Our society is changing. Nuclear families are the norm. Inflation is high and hence money needed to fund the retirement is increasing. Additionally due to longevity of life, the requirement for retirement fund will further increase. This is where the right retirement planning helps individuals spend their time in old age with dignity.
Most of the Indians living in foreign countries plan to come back to India at some point in time in the future. Hence it is important that they plan for their retirement in India.
Even though many NRIs plan to come back in the later stages of life, their children may not come back. They do not have much idea about the options available in the Indian market which prevents them from planning well for their retirement.
Steps in retirement planning:
Start early: The importance of starting early cannot be emphasized enough. This is the key to a happy and wealthy retired life.
Have a concrete plan: You must have a plan as how much you need post retirement keeping inflation in mind. Once you have a figure, work backward to find out your retirement requirement. This will enable you choose appropriate financial products for your retirement requirement.
Here is a simple example:
| Money needed to save for retirement | ||
| Current Age | 35 | |
| Monthly Expenses | 30,000 | |
| Retirement Age | 65 | |
| Requirement at Retirement | 24,000 | |
| Q: How much I need to save every month to achieve this? | ||
| Number of years remaining | 30 | |
| Need per month post retirement | 24,000 | |
| Need per year post retirement | 2,88,000 | |
| Projected Life post retirement (years) | 20 | |
| Projected Inflation | 7% | |
| Rate of interest for discounting post retirement | 8% | |
| Value of per year need when you retire (Because of inflation) | 21,92,329 | |
| The multiple factor for GP | 0.9907 | |
| SUM of Money needed on the year of retirement | 3,83,58,639 | |
You will need a corpus of 3 crore, and 83 lakhs for the purpose of retirement under the above mentioned condition.
Monitor your plan: You should keep monitoring your investment and change as per the demand of the times and your age. For example, you may have decided to invest almost 80% in equity when your age was 25 but the proportion will have to come down when you turn 40.
Important Points
NRIs should consider the time horizon available to accumulate money for retirement.
Secondly, plan for the emergency and health insurance. In fact, health insurance should be an integral part of the retirement planning.
If you have any goal to meet, factor those expenses too. For example, if you plan to visit your children abroad every year, plan for these expenses in your retirement planning.
Finally, never underestimate the power of inflation to eat into your purchasing power. You must decide upon the requirement based on high inflation rate.
What are the options available for retirement planning?
Indian market is well developed and it provides enormous options to plan for retirement as per individual’s risk profile. Let’s take a look at the financial investment options available for NRIs.
Bank Deposits: The long term bank deposit in India is a risk free option. It also pays a good interest rate of 8% to 9%.
Equity and Mutual Fund: With Indian economy slated to grow at a rate of 8% for the next few decades, Indian stock market offers tremendous opportunity for NRIs to invest and profit from the growing economy. Indian stock market is pretty well regulated and covered by analysts. Though the risk is high, the returns from market have been the highest in the long run.
Real Estate: Real estate is another good investment for retirement because of booming economy.
Insurance: Insurance firms offer variety of products promising security and returns to suit retirement needs of overseas Indians. ICICI, LIC, HDFC, and many other insurance firms have retirement & pension plan which can be availed by NRIs. Most of the insurance companies also offer comprehensive health insurance which must be taken for retirement purposes.
You can buy retirement plan with cover or without cover. You can also have unit linked retirement plan which will give high returns but also presents high risk. ULIP, after the changes made by IRDA, has become more attractive and can provide much better returns than typical insurance products.
Things to look at in any plan
Look at the typical returns provided by the retirement plan. You should also look at the returns provided by the plan in last 5-10 years, compare the plans and select accordingly.
Be sure about the repatriation clauses in the plan. It will set the right expectation.
Lastly, your retirement plan is for your retirement purpose. Avoid the temptation of withdrawing from it to meet other needs.