The word 'Retirement' brings a comforting thought to those who are working rigorously in their daily lives and are excited to spend a carefree life after 60. With life expectancy now touching 100 years, you have almost half of your life ahead to give time to yourself and relish it with comfort and ease.
Treat your investor's money as your retired father's money who has done his last savings and who is not able to earn again in life.
At my retirement age of years I will have ₹ from which I can withdraw ₹ every month.
Mr Dixit is a 57 year-old salaried PSU employee nearing retirement. He lives with his wife Mrs Abha Dixit (53) who is a school teacher in Bhopal. They have 2 children - Deepali aged 27 and Rahul aged 32. Deepali is working in an MNC in Mumbai and Rahul lives with his wife and daughter in Bangalore.
Bajaj Capital helps you visualise your true future retired self. Our intelligent retirement planning engine helps you save, invest and build an adequate corpus in your working years and then invest it diligently after retirement so that it provides you with the necessary cash flows to lead a financially relaxed post retirement life.
With + Years of Experience delivering excellent financial decisions, you can rest assured that service by Bajaj Capital will be unparalleled.
Interest rate on 3-year fixed deposit rates at SBI were 9.25% p.a. in Aug 2011. Today it is at 5.3%, a fall of 400 bps (or 44%) in 9 years Income of a person dependent on bank deposits would have almost halved in 9 years while expenses would be up more than 60%. Prudent retirement planning will help you mitigate such shocks to a great extent.
Taxes and Inflation are the two biggest enemies of a retiree. Most retirees look at gross income (before tax) while deciding on optimal investment option or strategy. However, improper tax planning can take away as much as 20-22% of your income. The good news is, you can reduce the tax liability using simple techniques and hence higher income in hand. A good Retirement Plan with us helps you do just that.
Rise in prices over the years, due to inflation, makes an enormous difference to the amount needed for leading a comfortable retired life. For instance, if you need ₹50,000 per month to meet your living expenses today, you will need ₹1,10,000 per month after 20 years and ₹2.4 lakhs (up by almost 5 times) per month after 40 years, at an annual inflation rate of 4%. With Bajaj Capital, your portfolio will be primed to provide for the rising expenses.
With rising age comes the need for preventive health checkups and several health problems that need the best of medical facilities. This can be expensive. Catering to these expenses can make a massive dent to your finances post-retirement.
Is Retirement Planning needed for all?
Everyone needs to plan for his/her retirement. Non-salaried people like professionals, actors and athletes need it more than anyone else.
Many people think that only salaried people need to plan for Retirement as they will not have enough funds once the regular source of income vanishes. As a matter of fact, salaried individuals who have mandatory Employee's Provident Fund (EPF) still have some corpus (though grossly inadequate) to rely on after retirement.
However, people who are not from the organized sector like businessmen, sportspersons, professionals like CAs, Lawyers and Doctors, who do not have such an option, need to plan well in time. This is particularly true for sportspersons, actors whose earning lives can be short and unpredictable. This means they have very less time for accumulating the required corpus and hence need Retirement Planning the most.
In fact, retirement planning is deeply linked to surplus income and not age. The incidence of Retirement planning increases as incomes rise.
Most people fail to make adequate provision for contingencies like term insurance and rather worry only about expected (and positive) events like their children's needs (education, marriage etc.) This gap has been laid bare by the COVID-19 crisis, which has underlined the need to plan for income shocks, diversify sources of income and arrange for contingency funds and adequate medical and term insurance.
In fact one out of four Indians say the fear of being dependent on family is a major trigger for retirement planning#. Earlier Indians tended to rely heavily on our children, likened to a reverse mortgage, promising to leave our wealth to children in return for care and financial support in old age. But as the young migrate and nuclear families proliferate, this contract is fraying. Indians are becoming more self-sufficient, seeking less financial dependence on their families after retirement.
Unfortunately it's not that simple. Alarmingly, barely 1 in 5 Indians consider inflation while planning for retirement# - so having a plan alone is not enough for financial security. Even those who try to estimate a future monthly expenditure, accounting for inflation, may find their calculations upended by unexpectedly large expenses and even medical inflation - which can be much greater than overall inflation.
Similarly, only a handful of Indians actually cover for other critical external events like economic slowdown, stock market volatility or instability in government regulations or interest rates.
The flipside is that despite all this, Indians are also increasingly anxious about their future and ready to take positive action.
The quality of your post retirement life depends on your ability to correctly estimate the retirement corpus needed at the time of your retirement. While computing the adequate amount of retirement corpus needed, it is always better to be conservative.
Let us see how each of these 2 factors impact your required retirement corpus.
Inflation diminishes a Retiree's buying power. Even if overall inflation remains low, some components such as Healthcare tend to grow at a much higher rate (also known as medical or healthcare inflation). Your expenses on healthcare tend to go higher (as a proportion of your total expenses) as you age.
At inflation of 4% p.a. your monthly expenses double in 20 years, more than triple after 30 years and multiply by 5 times after 40 years.
Imagine you target a retirement corpus of ₹1 crore assuming monthly expenses at ₹50,000 today and by the time you retire in 30 years, you find you actually need ₹3 crores as expenses have tripled!
Long Term Trend in Bank Deposit rates shows they are in a secular decline after having peaked in FY 1995-96 at around 12%. The decline lasted till FY 2003-04 after which they rose to more than 9% in FY 2011-12. They are falling again since then and are at around 5% levels today, a fall of ~400 bps or 44% from the FY 2011-12 peak. Interest rates on 3-year fixed deposit rates at SBI were 9.25% p.a. in Aug 2011. Today it is at 5.3%, a fall of 4% in 9 years. A monthly interest income of ₹50,000 per month in 2011 would be just ₹28,700, if you renew the deposit today. Your monthly expenses would have gone up from ₹50,000 to ₹81,000 in the same period as per the Income Tax Department's Cost Inflation Index. If interest rates can fall by this much in such a short period of time, imagine how low they can go in the next 30 years. Prudent retirement planning can help you mitigate such shocks to a great extent.
In this, the time-period (n) has an exponential (biggest) impact on your final amount. A small increase in it can lead to multifold growth in your portfolio value.
Next comes ‘r’ or rate of return on the investment. The principal invested has the least impact on the final portfolio value.
|Late by 5 years||Late by 10 years|
|Annual SIP Growth Rate||0%||0%||0%|
If you start late you have to invest a disproportionately higher amount to get the same corpus on retirement.
A delay of 5 years means your monthly SIP amount has to go up by 70% to get the same corpus.
A delay of 10 years means the SIP amount has to be 3 times of the original amount, in order to get the same corpus.
The bigger the time span you give the Retirement Plan to grow, the bigger the Retirement Corpus becomes.
Owning a home is a necessity and a dream. And that's not it. Your home is that asset that provides you with several other benefits: a sense of security, additional rental income, capital gains in the medium to long term, etc. Moreover, savers who buy tangible assets for investment, value their tangible goods as a form of value diversification and a hedge against any economic uncertainty. For a retiree, there is nothing more comforting and assuring than having his/her own home to live.
Real Estate as an asset class has a low positive correlation with stock and bond markets. Investment in real estate, such as owning your home, can provide you benefits such as rental income, reverse mortgage, etc. Simultaneously, these reduce your exposure to overall market risk in a manner that most intangible are incapable of doing.
It is better to buy your home using a home loan rather than waiting to accumulate the requisite amount. It gives significant income tax benefits – both on interest paid and principal repaid. However, one must try and clear the loan at the earliest. Never retire with an outstanding loan on you.
Money Saved is Money Earned! We can say this very well for the tax saved on our investments, which can be further invested to produce more money. And this feature has to be on-board along with you in your Pre as well as Post - Retirement journey as well. Your investments for retirement can be invested in instruments that help you save tax.
There are 2 kinds of tax efficient instruments – 1. Instruments that are eligible for deduction (generally u/s. 80C) when invested in (PPF, ELSS, NPS, ULIPs, etc), and, 2. Instruments whose maturity or redemption proceeds are exempt from tax (PPF, NPS, ULIPs, etc). As you can see, instruments like PPF, NPS and ULIPs carry both the benefits, while gains on redemption from ELSS funds are taxable as long term capital gains.
For instance, let us take the case of Tax Saving Equity Linked Savings Schemes (ELSS) schemes of Mutual Funds. They have a well-diversified equity portfolio like any multi cap equity fund. However, as an added benefit, investments in ELSS funds are eligible for deduction u/s 80C. This means, for every ₹1,00,000 invested in ELSS, the investor (assuming she is in the 30% tax bracket) saves ₹31,200 in taxes. This money, which would have been paid in taxes otherwise, can be saved and invested. As a result of this, one’s investible surplus goes up by 31.2%, which if invested diligently, can lead to a much larger corpus at the time of retirement. This is also true for investments in PPF (Public Provident Fund), NPS (National Pension System) and ULIPs (Unit Linked Insurance Plans), both of which enjoy significant tax benefits leaving extra investible surplus in the investor’s hands.
All these instruments are excellent tools for wealth creation for long term goals and should be used judiciously after due diligence in consultation with your investment advisor.
Inflation is soaring, but the cost of private health care is rising even faster. As per an industry estimate, health-care costs in India are rising by 13 to 14% every year. The only way one can safeguard finances against the rising medical bills is by buying a Health Insurance Policy. Other than that, one needs to safeguard the future of his/her loved ones with a Life Insurance cover and have the needed tangible assets such as one's own home to give them a sense of security they need.
Health Insurance - Health Insurance is your safety net for your finances in the event of any expensive health care requirement or any medical exigency. Health Insurance plans offer variants such as individual insurance and family floater. An Individual Health Insurance plan is separate insurance for an Individual with the defined cover, whereas a Family floater plan covers an entire family, and the coverage can be used by any member of the family individually.
Life Insurance - When one considers the possibility of investing in life insurance, one of the first questions that one faces is – who should buy life insurance? The answer to this lies in the financial situation of the investor. Generally, anybody who has a financial dependent would benefit from investing in life insurance. Financial dependents could be your children, your spouse, a sibling, or even your dependent parents.
Another set of people who should buy life insurance are investors who want to enjoy tax savings benefits along with long-term capital appreciation. A life insurance policy is amongst the few investment options which offer both of these advantages. Other than these advantages, there are many other ways in which life insurance can help the investor.
Getting a Life Insurance cover is amongst the most important steps one takes for securing his / her family's future. It also provides several tax-saving benefits along with long-term capital appreciation.
When you enter Retirement, you are unfolding the path to freedom to live life to the fullest. It is also the time when there will be no regular income coming from employment, and you have to ensure that the retirement corpus lasts for the lifetime. It needs a defined strategy to accomplish it, something which is completely different from the one you deployed in the Accumulation Phase.
One needs to keep several things in mind from the very beginning to have a smooth and care-free retirement. Below are some key steps of the Distribution Phase:
The market is full of retirement solution providers. A simple search on Google will confirm that. Most of them generally have just one solution or product on offer, that will meet a few of your needs, but leave out most of the others. Such solutions are generic and never customized to your specific needs. But the post retirement life or Distribution phase is generally a complex phase of life where a retiree’s needs and preferences can be quite divergent. One solution or product will not be able to address all of them.
You need a tailor made well-thought out plan and a diversified set of solutions to ensure a financially blissful retired life. And that too needs to be reviewed and adjusted at periodic intervals. After all, your plan must evolve with the evolving financial landscape and market situation.
One unique way to balance risk and reward in your retirement corpus is by diversifying your assets. The simple idea is to spread your portfolio across different instruments so that issues such as liquidity, safety and returns are taken care of.
Diversification in the Distribution phase is different from the diversification across asset classes since Fixed Income or Debt is the predominant asset class for a retiree in the Distribution phase. One has to diversify across different investment options in the Debt asset class. This doesn’t mean one shouldn’t look at other asset classes. Some amount of growth assets like equities may be needed to overcome the challenges posed by inflation. Let us approach diversification by understanding why and where diversification is needed in the Distribution Phase
Inflation is always there, even after Retirement. If not provided for, it lowers your purchasing power and deteriorates your lifestyle over time.
Fixed Income investments generally fail to provide for inflation. One way to beat inflation is to have some part of your retirement corpus in growth assets, primarily equities. With increasing life expectancy and rising health costs, investing your corpus completely in fixed-income assets is not advisable. A balanced exposure to equity becomes essential for you to maintain your lifestyle and for your Retirement Corpus to outlast you.
But equity investments may not suit the risk appetite of a retiree. At the same time, beating inflation is critical to maintain your purchasing power. How does one balance between these two needs then?
A simple way is to bifurcate your retirement corpus in two parts – Regular Income Portfolio, and, Growth Portfolio
Regular Income Portfolio – as the name suggests, this part of your corpus is invested in fixed income bearing securities of varying characteristics (see the chart in the next topic) and provides you with regular monthly cash flows to meet your expense requirements. It provides you with safety, liquidity, flexibility (to increase or decrease cash flows as per the situation) and tax efficient returns.
Growth Portfolio – This part of your corpus is invested in growth assets through specific structures that allow you to participate in the medium to long term growth potential of equities while lowering the impact of market downsides in the short to medium term. This part of your portfolio keeps working in the background while you enjoy the cash flows from the Regular Income Portfolio, using the power of compounding to multiply your overall corpus to such an extent that you can generate higher income from it in future and meet the increased expenses, a result of inflation.
The key challenges for a retiree are balancing between safety and returns, ensuring liquidity without compromising on returns or safety, ensuring optimal post tax returns so that cash flows are adequate to meet the needs. One needs to explore multiple investment options to overcome these challenges. The right mix of market linked and non-market linked fixed income options can help in protecting one’s portfolio from volatility as well as ensuring optimal returns.
Within non-market linked options, one needs to diversify between state sponsored instruments (high credit quality but lower returns) and private fixed income instruments (lower credit quality but higher returns). At the same time one needs to invest a part of the corpus in instruments that protect from falling interest rates (commonly known as Reinvestment Risk i.e. the risk of reinvesting at lower yields as interest rates are in a structural downtrend). There are instruments that allow you to lock-in yields at the time of investment. This means you are assured of a certain regular income for lifetime. Even market linked fixed income investments like Debt Mutual Funds tend to protect you from sustained downside in interest rates, by appreciating in value and increasing the size of your corpus.
No one can feel the pain of losing money more than the people themselves who invested in Bank deposits at 7.5%, a couple of years ago. They are now forced to renew them at 5%. Interest rates can move in a cynical manner, sometimes leading to deep income falls.
Interest rates on 3-year fixed deposit rates at SBI were 9.25% p.a. in Aug 2011. Today it is at 5.3%, a fall of 4% in 9 years. A monthly interest income of ₹50,000 per month in 2011 would be just ₹28,700, if you renew the deposit today. Your monthly expenses would have gone up from ₹50,000 to ₹81,000 in the same period as per the Income Tax Department’s Cost Inflation Index. If interest rates can fall by this much in such a short period of time, imagine how low they can go in the next 40 years. How does one protect his/her income from such reinvestment risk?
Market linked investments can help partly, but the key is long term Annuity plans where the annuity is locked and guaranteed. Simple annuities are taxable and, therefore, useful for investors who are non-taxpayers or fall in lower tax brackets. But there are ways to get tax free, guaranteed life-time annuities too, which can be useful for investors in all tax brackets. A judicious use of these instruments in your portfolio can add a lot of value and protect you from reinvestment risk.
The best way to ensure that you never run out of money is to ensure that your income always exceeds your expenses. You need a sufficiently big retirement corpus, that takes care of inflation, to ensure this.
The other way is to NEVER eat out of your capital. Your capital should never erode due to you withdrawing more money than you are earning. Make sure that the income generated by your investments is adequate to meet your expenses, after adjusting for taxes.
How can you monitor that? By having a lifetime cash flow analysis done in your retirement plan. Ask your retirement planner to present a life-time cash flow plan to you till age 100 years. This must show your expenses (adjusted for inflation) and the cash flows that the plan is expected to generate, till age 100. It must also reflect your cash balance and the market value of your portfolio at monthly intervals. Check if your cash balance turns negative in any month or not, or whether the market value of your aggregate portfolio dips below the principal invested at any time or not. If they do, it is a cause for concern.
A critical thing to check is the return expectations that the plan has made for various investments suggested. Are they conservative or unrealistic? Anyone can use unrealistically high return expectations to build a great life time cash flow plan. But it will seldom fructify and by the time you realize that, it may be too late.
Insist on a life-time cash flow analysis with conservative return expectations. Only that can help you ensure that you never run out of money.
Liquidity is one of the most critical aspects of any retirement plan. What is the use of having lots of money if you cannot get it when needed? But liquidity generally comes with lower returns and other constraints. For instance, government sponsored schemes are safe, but may not be very liquid.
Take the case of RBI Floating Rate bonds that pay interest once in six months and the principal cannot be redeemed before 7 years. However, one cannot ignore them as they provide the highest degree of safety and very attractive returns. Post Office MIS scheme is safe and liquid but provides considerably lower returns. Also, the investment amount is capped at a very low level. Annuity plans come with guaranteed regular income for lifetime, but you cannot withdraw the principal or a part thereof in case of any emergency.
Balancing liquidity and returns is not an easy task. As stated earlier, one needs to diversify across instruments to ensure liquidity without compromising on other aspects such as returns and safety.
Does your investment allow you the flexibility to increase or decrease your monthly cash flows every year? Let us look at an example.
Suppose you need ₹50,000 per month to meet your expenses in the first year. But due to inflation or some other reason, you need ₹55,000 in the second year. Can your bank deposit or bond or small savings investment suddenly increase the cash flow by ₹5,000 next year? Or do you need to make a fresh investment to increase your income?
Alternately, let us assume that starting the 3rd year, you have some money coming in from some other source and you need only ₹40,000 per month for the next 24 months. Can you ask your deposit or bond or small saving investment to reduce the payout by this much and instead reinvest the remaining amount? If not, what will you do with the extra cash?
In another scenario, suppose your expenses grow by 4% every year for the next 40 years. Can you instruct your deposit or bond or small saving scheme to increase the payouts by 4% per annum for next 40 years to meet the sustained rise in expenses? Or do you have to make a fresh investment every year for the next 40 years, to meet your rising expenses?
What if there is a way by which you can increase or decrease your monthly cash flows at will, or give a standing instruction that the payouts should keep rising by say “X” amount every year for the next 40 years?
Taxes can blow a hole in your pockets, lowering your net income by 10% to 40%, depending upons your income levels and the applicable income tax slab.
Hence, it is extremely important for a retiree to invest (as much as possible) in instruments or use strategies where the income is tax free or taxed at a lower rate.
The most common investments used by retirees to get regular cash flows are the most tax inefficient. Interest income from Bank FDs, corporate deposits, RBI Floating Rate bonds, Post Office MIS, are all taxed fully at the marginal rate of taxation. So are most of the pensions or annuities received. Most of us fail to adjust the returns for taxes, while determining the future cash flows and retirement corpus required, at the planning stage. This results in a rude shock after retirement.
However, there are instruments and strategies that can help one get either tax free or very tax efficient cash flows / income. There are select long term, guaranteed, life-time income plans where the incomes are competitive and tax free. And then there are strategies to get tax efficient regular cash flows from Debt Mutual funds. Using these strategies, one can bring down the effective tax rate on regular cash flows from debt mutual funds to single digits as opposed to the up to 30% tax that one pays on interest income from Bank FDs or annuities.
Bajaj Capital is an industry stalwart in the Financial advisory domain for over 5 decades and has been helping people secure their financial tomorrow. Since our inception in 1964, we have been ensuring that each of our clients knows the right way to make use of their financial resources and land to their desired future. With our arms spread through more than 200 offices in 100 cities, we are a household name in India for producing a bright future.
Knowing you and Understanding you is the most critical part of retirement planning. Every person has a unique set of needs, risk appetite, return preferences and liquidity requirements. One solution can never suit all.
Our state-of-the-art Risk Profiler helps us understand you better and provide the most suitable solution. This helps us ensure that Retirement is the best and most cherished part of your life. The Retirement corpus is then invested in the right avenues that meet the accepted risk, return and liquidity criteria and provide adequate cash flow to meet all ends.
Total wellbeing takes into consideration the physical; social/emotional; financial; community; and environment. Each component alone can have a direct impact on you. All areas of personal wellbeing get a boost when financial wellbeing improves, as all elements of an individual's wellbeing are interconnected
When it comes to Retirement, small day-to-day decisions about finances, including how one thinks about the purpose of money, can make a big difference in overall health and wellness, leading to greater opportunities and a better time. At the individual level, a workplace filled with proper balance will certainly gain tremendous value from supporting financial education and voluntary benefits, which are valuable for overall benefits
One of the most challenging aspects of creating a comprehensive retirement plan is striking a balance between realistic return expectations and a desired standard of living. The best solution is to focus on creating a flexible portfolio that can be updated regularly to reflect changing market conditions and retirement objectives.
We at Bajaj Capital have do Retirement planning with thinking about your retirement goals and how long you have to meet them. Then we ask you to look at the types of retirement accounts that can help you raise the money to fund your future. As you save that money, you have to invest it to enable it to grow.
A lot of individuals/ retirees end up investing on their own, but when it comes to retirement savings it’s a good idea to work with a financial advisor who has a certified financial planning designation. 4 things we ensure to look for when creating and giving you a Last Mile, Research Backed Actionable advice
1. Qualifications: CFP is the most widely recognized financial advisor designation.We ensure that your plan is made and continuously monitored by a CFP so that you are always assured
2. Services they provide: Our team specialize in retirement planning, We help you create a budget and also sell right securities.
3. Track record: Ask to speak to references. Our advisors are attentive, understand your needs, can create solid plans and know how to help you invest. We are in the business since 1964, and have taken pride in managing Wealth for 3 generations
4. Communication: There may be time when you may tend to panic when the markets get bad and when their advisor doesn’t’ reach out to tell them to stay calm. Our digital processes ensure that the advisor wants to meet you and also lets you be in touch with them. You may not need handholding, beautiful you do want to meet with they are always ready and we ensure that our expert connects with you at least a couple of times a year.
We provide customized solutions, devised using a scientific retirement planning tool developed after deep analysis & research. This tool produces a Retirement Plan with multiple benefits. It follows the SLR principle of Safety, Liquidity and Returns, in order of importance.
The tool provides a scientific mechanism to plan your investments in a holistic manner and gives you a smooth Cash Flow Plan for a lifetime. You can literally see the monthly cash book for the next 40-50 years of your life in a single graph and table, with the source of inflows and outflows being clearly mentioned. It is like seeing the next 40-50 years of your life playing out in front of you on a screen.
The scientific tool endeavors to optimize the investments and strategies in a manner that the cash flows are adequate to meet your needs on a POST-TAX basis. Taxes no longer come as a surprise to you.
While the tool ensures that solutions are customized as per your needs, it also maintains enough liquidity at all times. At any point in time throughout your retired life, at least 60% of your portfolio can be liquidated at a couple of days’ notice.
The Retirement plan ensures the safety of Capital and Returns by suggesting material allocation to instruments that enjoy sovereign guarantee and/or help you lock-in returns for long periods of time (works very well in a scenario where interest rates are expected to decline in the long run).
A customized and diversified Multi-Asset portfolio of the most suitable investment options is created to give you a combination of Safety, Income & Growth. The right blend includes:
We give you the right mix of Government/ PSU sponsored instruments to ensure your Capital's safety
The best of the private fixed income instruments are selected to ensure the stability of returns allowing adequate cash flows.
Your corpus gets the right amount of equity exposure through specialized structures that ensure participation in upside while containing the downside in equity markets. The limited equity exposure ensures that your corpus is growing as expected to counter the effect of Inflation and increased living expenses. Additionally, most tax-efficient instruments are chosen for the portfolio to give you maximum benefit.
Industry leading team with decades of experience in retirement planning
Chairman & Managing Director
Head of Special Projects
Joint Chairman & Managing Director
Meet the successes in our inspiring journey
Few years back, I have realized how vital is proper financial planning. I had heard about Bajaj Capital from a friend and therefore I have a lot of confidence in them. Whatever I have received from Bajaj Capital has been more than what I expected. I have attended two webinars so far and they have provided me better understanding about planning retirement, especially the one related to portfolio review of health insurance and how we can save our family from future unexpected expenses. I will definitely recommend Bajaj Capital to my friends