Common Retirement Planning Mistakes

Retirement planning used to be a lot easier. You worked your whole life for the same company and retired at age 65 with a gold watch and a company pension.

Today it’s more complicated. Most people will change employers many times over the course of their career or work for themselves at some point. At the same time, life expectancy is increasing. On one hand, that means more retirement years to enjoy. But the flip side is that you also have more retirement years to fund.

Living a retired life without enough savings can really be a dreadful experience. If you and your spouse don’t want to be a burden on your children after retirement, it is best to start retirement planning early and stick to the retirement plan by all means.

Don’t make the mistake of relying on others – even if they are your own children – to take care of you when you have reached your twilight years. Why should you rely on others post-retirement when you lived all your life on your own terms?

To live a comfortable retirement life on your own terms, you need proper retirement planning and to achieve that you need to avoid these common mistakes.

IGNORING PRICE RISE
Inflation is a demon that comes down hard on anyone who ignores it. "Since retirement is a long-term goal, it is important to understand the impact of inflation on your financial goal
If you ignored inflation while doing the maths, revisit the numbers. Always take the real rate of return (rate of return minus inflation) while doing the calculation. Also, use a realistic rate of inflation. You can take an average of the past few years. Lastly, don't underestimate inflation. It's better to err on the side of caution.
The only investment that will help you beat inflation and still make a corpus is equity. So you need a part of it in your portfolio. You can not plan for your retirement 20 years away by parking money in FDs only. However, EPF is a great debt portion of your retirement corpus mix.

CASHING OUT EPF MONEY
Many people withdraw money from their provident fund account. This is wrong as instruments such as the Employee Provident Fund (EPF) have been designed to provide financial security after retirement. These are highly useful for retirement planning, especially due to their tax-free status.
It is not good to withdraw money from the EPF, even if it is to make a big-ticket purchase such as a house. Instead, it is better to dip into other savings; EPF should be only for post-retirement years.
Basic of Employee Provident Fund (EPF)
Lesser known facts about Employee Provident Fund (EPF)
Step by Step Process for EPF withdrawal
What Should You Do With Your Old Inactive EPF Account?
When can you withdraw your EPF?

DELAYING HEALTH INSURANCE
Medical expenses rise as a person ages. Many people don't buy individual health plans during their working life as they are covered by employers. This is not advisable as most employers give the cover only till you are employed with them.
You also have the option of porting the employer's policy to individual cover at retirement. But do not depend on group policies after retirement as employers keep changing insurers and so you may miss out on benefits accumulated in the earlier policy such as waiver of waiting period for pre-existing diseases.
It is good to buy an individual health policy early in life. It is not only cheaper but also helps you cover pre-existing illnesses after completion of the waiting period. Moreover, it covers you even after you leave the job or your company curtails the benefits under the group plan to cut costs.
Health Insurance: What You Need To Know During COVID
6 things to note before buying a Health Insurance
Things To Do After You Buy A Health Insurance
Is your employer’s Health insurance sufficient?
Health Insurance: Single Plan or a Family Floater Plan?

NOT PLANNING FOR CONTINGENCIES
Your long-term investments are not for meeting contingencies. Hence, all people, irrespective of age and employment status, must build a contingency fund. Ideally, your savings should guarantee you a lifestyle after retirement which is the same as you enjoyed in your working years. This involves high-level contingency planning as your income streams dry up as you retire.

NOT HAVING ENOUGH MONEY FOR EARLY RETIREMENT
Stress is nowadays burning out people at a young age, making them think of retiring early. We come across many people who want to advance their retirement age. But most of the time we advise them to delay the plan if they do not have enough funds to last their lifetime. Early retirement requires rigorous planning for meeting life's goals.

Compounding is a powerful tool (the longer the period, the more the money will grow). If you think you will start saving later when your income rises, you may not be able to save enough. Therefore, enlist a financial advisor, start immediately, evaluate the available savings and protection instruments, calculate the funds required and get down to executing the plan

NOT HAVING ADEQUATE INSURANCE
When a bread earner dies, the whole family suffers a setback. A life insurance policy can take care of the family's well-being in such a case. The question is, how much cover one should have?

The ideal figure is at least 10 times the annual salary. This will give the family a cushion of ten years to adjust to the new financial reality. For example, if your salary is Rs 12 lakh a year, the cover should be at least Rs 1.2 crore.
Another approach is calculating the human life value, that is, the present value of your future income. Don't forget to factor in liabilities such as home loans while doing the calculation.

Buy a term insurance policy as soon as you can. Buy online to save on premium. And do not forget to increase or decrease the cover as your liabilities change.

Conclusion

Retirement is the next great stage in your life, and it can be just as fulfilling and exciting as your younger years. It’s your opportunity to do what you want when you want, whether that means relaxing at home, traveling the world, or reinventing yourself in a new career. No matter where you are on the retirement continuum, you have likely made mistakes along the way. By focusing on retirement planning now, you can feel more confident about fulfilling your vision, whatever it may be. If you don’t have enough saved, it is never too late to start planning.

In addition to avoiding the problem areas above, seek advice from a trusted financial advisor to help you stay—or get back—on track. We are SEBI registered investment advisors and can help you make sound investment decisions - you can reach out to us at iplan@wealthcafe.in, to help you make a financial plan for yourself. A lot of information you get daily may be totally irrelevant and can harm your financial interests, if you act on it without considering other factors.

Uncategorized - 07/29/2021

How to retire with 5 cr on a salary of 1 lakh a month

We all have our aspirations and dreams for the golden years of our life. We want to have the freedom to do whatever we may want and hope to fulfill all the desires that were not fulfilled during the course of working life. It will only be possible if we have planned it well and enough funds are available to help us live our dreams. Thus, plan today for a beautiful post-retirement life.
You have been saving diligently for retirement. That's good. But in all likelihood, you have just a vague idea about what you want, not a concrete plan.

For example, many of you think that whatever you save during your working life will be sufficient for your sunset years. But have you accounted for the demon that goes by the name of inflation, which nibbles away the value of your money 24X7? Probably not. This means you will not save enough to be able to continue your present lifestyle in old age.
The first question that you may have when it comes to your retirement is

Where to invest for retirement?

When it comes to the accumulation of retirement corpus, people generally play safe and go for fixed interest-bearing risk-free instruments like fixed deposit, or PPF which at best give 8% return (in current market conditions, you are making only 7% there). But as retirement planning is for the longer term, one should take equity exposure to get a better return, which will help you accumulate a bigger corpus by retirement.
Equity can give you a 15% return on an average where you stay invested in it for a longer period of time to reduce the risk of volatility. A portion of the equity in your portfolio is a must. It is where wealth creation happens and it is what will also help you to achieve your corpus. We do not mean to suggest that you should invest 100% in Equity or 100% in Debt, you should invest in asset classes based on your risk profile and goals. Retirement being a long-term goal, one can invest some amount for it in Equity to enjoy the returns and manage the risk of it as well.

Let's understand How do you Invest - Basic Actionable Points?

Invest in Debt for Short term goals
Invest in a mix of Debt & Equity for long term goals (more than 3 years)
Now, this mix of debt and equity is determined based on your risk profile. You can take your risk profile test here - Risk Calculator

This test will help you determine how much risk you are comfortable taking and guide you to invest based on that, rather than investing all your money in equity and having sleepless nights.
You can read more about this here: How should you invest

For the purpose of understanding this working and your goal to achieve a corpus of 5 crores with an income of 1 lakh, let's assume that our investor’s profile is a GROWTH profile and he is going to invest in equity and debt. His Debt-Equity Mix will be 30% debt and 70% equity.

How much you need to invest every month to accumulate Rs 5 crore

Now let's come to the main question - HOW MUCH?
The amount you need to invest to accumulate a corpus of Rs 5 crore will depend on your current age and the age that you want to retire. (i.e. your time to retire)
For example, (where your risk profile is a growth profile) and your current age is 25 years and you want to retire at the age of 55 years then you need to save Rs 11,694 every month for the next 30 years to accumulate Rs 5 crore. This is assuming an annual return of 12.90% (which is derived based on the asset allocation of your risk profile of GROWTH).

The required amount will go up to Rs 13,335 if you start one year later at the age of 26. Similarly, if you delay it by five more years, then you will be required to invest Rs 22,656 every month to accumulate the same amount. The required amount increases drastically with a delay in investment as the effect of compounding reduces.

Here is an illustration of how much you need to save every month to accumulate Rs 5 crore by retirement assuming that your investment grows at an annual rate of 12.90%.

However, if you are young and starting out, it is important to know that you do not need a lot of investments to reach 5 crores - just INR 11,000 is good to begin with, which is not a lot of money - given the time and funds involved. It definitely seems like an achievable goal.

Worth mentioning here is that you also need to create an emergency fund and your insurance as well as medi claim along with your regular investment for retirement so that your retirement corpus remains untouched in case of emergencies like job loss, hospitalization, or any pandemic that we are witnessing now, which can create potential risk to employment. Also, you may have many goals that may come and go as your life goes o, but your retirement will always be THE MOST important goal.

Do not forget that 'Retirement is that one goal you will never get a loan for, you have to plan for it all by yourself'

Uncategorized - 07/26/2021

How to take that early retirement and achieve financial freedom?

Gone are those days when people were retiring at the age of 60-65 after working for 40 years in the same company. Today we want to work on our own terms. We want to travel, explore, have our own business or not. Most of us are not looking for stability but for growth and excitement. This is considered as a lack of loyalty by a few of the baby boomers, but, we millennials believe in making the most of the opportunities and get maximum returns. We are looking for ways in which we can connect with various people, share our resources and become bigger - faster.

We are able to achieve all of this as we are able to gain from the changes in the business environment, fair trade, and opportunities through social media. Exchange of ideas and opportunities are just a message away. We don’t even have to type long emails explaining what we do, just a tweet will do it for us.

Hence, most of us don’t want to be a part of a boring monotonous 9 to 5 job but explore more options and work on them. In spite of all of this, we too desire to have financial stability and freedom financially to be able to get what we want to do.

Through this article and working, you will find a path for retirement:

The total amount you need to retire/financially free
Monthly investments that you will have to make to achieve the retirement amount.
Investment options are available to achieve the same.

Regular goal based investing gives you the choice to do what you want to do with life, rather than continue to do what you should do.

How to compute the amount you need for retiring at an age of your choice?

We have attached an excel in this article with the pre-set formula which will help you to compute the amount of your choice. Please note the following points before going ahead:

Be able to compute your amount, you will have to edit the columns, which are highlighted in ‘blue’.
The explanation to each number is written in wealth cafe notes
There could be some specific requirements which are peculiar to you, you can email us about the same
this table is a general example of computing your way to financial freedom.

Before doing that, we have described the working of the table to help you understand this better.

Table 1 – How much would you need to spend after you retire based on your expenses today.

Table 2 – What is the total corpus (amount) you need to retire.

Table 3 – How much you should start saving today in order to achieve your amount in Table 2.

Ways to Invest to achieve your retirement corpus.

The monthly contribution amount that you have computed from table 3 can be invested in the following ways.

Employee Provident Fund/ Public Provident Fund – Monthly contributions to EPF from your salary (where you are employed), and PPF (where you are not employed) should be made for your early retirement goal. EPF/PPF are long term debt investments which give a tax-free; risk-free return of 12% on average after considering the tax benefit. These investments are made to the government of India and are considered as one of the best debt products. All these factors give makes them a good and safe option for retirement investing.
Equity Mutual Funds – Equity Mutual funds are HR-HR (High Risk – High Return) rated financial products. The only way to beat the high risk associated with these investments is to stay invested for a long period of time (i.e. above 10 years). Given that retirement is a long term goal (20 years and above), equity investments is a good option with good returns. Where you are investing in equity – which is an HR - HR product, it is important to know that there is a risk which can be triggered when you reach closer to your retirement. To manage this risk, it is important that you should transfer funds from your equity investments to safer debt investment options, a few years before you reach your goal.

For example: when you are 4 years away from your retirement, there is a possibility of a change in the market and hence, you must transfer your funds from the equity funds to debt funds. This will avoid any major last minute changes in your retirement fund. It is important to take some expert advice at that point to know how much, when and where you should transfer your funds at that time.

Investing to be financially free is the most important personal goal and only discipline and regular investing will help you achieve the same.

You must review your investments, requirements and the entire working in the excel sheet at least annually so that if there are any changes in your investments

Wealth Café advice – Primarily, you should keep your contribution towards EPF and PPF for your retirement as they are tax-free, risk-free. They are designed to be a retirement investment and hence, are tax-free and have a long term lock-in period. When these contributions are not enough, then you can look at equity mutual fund as an option for your retirement.

Investments - 04/26/2019

Atal Pension Yojana - Things you must know

To inculcate a habit of compulsory saving for retirement, the government of India in 2015 announced the Atal Pension Yojana for Private sector employees or employees working with such an organization that does not provide them a pension. The goal of the scheme is to ensure that no Indian citizen has to worry about any illness, accidents, or diseases in old age, giving a sense of security. It is an extension of the recognized National Pension Scheme and replaces Swavalamban Pension Yojana which wasn’t accepted well by the people.

The Government would also make a co-contribution of 50% of the total contribution, or Rs. 1000 per annum, whichever is lower, to all the subscribers who are not a part of any other statutory social security schemes (For eg: Employee’s provident fund), or should not be paying income taxes.

1. How does the scheme work?

Under this scheme, you can choose how much pension you want after you turn 60 and your contribution amount would be determined as per the table below. You contribute that fixed amount till 60 and then post you are 60, you would get the pre-selected pension amount till you are alive. After your death, your spouse would get the pension amount. Post your spouse's death, your nominee would get the lump sum amount.

Let us understand this with an example, For instance, Riya is 23 and she decides that she will contribute for a pension of INR 5000, so she would have to contribute INR 346 per month till she is 60 and post that she would get a pension of INR 5000 from APY.

There is an option of getting a fixed pension of Rs 1000, Rs 2000, Rs 3000, Rs 4000, or Rs 5000 on attaining an age of 60.

The following table tells you how much you need to contribute per annum based on your age and pension plan.

2. Eligibility

To avail of benefits from the Atal Pension Yojana, you must fulfill the below requirements:

Must be a citizen of India.
Must be between the age of 18-40
Should make contributions for a minimum of 20 years.
Must have a bank account linked with your Aadhar
Must have a valid mobile number

Those who are availing of the benefits of Swavalamban Yojana will be automatically migrated to Atal Pension Yojana.

3. How to Apply?

Follow these steps to avail the benefits of APY

All nationalized banks provide the scheme. You can visit any of these banks to start your APY account.
Atal Pension Yojana forms are available online and at the bank. You can download the form from the official website.
The forms are available in English, Hindi, Bangla, Gujarati, Kannada, Marathi, Odia, Tamil, and Telugu.
Fill up the application form and submit it to your bank.
Provide a valid mobile number, if you haven’t already provided to the bank.
Submit a photocopy of your Aadhaar card.

You will be sent a confirmation message when the application is approved. Also, you can apply for it online from your bank’s official website.

4. How to Exit From Atal Pension Yojana?

Following are the 3 withdrawal rules :

Subscriber's Death

Upon the death of a beneficiary before 60 years of age, here are the two options one can follow:

Close the APY Account

If the spouse is keen to close the APY account, he/she will get the accumulated corpus. In case a spouse is not present, the nominee will get the pension amount.

Continue the APY Account

If the spouse wants to continue the APY account, one can maintain the account in his/her name. The spouse will get the same amount as that of the beneficiary until death.

Voluntary Exit

The scheme offers flexibility in providing a voluntary exit from this scheme. In this case, the Government will only refund your accumulated contributions and earned interest over the years. You are not eligible to get the Government co-contributions in case of voluntary withdrawal.

Exit Due to Illness

You can withdraw from this scheme based on specified illness. Accordingly, the Government will refund your accumulated pension corpus to your bank account.

5. Tax Benefits

Tax exemption is available on contributions made by individuals towards Atal Pension Yojana under Section 80CCD of the Income Tax Act, 1961. Under Section 80CCD (1), the maximum exemption allowed is 10% of the concerned individual’s gross total income up to a limit of Rs. 1,50,000. An additional exemption of Rs. 50,000 for contributions to the Atal Pension Yojana Scheme is allowed under Section 80CCD (1B).

As you would notice, the contribution amount is very low, but you can consider the same while you are investing in NPS for the additional 50,000 tax deduction under section 80CCD(1B).

6. Some things you must know about APY

The Atal Pension Yojana scheme is passed by the Parliament of India in the budget session. The scheme will not be discontinued if there is a change in the Government, and your contribution is safe. Any succeeding Government has the right to only change the name of the pension scheme.
Since you will be making periodic contributions, the amounts will be debited automatically from your account. You need to make sure that you have a sufficient balance in your account before each debit.
You can increase your premium at your will. You just have to visit your bank and talk to your manager and make the necessary changes.
The Indian Government does not permit the opening of multiple accounts for Atal Pension Yojana. Therefore, you are eligible to open only 1 account.
APY Helpline Number:- 1800-110-069/ 1800-180-1111/ 1800-110-001

7. Account Maintenance charges

These charges are very minuscule and should not really be considered as a major deciding factor for this investment. We have shared it for your information.

8. Penalty Terms

If you delay the payment of the contribution, then the below-mentioned penalty will be charged:

Rs.1 per month for contributions up to Rs.100 per month.
Rs.2 per month for contributions up to Rs.101 to 500 per month.
Rs.5 per month for contributions between Rs.501 to 1000 per month.
Rs.10 per month for contributions beyond Rs.1001 per month.

If there's a continuous default for 6 months, your pension account will be frozen and if there's a continuous default for 12 months, the account will get closed and whatever balance is left after the above-said deductions will be given to the subscriber.

It is best if you set up an auto-debit from your bank account to avoid these penalty charges.

Wealth Cafe Advice

We understand the pension received each month is a small amount, however, it is a great pension (and the only government security pension scheme) available to Indians. And also, the numbers are based on an average return of 8%. APY is a great investment option for you to start your investing journey and develop the habit of saving for your retirement, especially where your employer has no EPF and other retirement options available. Further, where you and your spouse both apply for it, a fixed pension of INR 10,000 post-retirement is also set so you just have to work towards the balance amount. In conclusion, there are no negatives to these schemes, with very small early contributions, you can get a fixed pension and insurance for your nominee with a government guarantee. We would highly recommend everyone to apply for this scheme and make the most of it.

If you have any concerns with respect to this scheme, you can email us your queries at iplan@wealthcafe.in

You can use the calculator provided by the government to calculate your corpus in comparison to your Invested amount - APY CALCULATOR

You can also check for other benefits provided by the government:

Alternative Assets - 02/05/2019

Pradhan Mantri Shram Yogi Maan-Dhan - Eligibility and Criteria

Pradhan Mantri Shram Yogi Maan - Dhan (PMSYM) is a pension scheme launched by the government on 15th February 2019. It is a new pension scheme for the unorganized sector. Some of its features are similar to Atal Pension Yojana (APY). However, it is important to note the important features and the eligibility criteria of this scheme.

Such schemes are very welcomed in India, given that there is no proper pension plan being managed by the government.

Eligibility of PMSYM

Monthly income should be Rs.15,000 or less than that.
Age should be between 18 years to 40 years.
They should not be covered under the schemes like the New Pension Scheme (NPS), Employees’ State Insurance Corporation (ESIC) scheme or Employees’ Provident Fund Organisation (EPFO).
They should not be Income Tax Payer.
Their profession is like home-based workers, street vendors, mid-day meal workers, head loaders, brick kiln workers, cobblers, rag pickers, domestic workers, washermen, rickshaw pullers, landless laborers, own account workers, agricultural workers, construction workers, beedi workers, handloom workers, leather workers, audio-visual workers.

Features of PMSYM

1. Minimum Pension– Each subscriber under the PM-SYM, shall receive the minimum assured pension of Rs.3000/- per month after attaining the age of 60 years.

2. Family Pension– During the receipt of the pension, if the subscriber dies, the spouse of the beneficiary shall be entitled to receive 50% of the pension received by the beneficiary as a family pension. Family pension is applicable only to a spouse.

If a beneficiary has given a regular contribution and died due to any cause (before age of 60 years), his/her spouse will be entitled to join and continue the scheme subsequently by payment of regular contribution or exit the scheme as per provisions of exit and withdrawal.

3. A default of Contributions-If a subscriber has not paid the contribution continuously he/she will be allowed to regularize his contribution by paying entire outstanding dues, along with penalty charges, if any, decided by the Government.

4. Pension Pay out-Once the beneficiary joins the scheme at the entry age of 18-40 years, the beneficiary has to contribute till 60 years of age. On attaining the age of 60 years, the subscriber will get the assured monthly pension of Rs.3000/- with a benefit of a family pension, as the case may be.

5. Matching contribution by the Central Government – PM-SYM is a voluntary and contributory pension scheme on a 50:50 basis where prescribed age-specific contribution shall be made by the beneficiary and the matching contribution by the Central Government as per the chart. For example, if a person enters the scheme at an age of 29 years, he is required to contribute Rs 100/ – per month till the age of 60 years. An equal amount of Rs 100/- will be contributed by the Central Government.

How to enroll in PMSYM?

The subscriber will be required to have a mobile phone, savings bank account, and Aadhaar number. The eligible subscriber may visit the nearest Community Service Centre (CSC)s and get enrolled for PM-SYM using Aadhaar number and savings bank account/ Jan-Dhan account number on a self-certification basis.

Later, the facility will be provided where the subscriber can also visit the PM-SYM web portal or can download the mobile app and self-register using Aadhar number/ savings bank account/ Jan-Dhan account number on self-certification basis.

The enrolment will be carried out by all the Community Service Centers (CSCs). The unorganized workers may visit their nearest CSCs along with their Aadhar Card and Savings Bank account passbook/Jandhan account and get registered themselves for the Scheme. Contribution amount for the first month shall be paid in cash for which they will be provided with a receipt.

All the branch offices of LIC, the offices of ESIC/EPFO and all Labour offices of Central and State Governments will facilitate the unorganized workers about the Scheme, its benefits and the procedure to be followed, at their respective centers.

How to exit or withdraw from Pradhan Mantri Shram Yogi Maan-Dhan?

Considering the hardships and erratic nature of employability of these workers, the exit provisions of the scheme have been kept flexible. Exit provisions are as under:

In case subscriber exits the scheme within a period of less than 10 years, the beneficiary’s share of contribution only will be returned to him with savings bank interest rate.
If subscriber exits after a period of 10 years or more but before superannuation age i.e. 60 years of age, the beneficiary’s share of contribution along with accumulated interest as actually earned by the fund or at the savings bank interest rate whichever is higher.
If a beneficiary has given regular contributions and died due to any cause, his/ her spouse will be entitled to continue the scheme subsequently by payment of regular contribution or exit by receiving the beneficiary’s contribution along with accumulated interest as actually earned by the fund or at the savings bank interest rate whichever is higher.
If a beneficiary has given regular contributions and become permanently disabled due to any cause before the superannuation age, i.e. 60 years, and unable to continue to contribute under the scheme, his/ her spouse will be entitled to continue the scheme subsequently by payment of regular contribution or exit the scheme by receiving the beneficiary’s contribution with interest as actually earned by fund or at the savings bank interest rate whichever is higher.
After the death of the subscriber as well as his/her spouse, the entire corpus will be credited back to the fund.
Any other exit provision, as may be decided by the Government on the advice of NSSB.

Who will manage the Pradhan Mantri Shram Yogi Maan-Dhan Fund?

PM-SYM will be a Central Sector Scheme administered by the Ministry of Labour and Employment and implemented through Life Insurance Corporation of India and CSCs. LIC will be the Pension Fund Manager and responsible for Pension payout. The amount collected under PM-SYM pension scheme shall be invested as per the investment pattern specified by the Government of India.

Wealth Cafe tip - PMSYM is another pension scheme for the unorganized sector similar to Atal Pension Yojana (APY) and NPS scheme. Instead of investing in 2 different pension schemes, it is advisable to stick to one pension scheme.

You can also check for other benefits provided by the government:

Alternative Assets - 02/01/2019

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