Category: Retirement

Nawanidhi Financial Services > Blogs > Retirement

Do you want to retire in your 40s?

Posted on by Ram Hegde

Early retirement is a dream for many, especially those who are in their mid 30s.

I have heard people repeatedly talking about quitting their current job & starting farming, poultry, dairy business, taking up some dealership business, setting up a food van etc; primarily to pursue their passion.

Almost all of them seem to be fed up with Corporate BS & 996 culture. Some genuinely forgot how to code, after being in Management for very long. Yet many of them are hanging on dearly to their job, that they don’t like anymore.

Very few could muster up enough courage, to really jump out of their jobs that they did not enjoy;

But why so many people are unable to retire early?

Here are possible reasons

1. Majority do not have enough. They did not spend enough time, in investing prudently. Almost all of their earning is taking rest in bank FD’s, while inflation is eroding their wealth.

2.Few of them have health scare.Its quite normal to find a diabetic in their 30s these days.

3.Many of them are worried about raising education expenses & some believe in accumulating for the marriage of their children.

4.Few of them going through adverse family situations such as divorce or large family to take care of or dependent parents.

5.Few of them are stuck with EMI’s /Loans; especially with real estate investments. Some of them are stuck with bad debt.

6.Many of them have invested in stocks / mutual funds /ULIPS/Endowment Plans based on star rating on popular finance portals & by “agents”

7.Few of them tried riding on their colleague’s investment strategy, without understanding their financial situation, goals & risk appetite.

8.Many of them don’t know how much saving is enough; Primarily scared of the unknown.

9.Of course, there are a few smart ones, who have invested prudently and accumulated enough wealth, but can’t stomach the idea of their new retirement status in society. Some of them can’t live without being in power and others do not know what to do next, as they don’t have any alternate plans.

From my personal experience, you don’t need to win a lottery or have a big inheritance or get a fat VRS cheque. You just have to be smart and disciplined with your money. You should be willing to put your journey to financial independence on fast track. If you have means of secondary income it will be a lot easier.

As long as you are not of Type 9 (as above) we can always assist you towards early financial independence.

Do get in touch with us.

MAKE REST OF YOUR LIFE BEST OF YOUR LIFE

Posted on by Ram Hegde

When you decide to retire, your retirement corpus should be large enough, to generate an inflation-protected income, for the rest of your life.

People who have reached financial independence can make it look easy. It is not so easy as it sounds like. It takes commitment and perseverance. The people who are the most successful at it, have compelling reasons for why they want it that way.

Having experienced myself, following are the 3 most important factors you should focus.

1. Save More

The key to retiring early is to start saving early, and to save a high proportion of your income. Later you start, the amount you have to save increases.

Even with common sense prevailing over spending, many people succumb to what is called, lifestyle inflation. The more money they make, the more money they spend, and their saving continues to remain the same/nil.

People often get into trouble with saving, thinking they have to stop everything they love, which is not true. Find a level of living that you’re comfortable with and then work on earning more without increasing your expenses.

Cut services you don’t use , free up more money for investments by cutting services you pay for but don’t use often. Analyze & take out all un necessary monthly expenses and turn them into monthly savings.

Don’t fall into social trap, your colleague buying a Duke to impress his girlfriend should not be a reason for you to buy the same.

Taxes can erode your savings, so it’s important to invest in a tax-efficient way. This means that you want to save into investments that can help your money grow tax-free, such as PPF /VPF/ELSS/NPS  etc.  

Prioritize rightly, many people make a mistake of buying a house by entering at a wrong price point. Evaluate your options of Renting v/s Buying a house. Anything more than 15 times the yearly rental value won’t make much sense to buy a house.

If you’re lucky enough to get a bonus at work, consider saving that immediately. If it’s not the money that you’re used to spending, then it will be easier for you to increase your savings rate without feeling any pain.

2. Earn More

In order to earn the kind of money where you can live on only half or less of your salary you need to focus on your career.

If you don’t work on your career pro-actively you are losing money big time

This career boosting exercise must start with analyzing future trends resulting in learning new technologies (AI, Machine Learning, Cloud , Security etc), new tools , earning advanced degrees & taking up certifications that will qualify you for higher paying positions.

Career in IT has become like the career of a Movie Star. Make the best use of it, when you are at your peak , especially during 30 to 40 years of age.

3. Invest More

Once you are in a right job, saving a high proportion of your income, you should focus on growing your money through compounding. You want to make sure your portfolio is well balanced, in line with your risk appetite & your future goals.

Majority of the people end up saving their money in Bank FD’s or Real Estate or investing in MF funds based on their star ratings on popular sites.

Majority of people that I worked with, don’t consider Insurance, especially health insurance as a must in their portfolio. They are contended with the health coverage (2L to 4L) provided by their company.

What if, you are fired from your job or your company closes or you are unable to continue, due to health/family issues and unable to find another job in time?

Medical expenses drain your savings faster than anticipated as it is expensive. Almost, all the Health insurance companies in India cover pre existing diseases from 2 to 4 year onwards. Some common diseases are not even covered in first 2 to 3 years. Some insurance companies don’t even give you health insurance if you are diabatic. Are you prepared for this?

There are all kinds of plans and investment options out there. Don’t sit back and not be informed. Engage with a trusted financial advisor so that you can understand what’s out there Or what are some gaps in your planning to be able to protect yourself and your family

Do get in touch with us if you need further assistance.

Investment Options For Senior Citizens

Posted on by Ram Hegde

1.Senior Citizen Savings Scheme

The Senior Citizen Savings Scheme enables you to invest a minimum Rs.500 to Rs.15 lakh maximum during your lifetime.

Currently, (July 1 to September 30, 2019) the interest rate on SCSS is 8.6% per year, payable quarterly.

It can be invested as soon you as you retire at the age of 58 years. However, it has its limitations as it cannot be availed for more than five years with one option to extend upto 3 years

It is a very safe investment option as it is from Govt of India

Investment qualifies for deduction under Section 80C of the Income-tax (I-T) Act. However, this tax benefit is under the overall current ceiling of Rs. 1.5 lakh per annum fixed for all investments under Section 80C. The interest received under this scheme is taxable in the hands of the depositors

It can be opened in Post offices and some of the SBI branches

2.Pradhan Mantri Vaya Vandana Yojana (PMVVY)

This investment has a tenure of 10 years and comes with a fixed return.

This can be done only through LIC of India, and the investment can be done either offline or online from LIC website.

PMVVY is available up to 31st March 2020.

The scheme can be purchased by payment of a lump sum called the ‘Purchase Price’. The pensioner has an option to choose either the amount of pension or the Purchase Price. The minimum and maximum Purchase Price are Rs. 1,44,578 and Rs. 14,45,783 for yearly pension, correspondingly providing an annual pension of Rs 12,000 and Rs 1.2 lakh respectively.

The pension rates for Rs.1000 of Purchase Price for yearly pension payment is Rs 83.00 per annum that makes PMVVY offer an annual return of 8.3 per cent. Considering falling interest rates, PMVVY can definitely be explored by senior citizens to invest a portion of their savings in it.

3.Post Office Monthly Income Scheme

This is the best savings scheme that enables you to deposit a maximum of Rs.4.5 lakh for single ownership and up to Rs.9 lakh for joint accounts.

This monthly income scheme in India offers you an interest rate up to 7.6% per year.

This option provides steady and safe returns unaffected by market forces.

It also has provision to transfer the returns directly into your savings account for ease of use.

This again has a maturity period of 5 years

4. Debt funds

Since these are mutual funds that focus on fixed income investments, they are considered safer

Long-term debt funds can offer you a higher value depending on the RBI Rate changes, market conditions & overall economy

They rank high in return on investment and provide you returns that can go as high as 15% per year.

They also offer high liquidity, though you may need to pay a charge for withdrawal before the minimum investment term.

For less than 3 years they are treated similar to bank FD’s i.e taxable as per the individual tax slab. However, if you hold more than 3 years, they are taxed at 20% after availing indexation benefit.

5.Tax-free Bonds

These are bonds that are issued by the government time to time to raise money

The interest returns are guaranteed and absolutely tax-free. There is no risk on your principal.

The tenor for these bonds can go from 10 years to 30 years, depending on the nature of the bond

The interest rate for these bonds usually range from 6% to 7.5% per year and these are currently on the decline owing to falling interest rates in the economy. Its good to buy them on the raising interest cycles.

These are offered by various government organizations such as Indian Railways Finance Corporation, Housing and Development Corporation, NTPC limited etc.

The maximum amount that can be invested is up to Rs.10 lakh.

However, these bonds do not offer flexible investment terms like FDs and the returns are not very lucrative when the economy is on a slow down.

6.Senior Citizen Fixed Deposits

The FD interest rates in most banks for senior citizens are higher than the regular rates by 0.25 % to 0.5%

These deposits have a flexible tenor ranging from 12 months to 120 months

This option is safe and free from market variables; however, the maximum amount insured is for Rs.1 L in the event of bank shutting down. One should restrict to public sector Banks or the top 3 private banks only.

A non-cumulative option is great for senior citizens as it helps them gain periodic interest payments (monthly, quarterly, or half yearly payout). They can use these payouts to meet regular expenses and for various other investments.

7. Company fixed deposits

Company or corporate fixed deposits are also popular amongst senior citizens who are willing to take slightly more risk. Currently, some FDs from NBFC’s such as Mahindra Finance FD or HDFC Ltd or Bajaj Finance FDs offer better interest rates on their fixed deposits in comparison to the banks.

It is important for seniors not go overboard and invest a sizable portion in them as they are relatively riskier than bank FDs. It is advisable to invest in a shorter term & to invest in highly reputed companies only.