Planning your retirement

Retirement is not something that just happens to other people – all of us will experience it at some point in time. However, not all of us can confidently say that we are well prepared for it. And, unless you work for the government, as a private sector employee you will have to support yourself during retirement because the government will not help you.

There is a high possibility that many of us might be under-funded to finance our own retirements. Even if you are young and retirement could be 30 years away for you, now is the best time to start thinking about your retirement.I hope that this article is very useful for those who are above 40 years.

What does retirement mean?

At a most basic level, retirement means that you will no longer be actively working or earning any salary income. As a result, you need to live off the savings that you would have made during the peak of your income earning years. During the peak of your economic life, you accumulate assets through your savings. During your retired years, you decumulate this pool of capital.

With improvements in the medical sciences, our generation is expected to live longer. If we assume that the average person retires around 55 - 60 years of age, they could still have another 20 – 25 years to live. This means that their savings have to last them for approximately 2 decades or more, when they do not have the capacity to work or are unemployable.

When is the best time to start planning for retirement?

Start early is the mantra that all financial advisors chant when it comes to retirement planning. The reason for this is that one ought to use one’s earning capacity today to accumulate savings that we can then consume during our retired years. If we don’t start early, funding one’s life for 20 – 25 years during one’s retired years can be very challenging. Our earnings capacity will deplete as we age. So, it’s best to take advantage of our earnings capacity today to protect our future when we are not actively earning.

Additionally, recognize that around the time that you plan to retire might also be the time that you have other additional needs to fund major goals such as paying for your child’s education abroad, or their marriage or taking care of your parents’ healthcare needs. So, be prepared to have enough capital to be able to simultaneously finance these different goals.

How can inflation ruin my retirement?

Inflation is like a silent tax that all of us pay. Rising prices raise the cost of living and over time reduce our standard living if our incomes do not rise commensurately. During retirement, as we have no salary income, all our passive sources of income such as retiral funds, investment or rental income, must earn us a higher rate of return than the long term rate of inflation.

Over a 20-year period during one’s retirement, the cost of living can easily double as a result of inflation. So, whenever we plan retirement, one must keep in mind having investments that can help offset the negative impact of inflation on one’s retirement savings.

What instruments should I invest in towards my retirement?

If you are young, the best instruments to invest in towards your retirement are one’s where you can expect long-term capital appreciation that will help offset the risk of inflation. You can afford to take more risk with your investments, because retirement is a long while away. If you are middle-aged and closer to retirement, you might want to reduce your exposure to risk and be invested in instruments that can earn you a more secure return because retirement is just around the corner.

The following are some instruments that are relevant for retirement planning:

- Retiral accounts at work – PF and EPF

- Equities – either through direct stock holdings or through mutual funds

- Pension plans – either pure pension plans or insurance cum pension plans

- Annuities – through which you invest today so that you can get a recurring payback after you enter retirement till the time of your death

- Investment property – that can earn you rent during your retired years

How should I think about healthcare needs during retirement?

Just like an aging car increasingly needs constant servicing and attention to protect against regular wear and tear, we will also need constant attention towards our health as we age. Look around, and you will see aging relatives who are getting health procedures done such as heart operations, joint replacements, removal of organs and so on. These are natural side effects of aging. However, the cost of healthcare is rising at a double-digit percentage, and chances are that by the time we enter retirement, common medical procedures might cost double of what they do today.

One must be prepared with enough funds to take care of one’s health during retirement. Additionally, one must ensure that one has a basic amount of health insurance coverage on an ongoing basis. Getting health insurance gets more expensive and tougher as one ages, especially after the age of 65.

How much money do I need to retire?

This is a very personal question and relates to the kind of lifestyle that you want to lead during your retired years. At a minimum, most people need 60% - 100% of their pre-retirement income each year to finance their retirement. For example, if at retirement you are spending say Rs 50,000 per month (or Rs 6 lakhs per year) towards your lifestyle, then you would need anywhere between Rs 30,000 to Rs 50,000 per month (60% - 100% of your pre-retirement income) during your retirement.

So, in the above example, assuming you retire at between age 55 – 60 years, you will need a lump sum that can create Rs 30,000 to Rs 50,000 of monthly income, keeping in mind that inflation will push this number higher every year, for the next 20 years or up to the time that you live. You must ensure that you do not outlive your savings, otherwise you will not have money to support your lifestyle and might have to rely on others to support your daily lifestyle.

If you want to retire early, say in your 40s, then recognize that you will need to ensure that your retirement savings last you that much longer as you are expected to live till 80.

Three point action plan to prepare for your retirement

1. Estimate your lifestyle costs: Ask yourself what kind of a lifestyle are you interested in during your retirement and how much you will need to support that keeping in mind that inflation will increase the cost of lifestyle between now and your retirement. Recognize that if you want to maintain something close to this, you will need adequate funds support this for at least 20 – 25 years during retirement.

2. Start saving now: Starting early is the best activity for your retirement planning because it allows you to benefit from compounding of capital. Even if you can put away small amounts of money, every little bit helps. As a matter of discipline, set aside 10% of your income towards your retirement if you are young, and up to 40% if you are middle-aged. You need to create a pool of capital that can get you a lump sum when you start your retirement that will constantly create income during your retired years.

3. Create passive sources of income: In retirement your earning capacity through active work goes down. So use your earnings today to create passive sources of income that can help you meet your income needs during retirement. For example, you can invest in property that can earn you rental income. Or, you can buy investment instruments that can give you dividends or interest income over time.

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If you fail to plan, then you are planning for failure.

So,better to plan for your retirement as given above and enjoy the last part

of your life happily and peacefully.

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What is a WILL and How to make it? How to write a Digital Will

As one becomes older there is a need to facilitate the easy disbursement of one's posessions and properties to one's loved ones and dependants, so that there will be no legal battles among them. For this reason it is advisable that everyone with some property or wealth should prepare a "WILL".

A "WILL" can be defined as "A legal statement written by an individual, stating the manner in which his or her wealth may be distributed after his or her demise." A person making a Will is known as a "TESTATOR".

It is best that one consults an advocate before preparing a Will. It would be better if the advocate is a person on whom you have the utmost confidence.

Here are some guidelines to prepare a WILL.

It is better to make a Will at a younger age. As and when events or changes in the family necessitate changes the Will can be changed. One of the advantages of making a Will at an earlier age is that unscrupulous relatives could contest the legality of the Will made by a very old person on the basis that the person was not of sound mind when the Will was made. A Will must always be dated. If more than one Will is made then the one having the latest date will nullify all other Wills. In fact it would be better to make a statement nullifying all other Wills. A Will should be Simple, Precise and Clear. Otherwise there may be problems for the legal heirs. Sometimes relatives and others may try to distort the interpretation of the Will for their own benefit. It is always better to take the advise of a trusted advocate. A Will can be hand-written or typed out. No stamp paper is necessary. There should be an Executor of the Will who would be entrusted with the responsibility of ensuring that the assets are distributed according to the provisions of the Will. Sometimes more than one Executor may be required to execute the Will. The Testator (person making the Will) should take the prior consent of the person whom he or she wishes to name as the Executor. A Will should be signed by the Testator in the presence of atleast two Witnesses who have to attest the same. The full names and addresss of the Witnesses should be clearly indicated in the Will. It would be better if one of the Witnesses is a medical practitioner, but this is not essential. The practitioner should certify that the Testator is of sound mind (especially if the Testator is of an advanced age) and he or she should also note his or her registration number and degree (educational qualification). A Witness should not be a beneficiary of the Will. A Witness should also not be an Executor of the Will. Each page of the Will should be serially numbered and signed by the Testator and the Witnesses. This is to prevent substitution, replacement or insertion of a page or pages by persons with fraudulent intentions. At the end of the Will the Testator can indicate the total number of pages in the Will. Corrections if any should be countersigned. The Will may be kept in a safe place like a bank vault. The Executor and the beneficiaries should be informed where the Will is kept. It is advisable to keep a signed copy of the Will with a trusted advocate. Duplicate copies of the Will may be made, signed by the Testator and the Witnesses and kept at separate places so that if one is misplaced the other may be used. Sometimes the value of certain items of the assets (example: value of share certificates) may fluctuate. In such a situation, it is better to mention the percentage of such item/s which should go to each beneficiary. Whenever changes in the family circumstances or other reasons necessitate any change in the Will in the intervening period (from the time of making the Will to the time of demise of the Testator), the structure of the Will can be amended. Even if there are changes in the nature of the property or assets, an amendment may be needed. For making changes only in certain clauses of the Will, a Codicil (supplement) is to be prepared which should be read in conjunction with the Will and which has the power to make appopriate changes in the relevant clauses of the Will. If there are too many changes in the Will, it is better to prepare an entirely new Will. It is not compulsory for one to register a Will with the Registering Authority, but in case any property or asset is given to any charitable organisation, then registration should be done. A person's Will becomes operative only after his or her demise.There is no restriction in the way a person can deal with his or her property even after writing the Will.

MODEL WILL

I, (Name), Son of (Father's Name), usually residing at (Address), being of sound mind and memory hereby revoke any Will, Codicil or testamentary deposition I may have made hitherto and declare this Will made at (Address) on (Date) to be my last Will.

In order to prevent any litigation amongst my heirs, it is my wish that all my properties and assets should be disbursed amongst my heirs in the manner described below

1)  I hereby appoint the following two persons ______________________ (Name and Address) First Executor _______________________ _______________________ _______________________ (Name and Address) Second Executor _______________________ _______________________

to be Executors / Executrixes of this Will.

The First Executor (Name) shall administer the disbursement of my properties and if he or she is unable to take up this responsibility, the Second Executor (Name) shall administer the disbursement. The Executor so appointed shall act as guardian of any minor person who may benefit from my Will.

2)  I have been enjoying full ownership and control over the following properties.

2.1) Immovable Property (Give full details, address, names and percentage of share of  other co-holders if any)

2.2) Movable Property Cash Bank Accounts (Saving, Current, Fixed etc.) Insurance Jewellery Shares

3)  I declare that all my belongings shall be distributed amongst the persons mentioned by me as follows:- S.No. Property Name & Address Relationship to me 1. 2. 3. 4.

4)  The following are my special instruction before commencing disposal of my properties.

4.1) (Example): I have allocated Rupees one lakh to my daughter  (Name) aged _____ who is a widow and having a daughter (Name) aged _____. I request the Executor of my Will to guide her in investing this amount in a safe and prudent manner so that she will be able to maintain herself out of the returns of this investment. On the demise of my daughter the returns from this money is to be tranferred to her daughter who, if she is a minor at the time of demise of my daughter, will be under the custody of the Executor.

5)  (Example) I have kept aside Cash value of Rupees one lakh for expenses that may be incurred on my illness if any, or to meet expenses for my funeral and related ceremonies. Any legal expenses, unpaid taxes etc, shall be met out of this money. The balance from this money after all payments, and any other residue of my property, I bequeath to my wife.

6)  I, Declare that this Will comprises of _____ pages.

This will has been prepared in the presence of the following two persons as witnesses __________________________ (Name & Address)    __________________________ __________________________ __________________________ (Name & Address) __________________________ __________________________ (The details provided above are only guidelines. You are well advised to seek legal advice before executing a Will) Source: http://www.seniorindian.com/making_your_will.htm How to write a Digital Will Where there’s a will, there’s less confusion for legal heirs. In fact, this piece of paper outlining the final allocation of one’s assets is a crucial step in financial planning. Legally speaking, all you need to do is jot down how you want to pass on your property after death, sign this piece of paper, and get it attested by two independent witnesses, who don’t stand to gain from your will. However, in this golden age of technology, people are no longer settling for a simple penning of wills. Instead, they are increasingly opting for more stylish options, such as video-recorded and online wills. Says Sandeep Nerlekar, CEO and MD, Warmond Trustees Executors: “People have started realising the importance of a will and no longer rely on the simple version. They want to make it safer, so these new variants have cropped up.” However, no matter which option you choose, you need to have a physical copy of the will. “This is because India does not have a central agency that recognizes digitised signatures,” explains Rajesh Gupta, partner at SN Gupta , a leading law firm. Video-recorded will In this case, the signing of the will by the testator and the two witnesses is recorded on a video camera. The will has to be prepared before the cameras start rolling; a mere recitation of the document’s contents is not accepted. “When the execution process-where the will is duly signed by the trio involved-is recorded, it becomes difficult to question the genuineness of a will. So, getting a probate is comparatively easy,” says Richa Karpe, co-founder and ED, Altamount Capital. She adds, “Generally, the person who has been left out in the will challenges it on the grounds that it wasn’t executed properly. If the process is recorded on camera, this problem won’t arise.” A probate is a copy of the will that is certified by a court and can be granted only to the executor appointed by the will. This is mandatory in case there is no will or if there is a problem with the existing one. However, given that a will becomes inviolate after it is probated (that is, nobody can file a law suit against it on the grounds that the testator was of unsound mind), the process is highly recommended by experts in any case. Incidentally, Video-recorded wills are also accepted by the Indian courts. In October 2009, while deciding a 1985 case seeking the grant of a will, the Delhi High Court had ruled that video recording of a will is a legally admissible evidence. Succession planning firms typically charge around 5,000 to record the execution of a will. As wills do not require the presence of a lawyer, you can choose to record the process for free on your personal camcorder, but then you’ll lose out on a key advantage of using professional firms, namely, safe custody of both your will and the video. Several web portals and companies now allow you to make your will online. “The making of online wills is picking up as many people do not have the time to sit with a lawyer and discuss the will in detail,” says Nerlekar. Warmond Trustees Executors, for instance, has introduced the InstaWILL service, where a customer gives instructions online and receives a customised will on e-mail within a week. To make an online will, you’ll have to register on the website of the company. The portal will give you access to an application, which will help you draft the will. All you need to do is answer the questions and leave the drafting to them. An online will would cost you around Rs 10,000. Many websites abroad, such as the UK-based Q-Will and US-based legacywriter.com, also offer templates from which you can choose the one that suits your needs, while others offer a one-size-fits-all standard template. However, in India, this service has just picked up, so there are not many options in the market. Once you fill in the relevant details, the service provider will e-mail a draft of your will, which you need to print and sign. You’ll subsequently have to get it attested by two witnesses. Some portals like warmond.co.in allow you to store a copy of the will on the Net and make changes without registering afresh. On the other hand, some portals simply allow you to upload and store a scanned copy of the will. This online option works best for someone who is very clear of how he wants to distribute his assets and does not require any guidance. Don’t  forget that you will still need to keep a physical copy of the will with you. Digital will Don’t confuse this with the online will. A digital will isn’t a process or an alternative to supplement the plain vanilla paper will. It is a special type of will that allow you to pass on your online ‘properties’, such as your social networking account or an e-mail account. “Just as you make a will for your financial assets, you can make one for your online accounts too,” says Nerlekar. This is becoming increasingly important because our accounts contain a lot of private information about us as well as that of our friends and families and, hence, pose a significant threat if hacked. Most e-mail service providers and social networking companies have death policies that determine what will happen to your account on your death. For instance, Yahoo and Flickr permanently delete all your accounts and their contents on receiving a copy of your death certificate. What if you want to preserve your digital legacy? This is where a digital will comes in. “If you leave a digital will, the e-mail service provider will hand over your account details to the person named in the will,” says Nerlekar. Though any law firm can help you make a digital will, you don’t necessarily need a lawyer for this process. You can also integrate your digital legacy with a standard will. However, take into account the death policy of your social networking site while drafting the will. WHAT EVERY WILL SHOULD HAVE No matter how you make your will, keep these things in mind: 1. Clearly mention the people to whom you wish to pass on your wealth. Don’t use nicknames or incomplete names. 2. If the property is quantifiable, such as cash, mention it clearly. 3. Where it cannot be quantified, give a clear description of the property. 4. The attesting witness or his spouse should not benefit from the will in any way. 5. Appoint an executor for your will. He is a person who will see that your directions are carried out in the manner stated in your will. 6. Though it’s not mandatory, have a probate for your will. It establishes the legal capacity of the person writing it. Source: Economic Times

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