1. What you do not understand, is not worth knowing: If a financial planner tells you ‘Sir, you do not understand this, I will explain it to you’ – please be IMPOLITE and ask him to …….. (unprintable!). NOBODY (repeat NOBODY) is interested in ‘teaching’ you. Normally it is in the interest of the oil skin salesman that you understand LESS, rarely more. Unless of course he is a professor. If he is a professor, he is not really interested in teaching you, so he will not attempt.

2. Be careful of what your broker can do for you: First of all have less expectation from your broker. Then meet him. Then lower your expectations to the right level. He is interested in getting you to fill some forms, buy some shares, mutual funds, unit linked pension plans, etc. YOU and YOU alone are interested in knowing what is good for you. Take inputs from your broker, use your OWN brain and then decide. If he pushes you for time, ask him to take a chill pill.

3. ANYBODY who has a secret way of earning more is telling you a LIE. A pure blatant lie. There are no secrets that people go around giving free to all and sundry. Sadly some such people go around the world -and they have a fantastic affinity to recent retirees sitting on Rs. 85 lakhs and wondering what to do with that money. Be damn careful.

4. Oil skin salesmen today have many qualifications, be careful. Once upon a time you could trust your banker – but like I said that was once upon a time! So in the alphabet soup of qualifications they pick up a few alphabets and threaten you with their lingo. See point 1. What you do not understand is NOT WORTH KNOWING especially once you have retired.

5. Do not be overconfident (It cannot happen to me syndrome): Remember that is what everybody thinks, till it actually happens. Be careful. Ask your kids, friends, neighbors,….but decide on your own.

6. THE MOST IMPORTANT one: know whom to trust. Not your brother, brother -in-law,…..boss, exboss, banker….remember finding the right person is not easy, but it is a MUST – and you should have 3-4 people with whom you can discuss. Choose such a person carefully.

Risks are worth taking, only if you understand them.

If you are sitting in a group where investment advice is being given FREE and you do not know who is paying the bill, boss it is you. You are sucker who is being had

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Market volatility, Regulatory changes, Medical expenses not covered by their medical insurance, Inability to maintain a complex portfolio beyond a particular age, Inflation and poor financial understanding.

All these fears seem to be valid, and I realised that there is really nothing I can do about it:

1. Market Volatility: I could write a 500 page book on this, but it will not help anybody. If you quit your job at the start of a fantastic bull run, you are damn lucky and if you retire at the beginning of a bear market, you are damn unlucky. There is really nothing else to do. I have solved this for people by creating 3 different buckets of investing 0-3 years, 3-7 years, and >7 years. This has worked well for the past 22-23 years.

2. Regulatory changes: In a country where there are enough communists and socialists inside every right wing party, please expect and be ready for dividend tax, capital gains tax, estate duty, aggressive wealth tax – and what have you. I really shudder to think what it can do to most of the portfolios that I am advising. People will get chewed. Prayer is the only solution.

3. Medical expenses not covered by insurance cover: this could be anything – I have never professed to understand General Insurance (like Medical). The policy drafts are too cumbersome. I have a policy from New India and I hope that by the time I am making a claim my good track record will ensure that all kind of niggles and major operations are covered. Keeping good health and lots of prayer is the only solution. I am yet to find a sensible general insurance adviser. Keeping fingers crossed, praying and keeping good health habits is the only solution.

4. Inability to maintain a portfolio of stocks, fixed deposits, mutual funds, fixed maturity plans, insurance plans, annuity plans, ..is not easy. By the time you are 65 (especially if you do not have kids or they are unwilling to learn or help) you should have only one mutual fund scheme, one bank account, one medical plan, one savings bank account, one credit card. Anything more complex your mind may do a suboptimal portfolio management. Finding a trustworthy helper is likely to be a nightmare – especially in a country without any chance of controlling the thieves running around!!

5. Inflation: Many people worry about inflation dropping down, and interest rates going up. This is a very rare event, but preparing for interest rates to be around 4-6%p.a. and inflation to be around 7-8% is a realistic level of planning. This actually means you will not be able to go to a zero equity portfolio till your age of 80 seems to be a given

6. AS you go on in life you read words like ‘Core and Satellite’, ‘Term Insurance with return of premium’, ‘Systematic Investment Plan in direct equity’ – are all meant to either make you buy a sub-optimal product or worse con you off your money. This can be easily avoided by increasing your financial knowledge…and yes saying NO to every product that is offered to you. Simple.

Of course Praying helps.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

NPS (New Pension Scheme) was bad – I have rubbished it enough, but as if all that was not enough, the Parlimentarians have tried to make it worse.

Why should a fund management company have only 26% FDI beats me. Stumped is the word. In the 1990s we allowed 100% FDI in Mutual funds, in 2011 we are worried about 26% in pension funds.

We are worried about 51% in life insurance companies, and airlines. I guess I am too dumb to understand. We will not allow 100% FDI in retail – and it involves a HUGE investment, but we will allow 75% equity of Hdfc Bank and Icici bank to be held by foreigners. We will allow Hsbc and Citibank to sell LIFE INSURANCE and MUTUAL FUNDS to retail Indian customers – and be 100% held by foreigners.

Ok, so 26% it is.

Then there is a Minimum Guarantee that is to be paid! Vow. How the hell will this be implemented? who will bear the risk? What will be the time frame? I mean if I am a 22 year old starting an account, when will the guarantee kick in? Every year or only at the time of the withdrawal? Thoughtless suggestions hurt the industry.

Having said that, I have seen the returns that clients have got in the DEBT schemes of the NPS – the standard deviation confirms my worst fears – easier to find a decent equity manager, but finding a decent debt fund manager seems to be impossible. That is scary. If one fund manager gives you 1%p.a. and another gives you 8%p.a.  – what are people supposed to do?

I can imagine a shrill discussion (shout session?) on Tv after which many people will move from the fund with 1% return to the fund with 8% return. Next year there will a ‘Return Reversal’ – and lo! the same people will again be in a discussion. God bless them all. I will be watching Comedy Circus.

Then there is another clause which they want to insert- The Withdrawal Clause- The very purpose of creating a pension plan is to lock it in for a person’s old age or to meet a critical illness post say, 55 years of age. There is no point in allowing a scooter loan, daughter’s marriage, wife’s remarriage, painting the house,…blah blah kinda loans. To beat this very thing a 2 tier NPS was created (or so I thought, my mistake!). Tier I (compulsory) NPS does not have a withdrawal facility but Tier II (optional) has a withdrawal option. Younger people should obviously open both and accumulate MORE in the tier II account. Frankly did not think this was rocket science. I think the parlimentarians were not briefed well by the experts and hence this suggestion – I hope this suggestion is not taken too seriously. The very purpose of creating a Tier I and Tier II would be lost.

One thing I have been screaming about is – Can the PFRDA say what will happen to the accumulated amounts? How can it be withdrawn? Will the protect it by a specific provision in the Sec 10 of the I T Act, 1961?

Will they say Rs. 25L will be automatically transferred to SENIOR CITIZEN ACCOUNT AND the account holder and his spouse WILL get an assured return of 12% p.a. FOR THE REST OF THEIR lives (9% interest and 3% return of capital) – without any money going to the heirs? Some people who live till 90years will be some kind of a drain, but those who die at 63 years of age will give a HUGE surplus! Of course these nos. are arbit – actuaries can work out better numbers. There should obviously no ‘asset management charges’ – and all this should happen from the Government’s consolidated fund. Here there may be a sense of subsidy, but at least there will be no guarantees during the accumulation stage!

What say Gautam Bharadwaj of IIEF and other pension experts?

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

1. Equity is risky, it has no place in your portfolio. I write so much about equity, I am sure my readers know how stupid this line is. Do I need to elaborate? Just read my blog..and you will know about the risk of inflation.

2. Equity returns are not guaranteed, so it is risky: This is perhaps worse than the first point, so I will ignore this too. Just a little tear for the client and his planner.

3. Buy a big house and you can sell it and use it as a retirement kitty: You need to be extremely lucky to get good returns on a single property portfolio. Almost impossible. If at the time of your retirement the only asset you have is a piece of real estate in which you are living, man you should sack and sue your advisor. Or shoot yourself for listening to such bad advice.

4. You will be able to withdraw 9% from your portfolio (planner’s logic – senior citizen’s account pays that much, dude): Complete bull. You should be lucky if you can withdraw 4% of your portfolio if it has a healthy mix of equity and debt – and this amount may be completely insufficient by the time you are 70. Inflation adjusted withdrawal, post tax making a 9% assumption is a financial crime. Shoot your planner, guns are available.

5. At retirement all your money should be in debt instruments: OMG I have heard this too many times. Even after you retire you will have to battle with inflation. Not more than 50% of your LIQUID net-worth should be in debt oriented instruments. At the age of 80 you may be able to move to 90% in debt, not earlier…and if you have a younger spouse – at her age of 80.

6. You can start saving for retirement after you have accumulated money for your daughter’s marriage: I seriously debated whether you should shoot, poison or throw your planner in front of Shathabdhi for such advice. I would do all 3. The worst thing you can do is delay the start of investing for retirement. One girl I know has started at the age of 24years – she is now 32 and is going strong with her SIP in equity funds. Please remember the title of my book ‘Retire Rich: Invest Rs. 40 a day’ – this is true only for 24 year olds doing a SIP in an equity fund and increasing it by 10% every year. Time is your best friend when you are young. If you do not start young it becomes your enemy soon. At age 40 you will need to do a SIP of about 55,000 per month if you did not do 40 at age 24.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

All the advise that you get must be saying ‘Look you jerk you do not know how to handle your money..give it to a mutual fund, life insurance company, brokerage house…and they will manage it for you’ …correct?

Well most of the financial media, the people who write, the people who appear on the TV have a vested interest in the Managed Money Industry. Hence there seems to be a bias against managing your own money without the help of fund managers.

Let us look at some of the solutions that I have seen people use effectively:

1. Buy a house and give it on rent: No planner will give you this advise – unless he is a builder or at least an agent! I am not even saying this is a good idea or a bad idea, but such ideas are rarely considered as feasible!

2. Build your own portfolio: I am dead against direct investing by the ‘retail guy’ . However I have seen many very successful investors too. One such person is now a very senior person in a big group. He has created a Rs. 10 crore corpus – apart from his real estate holdings and his ESOPs. Alas he has very little investment in debt products – except the customary PPF, nsc, etc.

3. Invest in Equities in their ’70s: My father is an investor beyond the age of 82…simply because he has a full equity portfolio and his dividend income is far greater than his total expenses…giving him a surplus. Debt instruments and debt  mutual funds have accumulated enough for him and my mother…..

4. Buy a house in a place where older people are treated reasonably well and servants are available. In a worst case scenario the house can be sold, along with the furniture -and you can shift to a smaller place. Makes sense to downsize the house..as you get older.

5. Create your own pension like buying National Savings certificates – every quarter and knowing that 7 years from now it will mature every quarter.

Unfortunately none of these ideas make money for the distributor…and some are so tightly priced that you will not see any money being made by any of the customers…

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Of course one answer that is brilliant is…”I have bought a pension plan where I am putting Rs. 10,000 per annum as a premium”.  Cross your heart and tell me “what is happening to that money?”. Not sure, but the accumulation in this plan is likely to pay for your morning newspaper and perhaps a cup of tea! You bought that a few years ago because somebody told you there was a tax break. Correct?  Now that is your tax-plan, not your retirement plan dude!

Are you in Denial mode regarding your retirement financial needs?

I cannot comment for every one, but too many people are in denial about their financial needs for retirement. Most of us do not want to accept that we will buy 3-4 washing machines, air conditioners, refrigerators, maybe about 2-5 cars, at least one or two houses during our retired life!

And all this buying will happen with our own money – i.e. by selling our mutual funds, unit linked plans, shares, etc. and from our pensions!

Strong INDEPENDENT financial planning is the key to a comfortable retirement

If you’re planning to spend your retirement in comfort, you’ll need to rely on some pretty strong financial planning. You’ll want to take into account your current financial position and your anticipated retirement income, preparing for contingencies and unexpected expenses along the way. Then you’ll need to develop a strategy for setting aside money on a regular basis to fund your retirement financial planning and choose wise investments so your money will build as much as you need. It’s kind of a daunting task, and it’s no wonder that so many people planning their retirement are worried about the quality of financial planning available in the country.

Benefits of the top financial products for retirement planning – Critical need for Long Term Care Insurance

There is a critical financial aspect of retirement planning today. If you lose the capacity to take care of yourself and require either in-home assistance or be transferred to a nursing home, all the financial resources you set aside when planning your retirement may be spent in just a few years on the cost of health care. Long term care insurance will cover the cost of your medical needs without jeopardizing the wealth you’ve accumulated for retirement or want to pass on to your heirs. Unfortunately no such insurance is available in India as of now.

Choosing the right type of life insurance is also part of planning for the financial circumstances of retirement. If something were to happen to you before you retire, you likely would want your spouse to still have the lifestyle and financial security in retirement you envisioned in your planning, and the right life insurance policy can ensure that.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Will you give up your job? In a country like India where domestic help, visiting doctors, live in maids, live in nurses – are still available, you may still have to leave your job.

How prepared are we to do this? Well are you physically and financially ready for this….that is the question.

Unfortunately or sadly there is just not enough Indian research on such topics. It is also very difficult to estimate the opportunity cost of this. So we need to go to the US of A for the answers or hope that the details would be similar to what research we have for the US population…

read on

http://www.financial-planning.com/news/baby-boomers-retirement-caregiving-healthcare-costs-2673823-1.html?ET=financialplanning:e3405:1863553a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=FP_Daily__061511

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

1. a widower living with his unmarried sister: it could never have occurred to R that a simple solution of living with his sister V could be so convenient for him! R had lost his wife and his daughter was settled in the US. Now R had a nice big house in Mumbai, but his cash flow was not really to great. Being a typical 64 year old he loved home food, coffee, etc. and was missing that more than missing his wife (am I being cruel or practical?). His unmarried sister was living in a small rented place in another suburb of Mumbai, but had a nice pension. Need I tell you the rest? Both are happy!

A simple case of an asset rich person coming together with an asset poor person with a decent income flow!

2. sharing infra with neighbor: a retired person cutting down living costs by looking after his neighbor’s children for a very small fee! This couple love the kids, the kids like them and have become like foster grandparents. The older couple do not have their own kids, and also had some cash flow issues. He is 78 and his wife is 67 years old. Also they were too proud to do it for money. The younger couple have a lot of income – and no reliable domestic help or a good creche nearby. They calculated the costs and explained it to the older couple – showing how they were saving about 12k per month for food, petrol, etc. Grudgingly the older couple relented. The older couple use the younger couple’s car, cook for and feed the kids, ensure TV discipline,…amazing social and financial arrangement. It helped that they are from the same caste. The younger couple is likely to be a big beneficiary….they may even inherit the flat (sorry this is my mind working overtime!!).

3. Sharing of costs: neighbors deciding that they will do shopping, travel, entertainment together – saving costs for both the couples. This is quite normal, but in this case buying one newspaper, watching TV together….etc. also helps?

as I find more innovative solutions, will share it with you…!!

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Name:  hidden           Age: 23          Profession: Service
1. At what age do you plan to retire? Have you started saving for retirement?

I plan to retire when I have accumulated enough money for my post retirement life.* And yes, I have started investing for creating my retirement corpus. I have invested in a couple of Systematic Investment Plans – one of which is a tax saving scheme (Elss fund) with a leading fund house.
(the schemes are x and y)

2. Do you know how much you will require after retirement? How have you calculated the amount?
I have attempted some crude calculations – but the whole event is so far away that I do not think the figure is anywhere near accurate! Have not bothered too much about the accuracy – but I hope to accumulate about Rs. 5-6 crores by the time I reach my 50s. This will happen by stepping up my SIP from about 9000 presently to about Rs. 100,000 per month by the time I am in my 50s. Have realized that the earlier I start and bigger the amount, the greater will be the corpus*. My expected returns are in the region of about 14%p.a. – or in any case a rate superior to Public provident fund which will yield about 8%p.a. I have no clue whether I am accurate, but in the past 9 months I have got about 13% on my SIP.

3. What products have both of you invested in for retirement savings?
No products have been specifically earmarked for ‘retirement savings’ but apart from my equity mutual funds, I have a Provident Fund which is a debt product, but my contribution is compulsory. I have a PPF in which I have put Rs. 1000.

4. How much do you plan to save for retirement in a year (please give % break up for different options if possible).

I would like to earmark at least 10% of my net income for retirement – currently the earmarking is in the mind*! As time goes by and I need to withdraw for other goals, I will ensure that the money retained for retirement is sufficient for retirement. Currently all my mutual fund SIPs are in equities and my provident fund contribution is in debt instruments.

*This is the learning from Retire Rich: Invest Rs. 40 a day!

Thank you girl! At your age, I wish I was half as evolved as you are! God bless you…

PS: have seen her for one year….not sure whether she will do it for a few years…to be brutal. However as a friend I hope she does it…good for her!!

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Well here is my take (and it is very different from what everybody else in the business has to say):

1. Employees Provident Fund (EPF): you do not have too much of a choice, do you? If your company has a provident fund scheme and there is a deduction happening at source, well you are in it. This fund normally gives 8.5% p.a. – however this year was a one time bonus and the interest accrued / paid was 9.5% p.a. Well you really cannot do anything – if you have it, keep it, if you do not have, well you do not have!!

2. Public Provident fund: Only if you are 45+ years of age have a super surplus over and above what you can happily put in equity funds, and are still wondering what to do with that 70,000 should you invest in ppf. If you are under 45, completely avoid it. Returns will be sub par – surely a NEGATIVE REAL RETURN even assuming 8% interest rates remain constant. Only logic is it is a good debt instrument paying 8% tax free – not sure how long. If you have already opened it, put in a small amount to keep it going.

3. New Pension Scheme (NPS): It is the cheapest fund management scheme in the world, but I do not drive a Nano! It is an inexpensive way of putting your money away for a long period, but fund management skills is a big issue. A fund with 50% in debt instruments (you are better off in PPF dammit, at least the risk is borne by the government) makes little sense. The debt portion will give you a -VE real return for sure. The equity portion is in the sensex – and for me the sensex has a major construction problem. So over all it is a no no from a fund management point of view also!

Now when you get the money back – we have NO clue how it will come back, who will take the responsibility of managing it, what will be the asset management company, will it come by ECS. I have asked these questions and get a typical ‘ration shop answer’ – look dude at .0009 this is what you will get. I do not buy rations either. So no Nano, no rations for me.

4. Unit Linked Pension Plans: these are pension plans created by life insurance companies. These are perhaps the worst products (under the new format of reduced expenses). The way the costs are structured these will all be debt based products. So a debt product, with poor fund management capability, and not knowing what will be the rate of interest when the money comes back to you – to me is a pot pouri of disaster. Stay away. If you are a policy holder under the older plans (I am and so are many friends) stick to it. However do not put too much money into it.

5. Pension plans from Mutual funds: Well Uti and Templeton have pension plans. I like both the plans – Uti for the costs and Templeton for the competence of fund management . Again do not like the fact that it has only 30% in equity – however over the last 10 years I have got a return of 12-13% p.a. which is far superior to PPF. I prefer this to ppf for younger people.

Having said negative things about all the pension plans….where is my pension money? In direct equities, Hdfc Top 200, Icici Pru discovery, I Pru dynamic, Hdfc Equity, Franklin India BlueChip, Hdfc Prudence….

Post Footer automatically generated by Add Post Footer Plugin for wordpress.