Longevity And How To Fix It Up In Your Retirement Planning?

Life expectancy is one element in retirement planning that remains highly unpredictable. You might have made just the right assumptions about inflation, rate of return or the corpus required for other goals but the uncertainty about your own life expectancy is likely to impede your retirement planning. Particularly when life expectancy in India is climbing up with every passing year. This should not come as a surprise that Indians are living longer than before due to improved health amenities. 

Photo By Pixabay https://pixabay.com/en/old-age-park-retirement-enjoy-164760/

The Union ministry of health and family welfare reported an increase of five years in the average lifespan of males and females during the period between 2001-2005 and 2011-2015. The life expectancy in males has improved from 62.3 years to 67.3 and from 63.9 to 69.6 years in females during the period. Resultantly, the chances are higher that you may outlive your retirement savings. 

That should leave you with one question - “How to afford a lengthy post-retirement period?”

While there is no accurate way to predict life expectancy but there are certain ways to narrow the gap that may arise between your retirement savings and your actual post-retirement life horizon.

1) Get real with numbers - Family history, your current health and several other factors play a vital role in deciding your life expectancy. Why not try a retirement calculator like livingto100.com to know how many years you can live and then readjust your retirement plans accordingly. 

2) Start investing early - The sooner you start planning your retirement, the better are the chances that your accumulated investments will be sufficient to support your long retirement. Try to target a percentage of annual income solely towards retirement planning. You might not have too much to invest in your earlier years of career but you can surely step up the contributions as you progress. One of the biggest advantages of starting early is that it gives you more time to overcome down market cycles and gain potentially higher than those who start off late. 

3) Revisit of asset allocation periodically - Revisit and review your asset allocation periodically irrespective of the fact that your retirement is two decades away or just around the corner. Your asset allocation should always stay in line with your risk appetite, liquidity needs, time horizon and investment philosophy. It is possible that negative returns from equity might have pushed down the equity composition of the asset class lower than the required or planned one and vice versa. Also, ensure that all your assets are fetching returns over and above the inflation rate. 

4) Take very good care of yourself - You can ditch the expensive medical costs as well as physical infirmities in your grey years by starting to take care of yourself right now. Several studies have established that physically active people are less likely to become physically dependent on others that can mean saving a lot that might go towards healthcare costs. 

5) Delay using up your savings as long as possible - Another important way to avoid outlasting your savings is to delay drawing from it. You can decide to work a bit longer to fund your post-retirement years or look for other ways to supplement your income. Also, you can adjust or downsize your lifestyle needs to make your savings last longer. 

Remember, retirement is not really the finish line but a start of a new phase. All it takes is a careful and systematic planning now to save you from the financial dilemma in your golden years. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Visit www.facebook.com/Inverika to learn more.

Are You Prepared to Retire or Richtire?

India boasts of world's largest youth population, a key driver in attracting start-ups and foreign investors home - promising them the infinite potential of growth. Census data reveals that over half of the population of India is below 25 years of age. Not just the demographics but an exponential rise of India's middle class lately has earned it a claim to be the country of ‘Big Savers and Spenders.’

The other side of the coin

While all this paints a rosy picture for India, there's something more to it that often goes unnoticed. We cannot turn our backs to the apparent reality that the youth of today will age over time.The World Economic Forum (WEF) has already raised an alarm stating that India will have the world’s largest population of retirees by 2050. 

Again, lifestyle needs of middle-income groups are improving but are the current savings or investments enough to sustain such affluence is one mind boggling question. The WEF estimates that India is far off from its goal to achieve adequate retirement savings. The gap is widening by 10% yearly. Better health care and improving longevity can further dampen the scenario, reports suggest. 

Perplexing realities

What is even more intimidating is India’s ill-preparedness to deal with financial needs of its greying population. Efforts from both the government and individuals remain negligible so far. A report by the United Nations Population Division underscores the shortcoming as it mentions that only 25% of India’s total ageing citizens have some form of pension cover. 2016 Melbourne Mercer Global Pension Index puts India in bottom 3 of 27 countries, accentuating its incompetence to meet financial obligations that are fast approaching as India grows old. 

Currently, employer-provided pension programmes and provident fund schemes are all that stands between the millennials and $85 trillion retirement savings shortfall that is expected to arise by 2050. The government appears to be responding to this wake-up call by fixing retirement needs of the unorganised sector, but the middle-class remains largely neglected. 

Clearly, it is the need of the hour for this particular income group of the society to take matter into their own hands before it is too late. It’s time to replace outdated savings systems such as bank deposits and gold with newer and higher return seeking alternatives.

There is no better time than now for millennials to exploit the opportunities available to them in the form of equities while they are themselves an influential driver of India’s growth story. Also, it's about time to shed our image of ‘Big Savers and Spenders’ and become ‘Big Investors’ to Retire Rich (Richtire) or else we have to settle for a scanty lifestyle in our grey days. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Visit www.facebook.com/Inverika to learn more.

Simplifying Your Dilemma Between Dividend And Growth Plans

Dividend or Growth? If you still struggle in choosing one of these while making mutual fund investments then here’s some help for you. Let’s first understand the basic difference between dividend payout, dividend re-investment and growth options available under mutual fund schemes. 

Dividend payout option

Dividend is simply part of the profit paid out to investors periodically. The net asset value is reduced in line with the dividend declared each time. From tax angle, equity funds enjoy tax-free dividends but the asset management company (AMC) pays dividend distribution tax (DDT) on debt funds before making dividend payouts. That means dividends earned by you on debt funds is after deducting DDT of 28.84%. The option works well for those seeking a regular monthly income and retirees. 

Dividend re-investment

Equivalent units against the dividend declared is bought under dividend reinvestment option. That means investors do not receive any direct payout but dividends are used to buy more units in the scheme. Like dividend payout option, the NAV too falls under this option, however, it more or less functions just like growth option. 

Growth option

Unlike dividend payout, profits earned in a growth plan are reflected in the NAV of the scheme. One of the reasons why capital gains in growth option seem to be higher than those under dividend option. Conceptually, the only difference is that you have already claimed profits under dividend option while the same gets accumulated in growth option. This option suits investors looking to maximize their wealth and are not concerned about periodical payouts. 

After knowing the basic difference between the three options, it’s time to understand which option works best for whom and when. 

When is dividend payout apt?

• If the investible surplus is sizeable and you wish to take advantage of both regular income and capital appreciation throughout the duration of your investment. 
• Investments in theme-based or sectoral funds can be made under dividend payout option as the profits earned under these schemes can quickly reverse after a while once the favourable phase is over. 
• Investors falling in the tax bracket of 30%, who want to invest for less than three years in a debt fund can opt for dividend payout plan as their tax incidence will be marginally less under this plan. 

When is growth plan apt?

• Growth plan works wonders for long-term goals like retirement or child education, where the end objective is to create a corpus and not to spend the scheme’s profits towards less-related activities.  
• The plan also does away with the hassle of reinvesting the dividend amount back into the scheme as all the profits are automatically accumulated.
• Investors with less than three years of investment horizon and falling in the tax bracket of 10% or 20% should invest in growth plan of debt funds as otherwise, they will end up paying DDT of 28.84% under dividend payout option.

Growth plan should be preferred mode when investing in equity funds and equity-oriented balanced schemes except the conditions mentioned above. Since long-term capital gains will not apply to equity funds held for more than a year, therefore, investors can save big on taxes by avoiding DDT under dividend option.  

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Visit www.facebook.com/Inverika to learn more.