Showing posts with label retirement planning. Show all posts
Showing posts with label retirement planning. Show all posts

Thursday, 20 April 2017

5 Retirement Planning Myths

5 Retirement Planning Myths Debunked


How would you feel if you have to live without a salary for 20 years or more ? To be precise, that's what retirement is all about!!!

Majority of Indian Middle class fall in below category 
a) When young and newly married -Attitude is Who cares for retirement
b) Married with children - Already paying an EMI for Home Loan & Car Loan (you should read Mutual Funds Vs Real Estate , if you married with children and planning to buy a house)
c) When Children Graduate - Home loan is completed and Education Loan started (read Child Education Planning)
d) When Children Marry - Loan for Marriage 
Finally when retirement comes, mostly dependent on children




Middle class life entire life goes in debt but will never take the risk of investing in stocks or mutual funds.
I am sorry if i am hurting your feelings but above is truth based on what i have interacted with so many senior citizens whom i met every morning in joggers park near my house.

Must Read : How Much Insurance Do You Need?

Usually, In India, people expect their children to look after them or presume that their EPF corpus will suffice for their retirement expenses (if not redeemed for any of the loan above). But if you calculate the approximate money needed to lead a stress free life, retired life you will realize why planning for your retirement is as important as planning for your other life goals.

Similarly, While you have been planning for your retirement, you may have also believed some of the retirement planning myths that are branded about.
Hence, Whether you are about to start planning your retirement or have already started it, about to retire or have already retired, this article is for you.

Myth #1 : Retirement is a lifelong process

Retirement is usually treated as long holiday.But that is exactly what it is not.
Is it possible to be on a holiday for 20 years of your life? Certain retirees often experiences alienation during their retirement period as their role as a worker is over.They do not feel productive and feel disengaged from their lives. some look for support in their communities or try to find some work to feel productive.Hence,  
retirement is not a long holiday for rest of your life 

Must Read : Why you should not buy ULIP

Myth # 2 : You save and invest when you earn and spend when you retire

While it is true that you are encouraged to keep savings and investing for your retirement, that is simply so that you can be relatively free of financial burden during retirement years. 
But does this imply that you only keep spending during retirement? Hardly. Even in your retired life, you have a long future to consider,bills to pay and expenses to meet. You may have a corpus hefty enough to meet your needs for next 20 years or so but can you say for sure you will be able to meet all unplanned expenses as well? 

If saving money is your habit you have developed all your life, there is no reason to stop it the moment you retire. If you have a substantial retirement corpus, you will not be using the entire corpus at one go. Hence, keep a part of it investing ensuring that your funds are not lying idle. If you also generate supplementary income by doing some part time or consulting work or have rented out a property, income coming fro these streams are added to your corpus. Hence, you need to work out a plan for investing this regular income too. 

In Short, just because you have stopped working does not mean your money should also stop.

Myth # 3 : I don't plan to retire, so no need to save

Every coin has two sides, Because of technology you are reading this article and the same technology had made many jobs obsolete.
By the time you retire, the work you do may become obsolete. Hence, finding work suitable to your skill sets could be challenging, especially if companies are looking to hire young guns. Instead of relying on your continued work, rely on your present income to generate future income. 

The future might be uncertain, but as the saying goes "precaution is better then cure", present is also uncertain. Your salary comes in every month might be getting a yearly bonus and salary increment as well. Start your savings and investments for retirement. Do not give yourself the illusion that you can be frivolous today and keep working because you anyway do not plan to retire.

Must Read : What if your Insurance company goes bankrupt?

Myth # 4 : You should exit equities at retirement.
One of the biggest myth surrounding retirement planning is that your corpus should not be invested in equities or equity oriented mutual funds. These misconception have led people believe equities are unsafe and volatile.
Equities as an asset class have given the highest return over the long term. The long term period reduces volatility and also increases returns. Hence if you are planning to start investing for your retirement, equities should be your priority as you benefit from the time value of money and the power of compounding.

Myth # 5 : You should repay loans before you start savings for retirement.
A lot of us tend to believe that since goal of retirement is far away, we can start planning for it much later. This is a costly mistake. If you start early, you can start small and reduce the financial burden later on. 
Many investors prioritize repayment of loans before starting their plan for retirement. They tend to treat retirement planning as secondary goal compared to repayment of debts.

At this stage, you have to remember that a person who cannot help himself is no good for others. Hence, break the myth of "Shall plan retirement later" or in Typical hindi "Dekha Jayega" and start doing so now, along with your various debt repayments.

Must Read : Why term insurance is required up till 60 years?

Conclusion 
Retirement is that one goal for which you have a plan. For every other goal, you have the option of taking a loan and repaying with your future income. Retirement does not allow you that luxury. You have to make the best with what you have saved and invested. 
Hence, do not fall for these myths and set up hurdles in your retirement planning process.

PPS: If you think this page and blog will be useful to any of your friends please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left. 🙂

About the author
Vipul is a software sales professional for Asset Management Companies, Pension Fund and Stock Brokers from last 16 years. 

Vipul believes that the amount of financial information flowing our way is probably 10 times more than what it used to be 15 to 20 years back due to the advent of newer forms of communication.
All this information is creating an information overload in the minds of individuals resulting in analysis paralysis and he helps them select the right decision while creating a Goal based financial plan.
In case if you need a Financial Plan please connect to him on vipuls1979@gmail.com


Monday, 6 June 2016

How to Budget Your Money with 40/30/30 Rule



Whether you are a parent with two kids or recent college graduate working your first job, 40/30/30 guideline can help you assess your budget. This approach often helps to understand the big picture of where the money is going.

Let us break your budget in three buckets (rather than the seemingly infinite categories of some traditional budgeting). It is designed to help you figure out how much you may want to allocate to each area every month, and can also help you determine the order in which your money can be allocated.

Retirement-Planning


40/30/30 broken down

Fixed Costs

These are bills and expenses that dont vary much o monthly basis, like rent or loan payments, utilities and car payments. Also include subscriptions such as gym membership and DTH/Mobile/Internet accounts, in fixed cost because you are committed to payting them on a monthly basis.
When it comes to fixed cost, I would suggest that you aim to keep your monthly total not more than 40% of your take home pay.

Financial Goals
I would recommend keeping aside at least 30% of your take home pay towards important payments or contribution that will help you secure your financial foundation. I believe there are three essential goals everyone should strive for: savings for your goals, savings for retirement and building an emergency fund. But your financial goals can also include larger savings priorities, like a down payment on a new home or child’s education funding and lifestyle goal such as a vacation or a dream car.

Flexible Spending
Finally, consider budgeting not more than 30% of your take home pay towards flexible spending. There are day to day expenses that can vary from month to month, like eating out, groceries, shopping, hobbies or entertainment.
I have included groceries in flexible spending because even though food is a necessity in your budget, how you spend on food can vary. Some days you would prefer to dine out and some days you prefer to make it yourself. It doesn’t really matter what you spend your money on each month in this category, as long as you are aware of your spending and not going over total flexible budget each month

One Note on Taxation
As you might have noticed the 40/30/30 guidelines applies only to take home pay. The deductions that are happening before the salary hitting your bank account is not considered. The deductions may be towards Provident Fund, Income Tax etc. While choosing to invest in retirement plans, equity linked tax savings mutual fund schemes you would save larger amount of taxes depending on Income Tax slab you belong to.

If you are just starting to put together a budget, the 40/30/30 guideline can serve as a useful benchmark for how to divide up your income.  When it comes down to it. Though, how you spend (and save) your money depends on your specific goals and lifestyle.

So be a smart and informed investor – check how much insurance do you need and why you should in invest in Mutual Funds versus ULIP after analyzing the above two you can invest money via sip in best 3 equity mutual funds in India for Retirement

PPS: If you think this page and blog will be useful to any of your friends please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left

Mutual Funds & Insurance Related Articles :-

Benefits of Systematic Investment Plan
What is Systematic Transfer Plan and How it works ? 
Advantages of Equity Linked Savings Schemes
Top 3 Mutual Funds to Invest in 2016 for Long Term
How Much Insurance Do I Need ?
How to Select Mutual Fund for Portfolio ?

How to Budget your money with 40/30/30 Rule ?
Mutual Fund Versus ULIP 

Why Term Insurance Policy is required till 60 years ?

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In case of any further explanation you can reach me on vipuls1979@gmail.com or tweet me  @vipuls1979

Disclaimer  :-

The Article is only for information purposes and Vipul Shah (https://investkiyakya.blogspot.com) is not providing any professional/investment advice through it. The article 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 financial products, units or securities. https://investkiyakya.blogspot.com disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this article, including without limitation the implied warranties of merchantability and fitness for a particular purpose. https://investkiyakya.blogspot.com 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. Use of this article is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. https://investkiyakya.blogspot.com does not warrant completeness or accuracy of any information published in this guide. All intellectual property rights emerging from this article are and shall remain with https://investkiyakya.blogspot.com. This article is for your personal use and you shall not resell, copy, or redistribute this article , or use it for any commercial purpose. All names and situations depicted in the article are purely fictional and serve the purpose of illustration only. Any resemblance between the illustrations and any persons living or dead is purely coincidental.