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nformation provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.
Retirement is an important phase in everyone’s life. There are sweeping changes that can overwhelm you if you are not prepared for it. Before retirement, different aspects of life such as finances, health, time and activities have to be planned for. Most people do not plan for retirement in the right way.
Here are a few facts about retirement planning that are forgotten to be considered in the financial plan –
Forget Retirement – Target Financial Freedom
Retirement is not about age. If you have a decent amount to take care of your day to day needs & other goals you can be financially free.
1.Health Insurance Vs Medical Corpus
Your insurance need gets rejected or you get it at a high premium. Most times, pre-existing illnesses are not covered or covered only after a few years of the policy being in use. Buy a comprehensive health insurance product and remember to be consistent about the premiums.
Few people think that they should create a medical corpus & that should be good enough. Not really if you encounter with a serious illness in the early years of your retirement. Medical corpus is required to cover things over & above your insurance.
Work on maintaining your health both physically and mentally so that you can have a peaceful life when you are retired.
2.Life Insurance is Lottery Ticket after Retirement
When you are an earning member with dependents, it is imperative to have life insurance.
Once you have retired, there are other aspects to look at. If your family members are financially self-sufficient, it is not really required. If you have a huge debt (normally you should retire all your debts before retiring), then a policy may make sense. The proceeds can help to pay off the debt either in full or in part and your family members will not be burdened with it.
If you have sufficient assets to take care of your retirement need – life insurance is just a lottery ticket for your family members & should be avoided.
3.Products in Retirement are Different
When you are retired, you would want regular income from your investments. You want more liquid assets. Therefore your portfolio should be skewed towards distribution-oriented products. These products include senior citizens savings schemes, lesser real estate & maybe annuity if you are ready to understand the complexities.
Liquidity in your investment products is a must in retirement – it gives a sense of confidence.
4.Asset Allocation after retirement
The portfolio composition has to be in tune with the changes in your life. When you are younger and have fewer financial commitments, you can have an aggressive portfolio where the risk-reward ratio is high.
At the same time, you have to invest such that you will have a corpus to fulfill your financial goals like buying a house or ensuring a comfortable retirement. Invest early on so that the money you earned in the form of interest and dividends also gets invested and earns more money.
5.Review of Portfolio
Many people have the same investments at 50 that they had when they were 30 years old. You are most likely to be in different stages of life at 30 and 50 and so your portfolio should suit the stage of life.
Review your portfolio regularly and tweak it to suit your goals and current financial situation.
6.Regrets in Retirement
Here are some regrets/wishes that people have shared about retirement –
I wish I had taken health insurance before. Now I have to buy at very high premiums.
I should have continued to work for some more years. I would have earned more and had a sense of purpose in life.
I should have planned my retirement better rather than thinking I would work till I am 58.
How long will you keep your investment?
– You should estimate the time period up to which sector will continue flourishing.
7.Goals after Retirement Age
What about a foreign trip or a long cruise to Alaska that you always wanted. What about birthday celebration of your grandchild or gift to a needy in the family or charity to any organization.
So don’t think that you will not require additional money than the day to day expenses.
Plan your retirement properly. Changes in life keep happening. You have to ensure that you are financially independent in the golden age of your life.
Tax planning is an important exercise to reduce tax liability by making maximum use of available deduction and sections. It is generally seen that when it comes to saving taxes most of the people make maximum use of section 80C limit. However, there are multiple other sections and laws which can help you to save more taxes. You can even take help of your family members to save taxes. Your children, parents, and wife can help you to save more tax. In this post, we will look at various section and laws which can help you to save more taxes with the help of your family members.
How your parents can help you to save taxes?
Invest your money on your parent’s name
The first way of saving tax with the help of your parents is investing your money on your parent’s name. The suggested steps are given below.
The first step is gifting your money to your parents. The money given to your parents will not attract any tax in their hands.
Invest this money on your parent’s name. Make sure that your parents are in a lower tax slab than yours.
Let’s try to understand the above case with one example. Suppose you gift 2 Lakh to your parents as a gift and this amount is invested by your parents in fixed deposit. The fixed deposit will give 8-9% returns. The interest amount earned on this FD will be taxable on the hand of your parents. However, as your parents are in a lower tax slab, you will be able to save more tax. If your parents are senior citizens, they can avail additional tax benefits applicable to senior citizen.
Buy Health Insurance policy for your parents
The second method of saving tax by taking help of your parents is buying a health insurance policy for your parents. Under section 80 D of Income-tax you can avail deduction up to Rs.25000 for the premium paid on the health insurance policy. This deduction can go up to Rs.50000, if your parents are senior citizens. This deduction is irrespective of your parents is dependent upon you or not.
Pay Rent to your parents
If you are salaried and staying with your parents in the house owned by them, you can pay rent to your parents and avail HRA exemption benefit. The amount paid by you to your parents will be taxable in the hand of your parents. In case your parents have no income, the entire amount will be tax-free in their hands.
How your wife can help you to save taxes?
Investing money via Wife
If you are in higher tax bracket compared to your wife or if your wife is a homemaker (Non-earning) you can gift some money to her and invest that money in the various instrument. There is no upper limit on the money you can gift to your wife. The gifted money can be invested in various income generating instrument such as fixed deposit, PPF, ELSS, Mutual Funds etc.
If you invest in a tax-free instrument such as PPF, no tax shall be applicable on interest earned. However, if you invest in taxable investment option, a tax will be applicable as per the tax slab.
Another way to save tax is by giving a certain amount as a loan to your wife. In this method, you need to show that your wife is paying back money to you with some nominal interest.
How your Children can help you to save taxes?
Investing on the name of Adult Children
As per income tax rule, an adult with age above 18 years is considered as an independent entity. The income earned by an adult child is not clubbed with their parents. So, if your adult child does not have any income, you can invest money on his/her name and save tax.
Before investing money in the name of your adult children, you should assess his/her behavioral and legal aspect. As money is put on their name, they are the legal owner of the money. They may refuse to return the money at a later stage or may liquidate the same.
Investing in the name of Minor Child
You can also invest money in the name of Minor Child. However, income arising from such investment is clubbed with parent’s income. Parents can claim an exemption of Rs.1500/- for each minor child whose income is clubbed.
Claiming Tuition Fee Exemption
As per income tax rule, you can claim exemption up to 1 Lakh on the tuition fee for maximum two children in a financial year. This deduction is provided for full-time course only. Only amount mention as tuition fee in the receipt can be considered for exemption. Other expenses such as hostel charges, development fee, library fee etc. are not considered for the exemption.
While some may argue money doesn’t buy happiness, we fail to understand that most of our life is chronicled around either earning or spending money. Happiness comes in different forms – Buying a dream home, providing the best education to your child, going on a holiday, and then transiting into your retirement phase where you can be financially independent. The thought itself brings you happiness but it does not come free of cost if you’re looking to convert it into a reality. While it may seem easier for a few, some of us are still juggling at the lower levels in a Maslow’s triangle. And fighting our way up requires planning, strategizing, and dedication towards achieving one’s financial goal.
Early on investment
How early in your life you begin investing has a more significant impact on the wealth creation than you can possibly imagine. To understand how an early on investment is more profitable, let us take an example.
Example – Rahul (30 years old) and Priyanka (25 years old) join an IT company as Software Engineers. Both of them decided to invest Rs 8,000 per month till their retirement age (58 years). Priyanka is 5 years younger to Rahul. What is the additional amount that Priyanka can accumulate, assuming returns of 10% (CAGR)?
Rahul can accumulate a corpus of around Rs 1.46 cr in 28 years (58-30) and Priyanka can accumulate a corpus of around Rs 2.47 cr in 33 years (58-25).
Now that’s a big difference. The bottom line here is the best time to start investing is NOW.
Curtail expenses by making smart purchases
If you’re looking to buy a newly launched smart phone or any other product, then wait for a while (mostly until a new product from the same brand is launched). Once a considerable duration passes by, the price of that product is bound to reduce and there you go! You’ll be saving quite an amount on the same product. Besides, make it a habit to always check for coupons/discount before making an online purchase. Try to control ‘instant gratification’ & avoid acquiring high cost Loans.
Get adequate insurance cover
Financial emergencies like hospitalization, job loss due to an accident, and emergency home repair can be difficult to deal with. If you do not have adequate insurance cover or an emergency fund, you’re most likely to break into your savings. Avoid this financial mistake by getting yourself a few necessary insurance policies. Unexpected hospitalization expenses can be dealt with a health cover; a critical illness insurance plan will provide you a lump sum amount to pay for your medical expenses when diagnosed with a life-threatening disease; an adequate home insurance will cover loss and expenses incurred due to theft or a natural calamity.
Likewise, a life insurance will provide a life cover to your family in the event of an untimely demise. Besides acting as a financial back up, insurance policies also help you save on your tax under Indian Income Tax Act.
Have effective conversation with your family
Fulfilling a financial goal requires support and involvement of each member involved. Rather than enforcing a budget, it is best that one sits with the family and discusses a mutual financial goal. Instead of straight away denying kids something they wish to buy, you may suggest them to put that on their wish list and start saving for that. One could also put up on a bulletin board the family’s financial goals and areas where the expenses can be curtailed; it will act as a reminder for everyone and help them improve their spending & saving habits.
Sticking to the plan
“Someone is sitting in the shade today because someone planted a tree a long time ago”. – Warren Buffett
Plant a seed and forget to water it regularly, it will die soon. Sticking to your set plans is a requisite if you wish to see it bearing sweet fruits. To be able to stick to your plans, it is also necessary that you set realistic goals.
A Financial goal that is neither too easy, nor too difficult to achieve. A realistic, reasonable goal will not disturb your routine expenses and will keep you determined to achieve your investment objective. As suggested earlier, put up your goals on a bulletin board, so you know how far you are in realizing them. You may as well install a spending /investment tracker on your mobile phone and keep a watch on all your expenses & investments.
To conclude, a strong commitment to save/invest consistently and an adequateemergency fund or insurance policies to take care of your financial crisis and support of your family is all that you require to attain a lifelong financial fitness.
With the substantial increase in medical cost & new developments in medical technology – it’s a very common question these days – How much Health Insurance do I need?
This question has become even more important after the launch of PMJAY – where poor will get Rs 5 lakh health coverage.
How much Health Insurance do I need?
Unlike life insurance, there is no straight formula to assess how much health insurance coverage you should have.
You need to understand the type of policies available and then match any of them with your perceived medical needs.
There are health plans tailored to meet various needs from those of a student to those of elderly people. Each of these is beneficial at different stages of your life cycle. So, you should evaluate plans according to the phase you are in.
Identifying adequate health insurance coverage
Identifying health costs is the most difficult part of medical insurance as there is uncertainty regarding what type of illness may arise. But a reasonable assessment can be made based on the cost of medical treatment you might have to incur in the case hospitalization.
Since the cost of medical treatment varies from city to city, the first level of assessment should be a hospital whose services you would avail in case hospitalization is required. So, think about the following before you decide how much health insurance you require:
Which hospital would be your first choice for treatment, if any medical emergency arises?
How much is the approximate cost of hospitalization there?
This will give you an estimate of your potential healthcare costs and should form the basis of your decision regarding how much health insurance coverage you need to purchase. There is always the chance that you will have to resort to bigger hospitals in case of specific illness; so keep that in mind too.
Amount of health insurance required
Medical inflation is estimated at 15% in India. The prices of medical procedures and healthcare have been rising steadily. Therefore having health insurance is a basic requirement. The important point is to determine the amount of health insurance.
The following are factors to consider for health insurance –
Age – When you are in your 20s, you generally do not need a big cover. You can consider a health insurance of Rs2,00,000 to Rs. 3,00,000 for yourself and then increase it gradually as you enter your 30s and 40s. It is good to increase it by 10%-15% at intervals.
If you need to buy a health cover for your parents or spouse and children, then you should consider their age, lifestyle and health. You can look for family floater plans.
Affordability – Health insurance premium is an important factor. You need to determine what how much you can afford. When you are in your 40s or 50s, it is important to have a substantial amount.
But if you cannot afford, it is still better to buy a smaller cover as any financial assistance during a medical emergency is useful. Percentage of your income goes towards the premium.
Lifestyle – Do you have a healthy lifestyle or are you a person who has a high-stress life or has no time to exercise or follow a healthy diet. If your job entails travelling a lot, it might be difficult to have a regular exercise routine and you might have to eat unhealthy meals. In such cases, it is important to have a good amount of health coverage.
Family History – If your family has a history of obesity, diabetes or any other such lifestyle disease, there are high chances of the next generations to get it. It is then important to have the right health cover.
Requirements – There are different types of policies other than simple health insurance. There are accident covers, senior citizens plans, critical illness insurance plans etc. You have to determine your requirements and buy appropriately.
There are other factors too. If there have been high medical expenses in the past, it might make sense to take a substantial cover. If you want to ensure a certain hospital, a certain doctor or the type of patients facilities in hospitals, you need to make sure your health cover takes care of these requirements.
If you are employed, the employer might be offering you a group employment plan. Check its coverage and buy more insurance if required. It may not be very comprehensive and have limitations.
Minimum Health insurance required – thumb rule
If you are looking for a simple thumb rule –
You can consider that your sum assured should be sufficient to take care of artery bypass in a hospital of your standard. or
It can be 50% of your income – if you are earning Rs 15 Lakh, you can consider 7.5 Lakh policy. or
It should be minimum Rs 5 Lakh.
It is important to assess the different factors and requirements before buying a plan as if you are unable to pay the premium, your plan will be discontinued.
Insurance is an important component of financial planning. It is best to treat it as financial protection rather than an expense to get the best benefits from it.
And if you have any doubts and can’t understand what plan to pick, choose a wise advisor who could help you in same!
Please do not reply back to this mail. This is sent from an unattended mail box.
Please mark all your queries / responses to
Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.