Design your own post retirement income

The next feasible step after planning your retirement corpus is to plan to earn the desired regular income post retirement. It is possible that the expected amount collected on your last working day may not match with the required sum but the bigger issue is to leave that sum unplanned for later years. So, the work of calculation does not stop at retirement but begins on retiring.

a)    Calculate the tax liability on your collected corpus

The amount to be received on your retirement is never on one particular date, it is received over a time frame of year or so. Like your EPF proceeds are credited in month’ time of your retirement or your PPF gets credited on 1^st week of April. The Bank FDs and other bank products have their own unique maturity dates. So, the best possible manner to understand your tax liability is to break out the receivable maturity funds as per financial year and taxability.

Asset	Tax Liability
Public Provident Fund	Not taxable
Employee Provident Fund	Not Taxable (beyond five years of withdrawal)
Bank FDs	Taxable
Shares Dividend	Not taxable
Equity Mutual Funds	Not taxable
Tax free Bonds	Not taxable
Gold ETF	Taxable

b)        Study your asset list

Around the retirement period, it is best to identify your assets as income earning assets or assets held as only for investment value. It may be possible that you hold many Bank FDs but till now it were only a easy way to invest or a PPF seen as a tax saving haven. But now post retirement it is necessary to make a call on whether the asset should be held for any longer. If not, the same can be used to generate regular income going forward. Like holding a huge portfolio in shares is not helpful for retired individual as the dividend yield is very low in them. Similarly, holding a real estate property if you are not the end user of it is not a good idea if yields no rental income. Also, many people have huge amount of physical gold or ETFs in their portfolio so unless it is earmarked for some end use, it will yield no value to you except adding to your balance sheet totals.   

c)         Study Your Various Investment Options

There are various regular income options to support the financial requirements of every individual, some of the popular investment route are:

	Monthly Income Plans – Mutual Funds/ Post Office	Senior Citizen savings scheme	Bank/Corporate FDs	Pension Funds – Via annuity
Lock In	No such Lock in	Five years lock in	Tenure based lock in. Bank FDs can be broken at a premature date	Lifetime
Taxability	Taxable	Taxable	Taxable	Taxable
Minimum & Maximum Fund Requirement	No Limit	Maximum – 15 lakhs each individual	No Limit	No limit
Expected rate of return ( average based on current returns)	7%	9.2%	9% -9.5%	6% -7 %

• Beyond this a contingency fund providing for any huge medical emergency should be created and kept ready, via investing in liquid mutual funds.

• Also, if you have a empty property it can give good rental yield (although the average rental yield is around 3-4%) if you don’t intend to sell the same due to emotional value attached to it or want to leave it for your nominee.

d)    Transfer of assets to divide the income receipts

At the early stage of your working life make sure that required investment is divided between you and your spouse so the tax liability also gets distributed among both of you on retirement. This ensures that you fall under low tax liability or may enjoy a nil amount of tax due to higher tax slabs for senior citizens (above 60 years).  


Regards
Saarthi Financial Planners
www.saarthifp.com\


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Right way to calculate your Retirement Funds

As per recent CRISIL research report, by 2050, in India, almost one in every fifth individual (currently it is one in every twelfth) would be above the age of 60 and would be financially dependent in their sunset years for their survival income on working population. This would in turn create dependency on government and our GDP spending.

Hence it is very necessary that in addition to the compulsive savings for retirement, we calculate correctly our retirement requirement. It is also essential to capture the additional expenses that are not part of current cash flow expenses but could be incurred in later years. The major expenses on retirement can be bifurcated in two major segments – living expenses and medical expenses. Both are equally important and unavoidable.

Calculation of Your Retirement Funds

a) Calculate your Monthly expenses - Be very clear about the expenses, always assume expenses on higher side and not on lower side. Some pointers to be remembered are as follows:

•  Calculate the exact family dynamics. i.e. age of members, contributors to income or any specific expenditure – like your fiftieth wedding anniversary celebration. 

•  Please include your Medical expenses on wider scale. You can take into consideration your parents’ medical history or your past records. Don’t ignore the increasing health insurance premiums.

• Also consider the inflation in calculating your requirements. If suppose at your current age of 40 you spend Rs.50,000/- per month as your living expenses and intend to retire at 55, then anticipating expenses to increase at 7% pa, the corpus required to maintain your post retired life for another 25 years is Rs.4,00,00,000/-. It is wrong to ignore inflation.  

Retirement Corpus Calculated without inflation	Rs. 1,50,00,000
Retirement Corpus Calculated with inflation	Rs. 4,00,00,000

 b) Identify any major post retirement goals – Usually every individual fulfils his major goals before retirement and then spends his remaining years enjoying his time with his loved ones. However, sometimes there are special occasions in life of these loved ones that requires them to spend money. Some of popular expenses include – gifting your children, grand children on their birthday, wedding, visiting children living abroad or any social contribution towards society betterment. Even major overhauls or repairing in home can turn out to be a big hole in your pocket. Even if you want to make any monetary commitment for post retirement it is best to plan it.

c) Identify your earmarked assets – It is best to earmark assets at the beginning of your working life towards the retirement goal. Usually investments like Provident fund, blue chip stocks are best for long term investment. Also, if you intend to retire in a small town, then the existing metro city home can provide good regular income by renting out the apartment or using reverse mortgage to get better liquidity.

d)  Make early beginning – Although, the earnings in beginning would be meagre to save. However, a small amount saved early can earn huge amounts in the long run. If a 25 year old man, starts saving Rs 5,000 pm then at conservative rate of return of 12% would fetch him approx Rs.1,76,00,000/- at his age of 55. If he delays his retirement age to 60, the amounts balloons to approx Rs.3,25,00,000/-. 

Start age for Savings - 25 years	Age of Retirement
Savings per Month Rs	50	55	60
5000	Rs. 94,88,175	Rs. 1,76,49,569	Rs. 3,24,76,345
7500	Rs. 1,42,32,263	Rs. 2,64,74,353	Rs. 4,87,14,518
10000	Rs. 1,89,76,351	Rs. 3,52,99,138	Rs. 6,49,52,691

   

So, start calculating your retirement corpus right away and in a right manner. It is necessary to plan it as one of the priority goal after covering your life risk and contingency fundin. Retirement is not to be mistaken as a no income period but should be seen as tension free, financial independence period.

*- Please note in all return calculation we have not considered the taxation. 


Regards
Saarthi Financial Planners
www.saarthifp.com