, you both should decide when and how to retire.

Now as the average life expectancy of individuals has increased, you may live longer and so would

your expenses during your retirement. Moreover, most of us want to have a comfortable retirement

for which adequate planning is necessary. So here we list down 10 questions you should ask yourself

while planning your retirement.

1. When will I Retire?

As a part of your retirement planning exercise, you should consider the number of years left for your

retirement. Waiting till the last minute to plan your retirement might be too late. You should ideally

start planning your retirement at an early stage of your life.

2. How long will I live?

The average life expectancy has grown steadily over the years owing to advancement of medical

science. To be on the safer side one must plan for about 20—30 years post retirement. While you may

feel happy that you would live longer, the key question you need to ask yourselves is – How healthy

would my life be? Old age and health issues go hand in hand. So as you grow old, the number of

physical ailments that you might suffer from may also increase.

Planning for retirement at an early stage has far more merits. With age being on your side and chances of climbing up the ladder in your career being high, you could initially tilt your investment portfolio more towards riskier asset classes like equity which could grow your wealth in the long run. Hence you should start investing at an early age.



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3. What is my monthly basic expenditure?

Calculating your future expenses at present would be the key to predict major portion of the corpus

that you may need during your retirement. Apart from monthly basic house hold expenditure, you

should also consider other additional expenses that you incur every month towards your life style like

your phone bills, fuel expenses; shopping, entertainment etc. Do not forget that you may have most

of these expenses even during your retirement.

4. What will be my expenses in future?

Inflation decreases the purchasing power of your money. Since 1981, Inflation in India (based on Cost

Inflation Index*) has grown at an average of around 7.3%, while it grew at an average of around 8%

over the past 10 years. Thus if your monthly expenses are Rs.50,000 today, they would grow to

Rs.3.42 lacs after 25 years if inflation is assumed at 8% p.a. and to Rs.2.71 lacs if inflation is assumed

at 7%.

So, to maintain your current life style and secure the purchasing power of your money, you need to

compete with this monster called inflation.

*Data for Cost Inflation Index is sourced from: www.incometaxindia.gov.in

5. Do I have enough contingency corpus?

You cannot avoid an uncertainty, which may knock your door without informing you. But yet you may

have to face it and more importantly you should know how to handle it. The best part with proper

planning is that you can provide for such uncertainties well in advance.

Keeping aside 6 to 12 months of your monthly expenditure (including your EMIs) in a liquid mutual

fund (which has high liquidity and the potential to generate higher returns than a savings bank

account) is advisable. So you need to carefully account for this while planning your retirement. After

all, this is the money that you might be using in case of emergencies and may not hamper your

retirement plan.

6. How much should I provide for my health care and medical needs?

With growing age, your medical needs might increase, so you need to account this well in your

retirement plan. With the rising cost of medical expenses, you need to consider a higher impact of

inflation on this.

If you consider your annual medical cost to be around Rs 50,000 at present, and say the average

inflation rate is 8%, then after 25 years, you may need to spend around Rs 3.42 lacs on your annual

medical cost and it might keep on increasing with your age.



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7. Do I have adequate Insurance cover?

As securing your family is crucial, insurance is a must in the process of planning your retirement.

While you might believe that something will not ‘happen to you’, our life is quite unpredictable and

uncertain. Further, you may not want to pass on any financial burden to your family. So in the course

of retirement planning, it is important to have a suitable health insurance policy / mediclaim besides

an adequate life insurance cover, as well as house insurance for theft, natural and unnatural

calamities like fire etc. Thus various types of insurance are required to safeguard your investments

against any sudden outflows due to emergencies.

8. Will I have any liabilities during my retirement years?

You might have already built some assets for your security and if you are young, you might be

planning to build some in future, before you retire. Some of you might be having liabilities, which you

should aim to repay before your retirement. You should ideally not get into a situation where you

need to keep on paying your liabilities even during your retirement.

Leaving aside your self-occupied house, the future valuation and cash inflows that you can generate

from your other assets should be considered while planning your retirement. You should classify

which of these you would keep for your retirement and which of these you would pass on to your

heirs. Of course you may not want to pass on your liabilities. So you should make sure that all your

liabilities are repaid as soon as possible.

9. Can I generate cash inflows during my retirement?

You might have invested a portion of your hard earned money in tax saving instruments like PPF. Or if

you are salaried, your employer might have deducted and contributed a small portion of your salary

every month towards EPF, on your behalf. You can expect some cash inflows in the form of annuity or

pension during your retirement.

Moreover within the list of the assets that you hold at present, you can consider assets that can be

used towards generating regular cash inflows. Say a rental income that can be generated by putting

your second house on rent or the annual interest that you may receive from your investment in

bonds. You may also look at customising your regular cash flows through Systematic Withdrawal Plans

(SWPs) offered by mutual funds. All such investments and assets that can help you generate regular

cash inflows during your retirement should be considered while planning your retirement.



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10. What do I desire to do during my retirement?

While you might account for and achieve most of your goals before your retirement, there might be

few specific goals that you would keep for your retirement. Like, you might have desire to go for a

vacation at least once in a year during your retirement. This will be an added expenditure. But, if you

plan it well, then you can easily achieve this goal of going on a long distance tour with your spouse,

family or friends. However you should consider the inflated cost of your expenses then.

Besides you should look for various efficient options that are available and can help you meet such

goals even during your retirement.

5 Steps You Should Take To Build A Decent Corpus For Your Retirement

Once you know the corpus that you need to have a hassle free

retirement, you should take your next step towards building such a

corpus. But before that you need to consider factors like, your age,

the money you need for your retirement, the number of years to

your retirement, your risk appetite, your current monthly income

etc. Based on your risk appetite and investment time horizon you

should look at productive investment instruments that can help you

generate decent inflation adjusted returns in the long run, to build

your retirement corpus.

So here are 5 steps that you should take to build a decent corpus for your retirement.

1. Start Early

The key to accumulating your retirement corpus is to start early.

Now that you know the amount you need at your retirement age, do not wait a moment to start building your retirement corpus. While you might have already built some assets and investment portfolio, calculate the additional money that you need to invest to reach your targeted corpus. Moreover you should evaluate your post-retirement needs and accordingly opt for products that not only help you reach your targeted corpus but also protect you during uncertain market phases.

2. Do not hesitate to cut on unnecessary expenses

If you are not in a position to save enough to commit the additional money that you need to invest every month, do not hesitate to cut down on unnecessary expenses like impulsive purchases, entertainment, vacation, etc. Cutting down on such expenses might help you invest more and reach closer to your targeted corpus.



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3. Create an ideal investment portfolio

You need to plan an ideal investment portfolio that can help you reach your targeted corpus. While building your portfolio, you need to consider your age, your risk appetite, your investment time horizon etc. Moreover you need to diversify your portfolio across asset classes. Some asset classes like equities have the potential to generate higher inflation adjusted return while fixed income instruments may offer lower risk and cushion the volatility of equities. Gold, on the other hand, is a store of value, a hedge against inflation and acts as a good diversifier of your portfolio.

Depending on your current age and the risk that you can afford to take, you should define a standard allocation to each asset class. If you see a rally in any of the asset classes, and deviation in your asset allocation, you can rebalance the asset allocation by booking profits in the outperforming asset class and moving it to the underperforming asset class.

Do not forget that based on your risk appetite, every asset class may not be suitable for you. At the same time, you should not be over exposed to a particular asset class.

4. Invest Regularly

To make your investments affordable, you should inculcate a habit of regular investing. Being in the earning phase of your life, you can invest regularly as per your convenience in order to accumulate your retirement corpus. As and when you get any surplus like say your annual bonus, and if you have already taken care of other goals, then even this money can be added to your retirement portfolio.

5. If already retired, look for regular cash inflows

Post retirement, you might not have any other source of income. Liquidity will be the key concern for you. You can rely only on your investments to help you manage your expenses.

It may not be advisable to hold high exposure into equities during your retirement phase. As a prudent approach, you should not hold more than 25-30% of your portfolio into equities and the rest can be in fixed income assets to lower the risk in your portfolio. You may enrol into a Systematic Withdrawal Plan (SWP) offered by mutual funds for regular cash flows during the retirement phase.



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III: Role of Different Asset Classes in Retirement

Planning

“Do not put all eggs in one basket”

Warren Buffet

Exposure to different asset classes is imperative in building one’s retirement portfolio. Different asset classes have different attributes which help in maintaining the required risk-return balance in one’s retirement portfolio.

Let us now, understand the benefits of the below mentioned asset classes in one’s portfolio:

1. Equity

Equity as an asset class has the potential to beat inflation and has historically provided higher returns over longer time frames. By nature equities are volatile and relatively riskier investments. However, if one lacks the expertise and skills of analysing and selecting the right stocks, then he can adopt the indirect route of investments to equities i.e. equity mutual funds. By taking exposure in equities through diversified equity mutual funds, the volatility of this asset class

is reduced to a considerable extent. You also need to select right mutual funds to benefit in the long run. For this, you should look at not only the quantitative parameters like volatility and returns but also qualitative aspects like the fund management style, whether the fund house is driven by prudent investment norms and processes, besides age of the fund, etc. You may consult a professional financial advisor to choose the relevant funds.

Based on your risk appetite, exposure to large cap and mid-cap funds can be decided. Thus a prudent approach followed in selecting the right mutual funds for your retirement portfolio may work wonders in generating higher returns.

The exposure of large cap funds in your portfolio may help provide stability to your portfolio during economic turmoil. However, exposure to proven mid cap funds from fund houses following prudent investment norms and processes may help give that extra push to returns in the portfolio.

2. Debt

Debt or fixed income as an asset class is known for its relatively lower risk and stability of returns. It also helps to generate a regular income stream which is extremely important during your retired life. Here the category of debt oriented mutual funds can help to cushion the volatility of equity funds and provide



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steadier portfolio returns.

As you near your retirement age, make sure your exposure to debt oriented mutual funds is increased so as to protect the corpus built up over the years and reducing the risk of the overall portfolio. One of the thumb rules you may follow is 100 minus age for equity exposure and the rest may be in debt. There are various categories of debt oriented mutual funds like liquid funds, ultra short term debt funds, short term debt funds, accrual funds, income funds, gilt funds etc. which you can pick and choose for investment based on your investment time horizon. Remember shorter duration funds are less risky than longer duration funds as the latter carry a higher interest rate risk (more impacted by change in interest rates). Further income and gilt funds need tactical allocation based on interest rate views where a professional financial advisor could help. Accrual funds, on the other hand, help to provide more stable returns across interest rate cycles.

The below table summarises debt funds and their investment horizon –

Type of Debt Fund Tentative Investment Horizon

Liquid funds Upto 6 months

Ultra Short Term Debt Funds 6-12 months

Short Term Debt Funds 1-3 years

Income Funds Above 3 years

Gilt funds Above 3 years

Monthly Income Plans Above 3 years

Monthly Income Plans and Pension Funds: Monthly Income Plans offered by mutual funds are debt oriented hybrid funds that typically invest 15-25% of their corpus in equities and the balance in debt instruments. Investors can choose between the monthly, quarterly, half-yearly and annual dividend pay-out options or the growth / cumulative option. However it should be understood that on account of their market-linked nature, MIP returns are not assured. They have the potential to deliver superior returns as compared to pure debt funds owing to the marginal equity component. Also it scores on the liquidity front as there is no lock-in tenure. However an exit load may be charged if investments are liquidated before a stipulated period. Dividends received from MIPs are subject to dividend distribution tax (as per current tax laws) which is deducted by the fund house before distribution of dividend.

Some mutual funds also offer retirement planning solutions through Pension funds. Some of them offer tax benefits with an objective to help investors build their retirement corpus. They are hybrid funds typically investing up to 40% of their assets in equities and the remaining in debt. Investment in these pension funds are eligible for tax exemption up to Rs 1.5 lakh, under Section 80C of the Income Tax Act and come with a lock in period (as per current tax laws). As these funds are meant for retirement, your withdrawal before the age of 58 would be subject to exit load. On attaining the age of 58, you can either withdraw the full amount or opt for regular annuity in the form of dividends or through systematic sale of units (Systematic Withdrawal Plan or SWP).



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3. Gold

Gold has been historically considered as an important asset class mainly for three reasons:

Hedge against inflation

Helps to lower risk in a portfolio as it is a good diversifier

Adds stability to portfolio return

Gold is a good diversifier because historically gold enjoys a lower correlation with equities which means that ups and downs in the prices of gold and equity may not necessarily happen at the same time. In most cases gold and equity prices may move in opposite directions thus balancing the returns of the portfolio. For example, in 2011 gold gave around 33% returns while equities (S&P BSE Sensex) gave negative 25% returns. Similarly in 2014, equities gave almost 30% returns while gold gave marginal return of 2% (Source: ACE MF, Gold return is of Gold-London AM (INR). Thus one asset class helps to cushion the negative returns of the other asset class. Hence taking into account the fundamentals of gold makes it a strong case for inclusion in one's retirement portfolio. Gold Exchange Traded Funds (ETFs) or Gold Fund of Funds (FoF) are a convenient and tax efficient way of investing in gold. Gold ETFs offer units to investors and buy physical gold on their behalf which is held by authorised custodians. They are also listed on stock exchanges.

Gold ETF and FOF, both offer a host of benefits as under -

Convenience in buying / selling

Transparent pricing and high liquidity

Guaranteed Quality

No risk of theft

Low ticket size

Gold mutual funds are thus a smart way to invest in gold.



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5 Reasons Why Asset Allocation Is Important for Retirement Planning

As the name implies, asset allocation refers to distributing your investible surplus across asset classes such as equity, debt, gold, real estate or even holding cash for that matter. By allocating assets, you are essentially adopting an investment strategy which can balance your portfolio’s risk and reward keeping in mind your risk profile, your financial goals, and your investment time horizon.

Building an investment portfolio through optimal asset allocation is imperative while you endeavour to achieve your key financial goal like Retirement.

Here are the benefits asset allocation offers to you as investors.

1. Optimal Return

In the absence of a proper asset allocation framework, many individuals invest in an ad-hoc manner. This in turn makes it difficult for them to generate sufficient return on their investments so as to achieve their goals. Proper asset allocation followed by regular rebalancing will help you manage risk and returns on your investments in an optimal manner.

2. Risk Minimization

Based on your past investment experience or your willingness to take risk, you will make your future investments decision. If you have earned good returns from equities in the past, you may invest only in equities. If you have burnt your fingers in the past by investing in equities you may invest only in fixed income. Past experiences can thus lead to being either too aggressive or too conservative about your investments. While learning from past experiences is good, it is vital to follow a proper asset allocation based on time to retirement to build a sizeable investment portfolio. This will not only minimize risk on your investments but will also provide more certainty in accumulating funds for your retirement.

3. Helps align your investments as per your Time Horizon

Your time horizon is a key factor to decide the kind of investments you should hold in your portfolio. While you endeavour to build your retirement corpus, an optimal asset allocation would hold the key. As a thumb rule, longer your time horizon, the more you can tilt your asset allocation towards high risk asset classes like equity and less towards debt.

Equities are considered risky in the short term while less risky in the long term, as they will have more time to recoup from turbulent phases of the market. So consider investing in equities if the time horizon is more than 5 years. While debt is considered less risky, the returns clocked by the

This chart is for Illustrative purposes only. It should not be construed as an investment advice.



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asset class are also relatively lower and may not be of much help in achieving long term financial goals. However, your short term goals may be achieved through debt funds. Hence you may start with a higher equity allocation for your retirement goal but you must slowly shift from equity towards debt as you near retirement to cushion the impact of any market volatility on the corpus.

4. Tax Efficiency

If you happen to be in the 30% tax bracket and invest all your savings in fixed deposits to keep your investments safe, then you actually pay taxes every year on all the interest earned during each year. Mutual funds on the other hand are taxed on the basis of capital gains meaning you pay taxes only when you actually sell the units at a profit. There are two types of capital gains – long term and short term. While returns from equity funds are tax free after one year under long term capital gains (LTCG), debt funds offer indexation benefits after 3 years under LTCG as per current tax laws. Under indexation you pay taxes only on those returns which are over and above inflation. Further, equity funds are taxed at 15% under short term capital gains (STCG) if held for less than one year while debt funds are taxed under STCG if held for less than 3 years at respective income tax slab rates. Further all dividends are tax free in case of equity funds while debt funds incur a dividend distribution tax (DDT).

You should therefore view investment returns from the point of view of post-tax returns rather than pre-tax returns as post-tax return is what you actually get in your hand. Prudent asset allocation will not only help you to determine the right asset class, but also the right investment product which will help you to build tax efficiencies.

5. Adequate Liquidity

Liquidity is also one of the vital factors while making investment decision as some investments have a lock in period and cannot be redeemed within that period. For e.g. if you plan to invest in a Public Provident Fund (PPF) or Equity Linked Saving Scheme (ELSS) of a mutual fund, but need the money within a year, then they aren’t the right investments for you no matter how good these investments are. PPF has a 15 year lock-in while ELSS has a 3-year lock in period. Prudent asset allocation will make sure that you have sufficient liquidity to pay for your financial needs as and when required.

Defining an optimal asset allocation is not as easy as it might seem to you, because you need to take into account host of factors to reap the benefits of prudent asset allocation. But once prudent asset allocation is in place, it will help you to earn adequate return, minimize risk, build tax efficiencies, have sufficient liquidity and even achieve your retirement goal.



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IV: Perils of Planning For Retirement Late

A Case Study

“Planning is bringing the future into the present so that you can do something about it now”

Alan Lakein

Let’s take an illustration of an individual who delayed planning for retirement till he turned 50 and realized that he doesn't have much savings for his golden years. This case study will help you understand the perils of planning for retirement at a later stage of life.

Personal Details

Name Mr A

Occupation Salaried

Age 50 years

Retirement Age 60 years

Dependents Only Spouse

Life Expectancy 86 years

Current Net Income Rs 95,000 per month

Current Expenses Rs 62,000 per month

As you see, Mr A is a 50 year old married individual, wanting to retire at the age of 60. His spouse is the only member of his family dependent on him. While his net earnings are Rs 95,000 per month, his expenses are Rs 62,000 per month. So his monthly surplus is Rs 33,000 per month. Mr A has a family history of living over 80 years so let’s assume that he has a life expectancy of 86 years.



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Here are the current value of assets and liabilities held by Mr A…

Assets

Sr. No. Type of Assets Value as on

date (Rs)

1 Equity Mutual Funds 8,75,000

2 Equity Shares 3,25,000

3 PPF 10,00,000

4 Gold Mutual Funds 7,00,000

5 Residential Flat (Self-Occupied) 50,00,000

6 Land (appreciating @ 5% p.a.) 30,00,000

7 Cash in Bank 2,70,000

Total 1,11,70,000

Liabilities

S.No. Type of Liability Outstanding

Amount as on date (Rs)

1 Home Loan 15,00,000

As can be seen in the table above, Mr A has more than 70% of his total investment portfolio in illiquid assets such as Residential Flat and Land. He has taken a home loan (EMI = Rs 20,000) for the construction of a residential flat in which he and his spouse is staying. 10% of his investment portfolio is invested in Equity via Equity Mutual Funds and Equity Shares. He had opened a PPF account when he was 30 years old and extended it for 1 more block of 5 years, and now the PPF account is about to mature in 2 months’ time. He has also invested in Gold via Gold Mutual Funds. The Cash in bank is mainly kept for contingency purpose.

And here is Mr A’s Concern… As Mr A is nearing his retirement, he is concerned that his assets are insufficient to fund all his expenses and liabilities during his golden years i.e. post retirement period. The hard facts of the case are… Mr A’s total expenses at present are Rs 62,000 and he wants to maintain the same lifestyle during his post retirement period as well. But as he would pay off his existing home loan by the time he retires, his net total expenses in current terms would reduce to Rs 42,000 per month during the post-retirement period. Assuming an inflation rate of 8% p.a, his expenses would rise from Rs.42,000 to Rs.90,675 when he turns 60 years (after 10 years) and keep growing by the inflation rate. Hence the retirement corpus must be able to support these expenses post inflation for another 26 years after adjusting for assumed returns from investments of 10% p.a. This corpus works out to Rs.2.21 crore based on the PV (Present Value) formula. Since Mr A has just 10 years left for his retirement and has accumulated assets worth Rs 1.1 Crore, he would fall short of Rs 1.1 Crore while building his required retirement corpus. If he fails to accumulate the required corpus Rs 2.21 Crore, his retirement might be off the track.



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The solution… In such a scenario Mr A can do the following:

View on Land: Mr A’s investment in land has grown @ 5% per annum in the last few years and not much growth is expected from the same going forward. Further land is giving him only price appreciation and no rental income. So Mr A can sell the land and invest the sale proceeds in constructed property which will give him some rental income and a higher expected growth rate in terms of capital appreciation to the property. Mr A would be better off by investing in a new property and giving it on rent, which can fetch him a rental income of around Rs 4,000 per month. Moreover if the property is assumed to grow at 8% per annum, it can be estimated to command a value of around Rs 64.77 lakh at his retirement.

View on Equity Mutual Funds: Mr A needs to make sure that he is invested in a portfolio of mutual funds having decent track record. He needs to consolidate his mutual fund portfolio to see if there are any duplicate schemes that may not give him adequate diversification. Assuming a growth of 12% p.a. on equity, his investments in Equity Mutual Funds would give him around Rs 27.18 lakh at retirement. Please note that the CRISIL-AMFI Equity Fund Performance Index has returned 14.72% annualised gains over the 10-year period ended September 30, 2015.

View on Equity Shares: Mr A should be invested in good stocks on the basis of research based recommendations. He can hold on to his equity investments and use them for retirement. Assuming a growth of 12% p.a. on equity, his investments in Equity Shares can be expected to fetch him around Rs 10.09 lakh at retirement. In case Mr A does not have time to research stocks or monitor his direct equity investments, he can choose to shift his exposure from direct equities to well managed equity mutual funds having sound track record (Past performance not a guarantee of future performance).

Fresh Investment in Equity Funds: Since Mr A is well short of required corpus, investing in only the debt asset class may not suffice. Hence it is imperative to invest in equity funds which have the potential to grow at a higher pace. He can start a SIP of Rs 24,000 per month in diversified equity mutual funds and increase it by 5% every year for 10 years. He could increase his fresh investments by just 5% every year if his salary growth is not expected to be very high going forward. Assuming a 12% p.a. return on equity, his fresh investments in Equity mutual funds would give him around Rs 66.9 lakh at retirement.

PPF: PPF account which is about to mature can be extended for 2 blocks of 5 years i.e. total of 10 years. He can invest Rs 7,000 per month before 5th day of every month till retirement. Assuming an average return of 8% on PPF, his PPF account will fetch him around Rs 35.09 lakh at retirement.

View on Gold Mutual Funds: Gold mutual funds are a good way of investing in gold. So he can hold his investments in Gold mutual funds and further invest Rs 3,000 per month for 10 years. Assuming a return of 7% return p.a. on Gold, his investments in Gold mutual Funds can give him around Rs 19.29 lakh at retirement.



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Estimated Accumulation until retirement (60 years)

S.No. Source of Investments Value

(Rs in lakhs)

1 New Property 64.77

2 Equity Mutual Funds 27.18

3 Equity Shares 10.09

4 Fresh Investments in Equity 66.89

5 PPF 35.09

6 Gold Mutual Funds 19.29

Total 223.30

The key learning from the case study:

1. Start planning for retirement early! Even if you have just started earning, even a small contribution can make a huge difference

2. Land is an illiquid investment and does not give any rental income; so invest in land only if you know about the region in which it is located and is bound to deliver a high growth rate.

3. Post retirement expenses can increase significantly due to higher medical costs; so make a provision for medical expenses like medical insurance while planning for retirement.

4. Due to advancement in medical science, life expectancy has increased, so do not underestimate it.

(All the return expectations used in the above case study is an assumption and used for illustration purpose only)

Why many fail to start planning for their retirement early?

We have discussed how it helps to start early and how not starting early could prove to be an expensive proposition. But there is also a need to understand why many fail to get started.

At times individuals are not able to set aside the requisite amount of money needed for their retirement. They can contribute only a part of it, not all. As a result, they end up postponing their plans. In our view, this is a wrong approach. Instead, the right course of action is to start off with what you have and make up for the deficit (if any) at a later stage. On the other hand, if you decide to simply wait for an ‘opportune’ time, it might be too late.



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Another reason for failing to start is that a significant amount of money is often spent on providing for one’s present lifestyle i.e. shopping and entertainment, leaving very little for retirement. While the importance of satisfying present needs cannot be denied, it does make sense to neglect your future as well. You should strive to strike a balance between the two.

Finally, perhaps, making a retirement plan and putting money aside for the same acts as a reminder of the eventuality – retirement. Maybe the thought of growing old and leading a rather sedentary lifestyle brings with it a certain degree of discomfort and discourages some from working towards their retirement plan.

However such mindsets need to change. Looking the other way will only worsen the situation. The solution lies in accepting retirement as an eventuality and being adequately prepared for it. And making an early start is your best bet at being prepared!



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V: Insurance a Must in Retirement Planning

"Precaution is better than cure.”

Edward Coke

What is Insurance?

Insurance in its purest sense is protection against a financial loss / uncertainty which includes the risk of illness, disability, damage to property, and the most important of them all - one’s demise.

The value of your loved one’s life is a very sensitive issue as your loved ones are priceless.

But it becomes necessary to evaluate a human life in terms of money, in order to safeguard from problems caused by any emergencies.

There are two types of insurance which concern an investor – Life insurance and General insurance. Medical and property insurance is covered under the latter. In case of life insurance, there are traditional policies and pure insurance policies. As the former offer a combination of investment and insurance, their premium is higher vis-à-vis pure insurance policies. Endowment and Money Back Policies are the popular traditional policies. Pure insurance policies are offered as Term plans.

Term Plans

A term policy is a simple pure life insurance which provides a sum assured in case of the policy holder’s unfortunate demise. Most people are not in favour of a term policy, as there is only a death benefit and no money is returned like traditional endowment and money back policies. But the reality is that term policies offer pure insurance. In fact they offer a larger cover for a lower premium vis-à-vis traditional policies.

A term plan plays an essential part in your retirement planning. It helps you to focus on the retirement planning exercise without having to worry about the financial condition of your dependants if anything happens to you. The earlier a term plan is bought, the cheaper it turns out to be.

You may also opt for the following policies, in addition to your term policy:

Health Insurance (Mediclaim) - this is a must have for every family member. It can be taken as an individual policy or as a family floater. In case of any medical emergency that leads to



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hospitalization, it will cover regular hospital expenses. As per current tax laws, you can even avail tax benefits for the premium paid on health insurance.

Personal Accident Policy - this will cover you from loss of income in case of an accident.

Critical Illness policy – Many policies do not provide cover for some critical illnesses. This policy will pay out a lump sum amount upon diagnosis of any critical illness from the defined list of illnesses stipulated.

Home / Property Insurance – it is good to insure your home from theft, natural and unnatural calamities like fire etc by taking property insurance.

Though you may believe that nothing will happen to you, it is important to opt for insurance. In case of an unfortunate circumstance, insurance can be a financial boon to you and your family members.



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VI: Do Not Break Your Retirement Savings To

Meet Emergencies!

Unless commitment is made, there are only promises and hopes; but no plans.

Peter F. Drucker

Adversities can catch anyone unaware but what matters is how you

face them. However, when it comes to money matters, adversities are

often a result of lack of planning. Many people invest only to build a

corpus for retirement. There are many expenses which should ideally

be accounted for, but are often underestimated. This leads to frequent

withdrawals from retirement savings. Salaried people often withdraw

money from Employee Provident Fund (EPF) or Public Provident Fund

(PPF). Although there is no harm in dipping into your own resources, a

more systematic approach needs to be followed.

True, many of you may not be ignorant but still might have faced some difficult situations wherein you

had to break your investments (which were actually assigned for some other purpose) to meet

emergencies. This is how one can effectively utilise available resources for meeting such emergencies.

How to Raise Money for Emergencies?

Prudent approach to meeting emergencies is to make use

of contingency reserves. Once that is exhausted, you may review your

investment portfolio as it may decide which investments you should

liquidate. For example, someone approaching retirement may

liquidate his equity portfolio first before touching his debt portfolio.

On the other hand, those in the middle age can consider redeeming

some part of the debt portfolio as they can always make up for it

whenever they have some surplus available. You should always allow

your equity portfolio to grow if you have a long term investment

horizon rather than redeeming it for emergency purposes. If circumstances are such that money has

to be withdrawn from your equity portfolio, then you should first review your equity funds and

redeem those which are under performing or are laggards. Furthermore, taxation and costs should

also be given consideration before exiting any of your investments.



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The decision of exiting from a particular investment for an emergency will impact returns

generated by your portfolio of investments. It would be wise to take a holistic view of your

portfolio instead of raising funds from convenient sources. Also, it is equally important for you to

consider restoring investments that you may have liquidated to meet emergencies. If your

portfolio is equity heavy or has considerable weightage to real estate, it becomes imperative to

consider prevailing market conditions before liquidating. You may face difficulties if your portfolio

is tilted towards real estate as liquidation is not an easy task.

We believe that if one follows an asset allocation designed keeping their goals in mind, they

would be in a better position to deal with financial emergencies than those who don’t follow it.



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VII: Passing On to Your Loved Ones by Timely

Writing Your Will?

Where there’s a Will, there’s a Way.

An Old English Proverb

"I still have time to prepare a will" or "I don't need to prepare a will". While many people reading this guide will be able to relate with these thoughts, it is important for you to know that leaving the world intestate (without preparing a will) can lead to various complications and disagreements among your heirs. You work your entire life to build wealth and a sustainable livelihood for your family members. But you may not be able to imagine the mess and inconvenience that might be caused to your loved ones because of you not drafting a will for them.

The transfer of assets from one generation to another also known as estate planning is a must for every individual irrespective of the size of his or her wealth. You see, life is unpredictable and uncertain. It is always better to prepare a will and keep even though you are in the pink of health as uncertainty may occur anytime. Moreover, estate planning prevents the addition of financial and legal grief to the emotional grief your loved ones may already be facing upon your absence.

Points which could prove helpful to you while preparing a will

Technically a will can be prepared by anyone who is 21 years of age, of sound mind, and free from any coercion, fraud and undue influence. With old-age comes several physical and mental illnesses. People become incapacitated or even lose their ability to comprehend. A will created at such an age, when a person might not be in his or her right senses might create misunderstandings, doubts and disputes in the family later. Hence it is advisable to prepare your Will early, once you have certainty about your asset and legal heirs to whom you would like to pass on your wealth. Moreover, it is advisable to review and if need be revise your will if there is a substantial change in the circumstances that existed at the time of preparation of the earlier will.

Name an executor, a person who will carry on the tenets of the will. While it is not necessary, you can identify a trustworthy person who can be named as an executor. But you must seek their permission before nominating them. This is because if they refuse to become an executor later, then there might be no one to execute the will, leaving it to the court of law to appoint an executor.



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A will can be hand written or typed out. No stamp paper is necessary. You can write a Will on a simple plain paper, sign and date it with 2 witnesses and keep it in a secure location. It is not compulsory for one to register a Will with the Registering Authority; but in order to avoid frauds and tampering, it is always preferable to get it registered. If you wish to register your Will then it can be done with the registrar/sub-registrar by paying a nominal registration fee. This also requires you to be personally present at the registrar's office along with the witnesses. Also, it is better if the witnesses signing your will are not the immediate beneficiaries of your estate or wealth. There could be 2 people who are trustworthy and reliable. Also, it would be wise to inform the executor and family members about the whereabouts of your will in order to avoid confusion later.

If you have bequeathed your assets to any minor children, make sure you appoint a guardian for the assets till the time the said minors reach an adult age.

It is extremely important for a will to be simple, precise and clear. Otherwise some people might misconstrue your intentions and your assets might not be transferred to your choice of beneficiaries.

It is possible to make changes or minor alterations in a will before it is registered. After the registration of the will, if at all there are any changes, re-registration would be required. In case, there are too many or major changes, it will be better to make an entirely new will and register the same. Moreover, you must always date your will. If more than one Will is made then the one with the latest date will nullify all other Wills.

Each page of the Will should be serially numbered and signed by you and the witnesses. This is to prevent the Will being substituted, replaced, or pages being inserted by people intending to commit fraud. At the end of the Will you should indicate the total number of pages in the Will. Corrections if any should be countersigned.

Although it is possible to draft a will on your own, it is always better to take the advice of a trusted lawyer or advocate while writing a will. This will reduce any chances of misinterpretation or frauds from relatives and also reduces the probability of the will being claimed as invalid in the court of law. Moreover, a Will has many other legal implications depending on the religion, place of execution etc.

The above write-up is for general information purpose only. The financial institution/intermediary processing the

transmission claim basis the Will of the deceased investor may have different policies and procedures to ensure that the

claim is processed to the actual legal heir(s) of the deceased investor and may ask for additional documents from the

legal heirs in this regard.



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All of us have certain wishes about what should be done with our fortune (however big or small) after us. But unless and until you appropriately document this in the form of a will, there is no certainty that the assets created by your life long efforts will be transferred to your beloved people. The law does not know that you wished to leave a larger portion of your wealth to your financially weaker child or you wanted to leave a token of appreciation to some special friends. There is no guarantee whether your special artifacts will be passed on to those family members who you knew would value them.

In order to avoid being the reason of agony for your loved ones, you must also plan for your estate on time. Estate planning is one of the most essential aspects of our lives and should not be put off until it's too late. It is a dynamic process, which needs to be reviewed at regular intervals of time to absorb any changes, which might happen in our lives or in the laws of our nation.



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VIII: 8 Golden Rules for a Peaceful Retirement

"The value of an idea lies in the using of it.”

Thomas Edison

So now that we have come to the end of this Guide on Retirement

Planning, just to wrap up here are 8 golden rules you must follow for

a peaceful retirement.

1. Determine the Retirement Corpus: Unless you know where you

are headed, it is very difficult to get there. In retirement planning

as well, it is important to have a target in mind which you wish to

achieve in order to live life comfortably in the second innings of

your life. To arrive at some corpus amount, you might need to

make certain estimations and assumptions. You have to first

work out what age do you wish to retire at, what is your life expectancy (based on family history

and health conditions), how much you spend every month, inflation that you expect on these

expenses, pre and post retirement rate of return that you expect on investments etc. Thereafter

you can compute the corpus amount required for your retirement. You could take the help

of online retirement calculators or a professional financial advisor to arrive at this target figure.

2. Start Early, and Retire Peacefully: An often-heard excuse for putting off retirement planning is “I

have enough time to go before I retire, so why rush?” Unfortunately, most of us fail to realise that

procrastination is their biggest enemy when it comes to making retirement plans. In fact, starting

early and ensuring that you have sufficient time on your side is the key to successful retirement

planning. It is imperative for you to understand that being young provides you a benefit that is not

available to all and that is 'TIME'. As it is said, "the early bird gets a bigger pie". Moreover, as you

grow older, your risk taking capability decreases. Starting late is disadvantageous since it gives you

lesser time to grow your retirement kitty. There is even a possibility that you may fall well short of

your target.

3. Follow your Asset Allocation: Exposure to different asset classes is imperative in building your

retirement portfolio. The different asset classes (equity, debt, gold, real estate, etc) have different

attributes which help in maintaining the required risk-return balance in one’s retirement portfolio.

By following your asset allocation we refer to investing into each asset class, based on the number

of years left for goal realisation.

For example, if you are going to retire in more than 10 years, then depending on your risk profile,

your retirement funds may be channelized primarily into equity, with a 10% to 15% exposure each



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to debt and gold. If your retirement goal is more than 5 to 7 years away, you may have 45% to

60% exposure to equity, with upto 15% in gold and the rest in debt. However, if you are retiring in

less than 3 years, it is advisable to move out of equity investments and shift towards debt / fixed

income instruments since they are not severely impacted by any market volatility. You must

remember that merely following a suitable asset allocation alone will not help you reach your

goals unless you invest in sound and appropriate investment venues.

4. Contribute regularly towards your retirement savings: All salaried employees need to contribute

12% of their basic salary or 12% of Rs. 15,000 (whichever is lower) to EPFO (Employee Provident

Fund Organisation), while the employer also contributes an equal amount. EPF is an important

tool for salaried individuals which can help build a substantial part of your retirement corpus.

Many individuals make the mistake of either partial withdrawal during their employment or do

not transfer their balances when they change jobs. It is very important to keep accumulating old

EPF balances to benefit from the power of compounding. Remember all contributions,

accumulations and maturity proceeds are tax free termed as E-E-E or Exempt-Exempt-Exempt

from tax; meaning the amount invested in the scheme by the employee is allowable as deduction

under section 80C (subject to maximum limit of Rs.1.5 lakhs), interest or income earned in the

scheme and the final maturity/ withdrawal are completely tax free as per the current tax laws.

Further, the Finance Act, 2015 has announced that a contribution of Rs. 50,000 to the NPS

(National Pension System) would provide an additional tax benefit beyond the Rs. 1.5 lakhs

currently available under section 80C. The new benefit would be available under section 80CCD

taking total tax benefits available under section 80C and 80CCD to Rs. 2 lakhs. NPS is a voluntary

pension scheme, which is regulated by the PFRDA (Pension Fund Regulatory and Development

Authority).

NPS offers a range of investment options and choice of pension fund managers who will manage

your money. It is structured into Tier-I (non-withdrawable account) and Tier II (voluntary

withdrawable account). While the tax benefits is only eligible for contribution to Tier-I account,

Tier-II account is more like a bank savings account where withdrawals are permitted as per your

needs. Moreover, while investing money in NPS, you have two investment choices i.e. “Active” or

“Auto” choice. Under the “Active” choice asset class, your money will be invested in various asset

classes termed as ECG viz. E (Equity), C (Credit risk bearing fixed income instruments other than

Government Securities) and G (Central Government and State Government bonds); where you will

have an option to decide your asset allocation in C or G asset classes and up to a maximum of 50%

in equity asset class. In case of Auto Choice, your money will be invested in a life-cycle fund. Here,

the fraction of funds invested across three asset classes will be determined by a pre-defined

portfolio. But the equity part of the allocation cannot exceed 50%. As the returns from NPS are

market-linked, they are not guaranteed. Hence you should stagger your investment in NPS over

the year. While the contribution (allowable as a deduction per the aforementioned limits) and the

interest earned on NPS are not taxed, the withdrawal from NPS is taxable.



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5. Choose a suitable Insurance Policy: Insurance is a must in retirement planning. As you are earning

and have financial goals in mind, it is imperative that you have an optimal life insurance cover for

self and family, because any unfortunate event such as death could have an impact on family

finances and have consequences on the financial goals set out.

Likewise, it is imperative that you have an optimal health insurance cover in today’s stressful life.

Also as one grows old, the number of physical ailments that one may suffer too tends to increase.

Hence you need to be well indemnified in such a case, so that your retirement plan is unaffected.

Property insurance should also be a part of the ‘to do’ list.

6. Build a contingency reserve: Apart from having an optimal health insurance cover, it is also

advisable to maintain a medical contingency fund worth Rs 5-10 lakh (depending upon how much

you can afford) and a general contingency reserve with 6 to 12 months of your expenses to

compensate for unforeseen events. This will ensure that your retirement savings do not get

eroded in case any uncertain financial emergency is to occur to you or any of your family

members.

7. Track and review your plan: Your retirement plan needs to be monitored at regular intervals (at

least once a year) to make sure you are on target to meet your objectives. Any changes in the

income, expenses, retirement age etc. needs to be incorporated in the plan. Also, make sure the

plan meets your investment objectives in the changing market scenario.

8. Engage in diligent tax planning: While you endeavour to reap a comfortable retirement, it is

imperative to ensure that tax planning is not ignored. It is very often the case that many

individuals keep their tax planning exercise pending till the eleventh hour. One must also note that

saving tax is not only taking cover under the provisions of Section 80C of the Income Tax Act, 1961

but even, thinking beyond Section 80C. Remember, every penny saved is a penny earned!

Therefore you should prudently and legitimately save on taxes as it would help you build a decent

corpus for your retirement.

By following the above mentioned rules in a systematic manner, planning for your retirement

will not be a difficult task. However, in case you are unable to devote time or need help in

constructing a suitable retirement plan, investing with the advice of an experienced investment

consultant will be suitable.

Please remember; Retirement Planning is an ongoing, lifelong process that takes decades of

commitment in order to receive the final pay-off. But once it is achieved it will possibly ensure

that you have sufficient income every month for your day to day expenses post retirement.



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Contact Us

Franklin Templeton Asset Management (India) Pvt. Ltd.

Indiabulls Finance Centre, Tower 2,

12th and 13th floor, Senapati Bapat Marg,

Elphinstone (W)

Mumbai 400013

Tel (91-22) 6751 9100

Fax (91-22) 6639 1281

www.franklintempletonindia.com

Money Simplified Services Pvt. Ltd.

103, Regent Chambers,

Nariman Point.

Mumbai 400021

Tel (91-22) 6136 1200

Fax (91-22) 6136 1222

CIN: U74999MH1997PLC112349

www.moneysimplified.in


http://www.franklintempletonindia.com/
