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.

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What Should Come First - Home Loan Repayment Or Investments?

Believe it or not, the big question about making a choice between home loan repayment and investments pop up at one or the other point of time. Increased salaries, revenues, business profits or a windfall income might instantly give rise to this dilemma. And to help you make a decision, it is important to tick-off few aspects first. 

1) Interest earned vs interest saved - So, at one end, you are saving interest on a loan while on the other, you are earning interest on your investments. This makes it essential to analyse, which scenario is working in your favour. 

Sample Case - Krishna has a home loan of Rs 50 Lakh for 25 years, where he is paying interest of 10% annually or Rs 45,434 as EMI. Krishna manages to save Rs 30,000 per month, which can either be used to prepay home loan or make fresh investments.

Scenario I - Krishna decides to invest Rs. 30,000 every month for next 25 years, i.e., equal to tenure of home loan, into a fund that fetches 12% per annum returns.

Scenario II - Krishna prepays home loan and is mortgage free after 12 years of loan tenure itself. He then invests Rs 75,434 per month (Home loan EMI + Surplus) in a fund delivering 12% p.a. returns for remaining period of 13 years of 25 years.

Now, let’s take a look as which scenario worked in Krishna’s favour. 

	SIP/Investment Route	Home Loan Repayment Route
Corpus At The End	₹ 5,63,65,398.79	₹ 2,80,77,217.80

The above illustration proves that Investment route clearly won over home loan repayment option. 

2) Good debt vs bad debt - Needless to say, home loan qualifies as a good debt and so there should not be any haste in settling it down over other bad debts such as car loan or personal loan. While home value appreciates over time, home loan also attracts deduction under Income Tax Act, which should be a basis of taking any decision. 

3) How close are you to Retirement? - If you are just 5 or 10 years away from retirement then prepaying home loan makes sense than investing. This is due to the fact that risk appetite diminishes with age and the equation explained in the above two scenarios reverses. Thus, home loan repayment is far better than investing in a fixed-income or debt fund. 

4) What’s paid is paid - Prepaying home loan means that you lose the right to claim back the paid amount. On the other hand, investments into stocks and mutual funds are easily accessible and can be withdrawn if any unexpected event occurs. In short, sufficient cash flow as a backup can be a big advantage during unforeseen occurrences. 

5) Still confused? Seek financial advisor’s help - While investments take precedence over home loan repayments, yet the decision is dominantly driven by an individual’s circumstances. Taking a call can be daunting at times as it is more than mere number-crunching. If you find yourself in such a situation then it’s only rational to reach out to a financial advisor to help it decipher it for you. 

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.

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Why You Should Look Beyond Employer-Provided Health Insurance?

Almost 80% of Indians are not covered by any health insurance scheme, reveals the most recent report from the National Sample Survey (NSS). The glaring number is testimony to the fact that health is the most neglected aspect in both rural and urban India. 

Lack of awareness can explain the reason behind negligible uptake for health insurance schemes in rural India, it is the dependency on employer-provided health insurance as well as high premium that can be blamed for insurance gap among urban population. It is still common to see that salaried employees are keen on buying health insurance for their parents without spending a moment on analysing their own medical needs. Thus, employer-provided health covers are the only way out for many in case any critical illness descend upon them. 

In view of alarming statistics, it is imperative to uncover harsh realities confronting every employee, who is dependent on employer-provided health insurance, which are listed below. 

1. Cover that may last immediately - Employer-provided health cover remains in force only until an individual continues to remain employed with a firm. Health cover comes to an end, once an individual decides to resign or leave job. This means that employee is not covered for medical eventualities at the time of his/her transition from one job to another. Things can turn worse if employment ceased due to termination by employer and securing another job can take longer-than-expected time. These are the times when having separate personal health plan does wonders. 
2. Inadequate of coverage sum - Employer-sponsored health plans are not customised as per an individual’s medical needs, but are merely group insurance. It is possible that such covers fall short of an employee or his/her family’s actual requirement. This leaves an employee and his family exposed to possibilities of higher money outflows, in case medical costs outrun employer-provided allocations. 
3. Specific coverage might not continue - Most of the employer-provided health covers include specific coverages such as maternity or senior citizen cover. Thus, during job loss or change, these special coverages will also cease, requiring an employee to bear future expenditures. 
4. Time is money - In case an employee parts with employment to start own venture or business, then the need of an independent health cover in place for self and family is inevitable. However, such procrastinated buying will translate into higher spending towards premium costs than what it would have been earlier. Moreover, an individual has to take onus of paying for medical emergencies for pre-existing diseases during waiting period. 
5. Exorbitant retirement - Decision to buy independent health cover when nearing retirement could be the most flawed decision one can make. Retirement age is the time when most of the health issues emerge, which is why one has to pay a hefty price to seek an optimal health cover. 

These reasons explain why one should look beyond employer-provided health covers to buy an independent cover immediately. Usually, family floater policies are appropriate for families with children that witness lower medical emergencies. However, separate health covers are recommended for families that have a history of frequent hospitalisations or medical care. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi 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.

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Seven Reasons Why Investing On Your Own Could Backfire

Periodic access to stock market information and motivation to take charge of own financial future might encourage many investors to take a dive into direct investing. At times, investors debuting in stock markets or mutual funds might even hit beginner’s luck, and everything appears to be in place, until reality strikes.

It is crucial to understand that investing does not end right after writing a cheque towards a fund or placing an order online, rather it begins there. There are various aspects associated with investing such as periodic reviews, monitoring and knowing what-to-do and when. Few of the common errors that direct investors often make while investing are listed below. 

1. Losing sight of crucial goals - New investors often get carried away by bigger goals, which put them at risk of neglecting smaller but basic goals such as adequate insurance cover or emergency corpus. 
2. Disconnect between objective and investments- Every investment has an underlying investment objective or financial goal, but problem occurs when an investment product is a misfit for such an objective. Like equity stocks or mutual funds are not the right place for emergency corpus. Similarly retirement corpus cannot be built through debt vehicles alone.
3. Clueless about investment strategy - Each individual has a unique financial goal and risk appetite, which is paramount in developing an appropriate investment strategy. However, most of the direct investors place greater emphasis on products and end up accumulating more than they actually need. 
4. Placing lot of significance on historical returns - Even when most of the mutual funds categorically specify that ‘past performance is no guarantee of future returns,' most investors find themselves swayed away by stellar fund performances. Apparently, oversight of other parameters cost those investors dearly.
5. Herd mentality and peer influences - Direct investors are vulnerable to peer influences and herd mentality, i.e., they endorse the acts of others and try to follow the same path. This happens mostly in offices or professional and social groups as any investment strategy followed by one instantly becomes a handbook for others. In the process, investors forget about the differences that exist between risk appetite, life goals and existing financial circumstances between themselves and peers.
6. Improper diversification - Investing on own might even lead to under or over diversification, which means that a portfolio lacks the right mix of assets. Investing into too many funds with the same objective or putting all funds into real estate can lead to a skewed portfolio and so the returns.
7. Loose ends - As said earlier, investing process ends only after an investor reviews and monitors his/her portfolio. Leaving funds invested in a product for long could defeat the whole purpose of investing itself for lack of adequate returns. 

Taking swift decisions on how to manage investments such as booking profits and re-investing in better avenues are crucial, without which, an investment is not really an investment in a true sense.

Best way to counter these challenges is to seek professional advice as doing everything all alone can become a daunting task and might not fetch desired results.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi 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.

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