Tag: Retirement Planning for armed forces Officers

29 Jul 2014
Retirement Planning Eggs in a Basket -humfauji.in

Retirement Planning Eggs in a Basket

One of the most common mistakes done by most of the retired or recently retired persons is to put majority of their money in same or similar investment avenues, like bank FDs, real-estate, Gold, Post Office instruments, etc. All eggs in one basket is never a good mantra to follow whether it is physical eggs or retirement nest-egg! The article below deals with this aspect as also the eroding effect that inflation has on the retirement corpus. A 4-step strategy to be followed is also suggested for living a golden retired life. The basic issue is to plan well, execute well, monitor well and thus, LIVE WELL.

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03 Jun 2014
5 Retirement Myths-humfauji.in

5 Retirement Myths

Barry LaValley, a retirement-transition expert based in British Columbia, Canada, has some interesting pointers concerning retirement. LaValley is president of the Retirement Lifestyle Center, an education and research firm that provides retirement-transition coaching, delivered through financial-services companies, in Canada, the U.S. and Australia.

He explained to Morningstar Canada that people view retirement as a “deliverance, the pot at the end of the rainbow”. He quickly points out that it does not take long for them to get disillusioned with that notion.

Here he cites the most common myths and misconceptions about retirement:

Myth 1: Retirement is a destination.

It is not a place you arrive it. It is a transition, not a destination. Many view retirement as an extended holiday or a 30-year weekend. In part, this belief is job-driven because people are moving into this stage after their full-time careers.

A lot of people say to me that retirement is everything they wanted, and more. I absolutely believe that’s true, but they attribute that to being retired. These people were happy at all stages of their life. It’s not the retirement that made them happy, but the changing circumstances that allowed these individuals to have more time to pursue what they enjoy.

Myth 2: Retirement is one long life phase.

Many people believe that retirement is a new life, a third age, the longest life stage. In reality, it’s a multi-phase journey. In fact, you will go through 6 to 8 very distinct transitions in your retirement life, driven by your health, the health of your spouse or partner, or the health of someone you care about. Some of the different phases of retirement include the excitement phase leading up to retirement, the stress phase associated with the transition, and the honeymoon phase during the initial months. Next is the routine stage, followed by the readjustment stage when something goes wrong.

There will be lots of things that will happen in your life, as you get older, that can change your whole life on a dime.

Myth 3: Retirement success depends on reaching a big financial number.

Financial security doesn’t guarantee retirement success. There is too much focus in the financial community on reaching a certain big number. A lot of people can retire on considerably less than they’ve been told. Happiness in retirement is a function of having a positive outlook, engagement in life, nurturing relationships, and a sense of accomplishment. Good health is one of the biggest keys to a successful retirement.

Myth 4: Spending is constant throughout retirement.

Tied in with the earlier myth is the notion that spending will be the same throughout retirement. People tend to spend “like drunken sailors” in the first few years of retirement before settling into a pattern. As time goes on, spending tends to concentrate more on family and health issues. Travel, a common activity in the early phase of retirement, tends to drop off in later years with fewer and less ambitious trips.

Myth 5: Retirement is a couples issue.

Don’t bank on it. In fact, it could be a single person’s issue. For instance, the average age that a woman first becomes a widow in Canada is 55 and 60% of Canadian women over age 65 are single, widowed or divorced.

So what must you do?

LaValley says the period before you embark on retirement is the ideal time to re-examine your relationship with your financial advisor, to be educated on issues above and beyond money. “It doesn’t mean that retirement is difficult,” he says, “but if you go in without an understanding or a plan, you tend to spin your wheels. You’ll eventually get it, but you might not get it until you’ve missed some of your best years trying to figure it out.”

(This article originally appeared on Morningstar Canada and has been edited for an Indian audience.)

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20 Jan 2013
Investments for the recently Retired in India

Investments for the recently Retired in India

Retirement marks the beginning of a new phase in an individual’s life. It’s a transition from a lifetime of work to a time when one can relax, spend time with the family and pursue other interests, which somehow take a backseat when on a regular job. Not only this, retirement also marks a transition in one’s finances. With a regular stream of income no longer available, the savings made over one’s working years now have to provide for all his needs. Even if one decides to go in for a second career (eg, in case of Defence Officers who retire early or others who may find another job in private sector due to skills acquired during working life), it will be for a limited period of time till, say, 60-65 years of age. Taking a life-expectancy of 85 years, there are still 20-25 years of non-earning life to be lived, with a challenge of increased expenses (large number of career-related perks not available now) and desire to maintain at least the same living standard as while earning. For such investors, capital protection and liquidity are priorities. In this article we profile some investment avenues that retirees can consider adding to their portfolios.

Retirement can be an ugly word if you do not have an investment  plan and have no idea how inflation can deplete your finances. But it need not be if you can ensure a steady flow of income that can sustain you for 20-25 years after retirement. How does one go about it? First assess the amount you need per month depending on your expenses and lifestyle. Then, based on your corpus and risk appetite, opt for an appropriate scheme. Instead of investing in a single scheme, do so in a bunch of instruments, which not only assure regular income but also allow your corpus to grow in tandem with your withdrawals and rising inflation. This strategy should alter with age or stage of life after retirement. So, for the first six to eight years after you retire, allow your funds to grow at faster rate than the withdrawal. Even as you use the interest earned through debt options to meet your expenses, invest in equity through mutual funds or monthly income plans. In the next 10 years or so, your withdrawals should broadly match the growth of your portfolio. As you look at a higher monthly income through systematic withdrawal plans, you can reduce your exposure to equity. Beyond this period, you can use more of invested capital and significantly reduce the focus on growth. If you are not able to sustain the corpus and own a house, opt for the reverse mortgage scheme

Notwithstanding the above, there is a misconception amongst such investors that one should invest only into extremely safe avenues on or nearing retirement. It has to be kept in mind that the primary aim of all investments is to make the money grow more than inflation, and this aim remains constant, whether you are still working or retired. To explain this, consider Indian scenario where the average long-term annual rate of inflation is about 8%, implying that whatever costs Rs 100 today, will cost Rs 108 next year. Thus, if your income-tax adjusted returns are not anything more than Rs 8 per year on that Rs 100, then the actual worth of your money is effectively getting eroded each year. The wider implication of this is that, while your expenses will rise with inflation, you will have lesser money available each year and a time will come when a cut-back in the standard of living will become imperative. The only investments that make it possible with adequate liquidity are necessarily equity-related like stocks, mutual funds and ULIPs. However, one has to take a call on how much risk is acceptable to him/her. Those retiring from a job which provides them a pension, like Government employees, are a bit lucky as they get pension on retirement; but there is one negative thing attached with this – pension keeps people in illusion that pension will be sufficient for them to have a comfortable retirement for all their expenses like household expenditure, leisure activities, vacations, repairs & maintenance of house, social obligations and maybe some liabilities which are still balance to be tackled.. They forget that pension will be close to half of their income, the basic pension gets frozen with only DA rising over the years (except maybe on a Pay Commission review) and that the expenses that are currently borne by the exchequer, are not available after retirement.

Ideally, the entire corpus available with an individual on retirement (as also additional monthly investments, till the capability exists) should be related to individual goals like children’s education and marriage (whatever liability is still balance at the time of retirement), steady and steadily increasing regular income, vacation expenses, social obligations etc, and availability of enough liquidity in investments so that emergency requirements can be easily met. To this end, the money available needs to be invested in an array of instruments which meet the desired financial goals while still taking only those risks which are acceptable to the investor.

Likewise, the retiree’s requirements will also play an important part in the portfolio creation. For example, a retiree who is well off and supported by his family may not need to fend for himself. Instead he might be keen on investing for his grandchildren and other family members. In such a scenario, the investment tenure goes up, as does the opportunity to take on higher risk; equity-oriented funds emerge as a very feasible option for a longer time-frame.

Finally, don’t undermine the importance of a qualified and experienced investment advisor. Powered by expert advice and prompt service, a good investment advisor can ensure that your post-retirement investments become a hassle-free affair.

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30 Sep 2012


There are any number of websites, articles and experts extolling the virtues of realigning your asset allocation to ‘safer’ avenues as one inches towards his retirement. Some go to the extent of advocating a 100% debt portfolio the day one retires. Many arguments are advanced in favour of this shift – emotional ones (‘need to protect one’s life-long savings’), pseudo-logical ones (‘cannot afford to lose even a single paisa now as the earning are much reduced while expenses only rise’) and even medical reasons (‘cannot afford to have another stress-point in old age’). But the truth actually lies far away from these appeals. Let us look at the arguments that dictate that we should actually move towards lower safety instruments to ensure that we remain financially safe!!

The biggest threat to the retirement corpus, painstakingly built up over the years, is inflation and income tax. Inflation eats into the purchasing power of this corpus and thus, there is a need to ensure that this money earns at least as much as inflation to retain its value. Similarly, taxation ensures that, if you are in say 30% bracket, a seemingly great 9.5% FD gives you post-tax returns of only 6.56%! Thus, if the average yearly inflation is 8% while our post-tax returns on this corpus are only 6.56%, then effectively Rs 10 Lakh corpus will have a purchasing power of only Rs 8.65 Lakhs after 10 years. To elaborate this point, if something costs Rs 100 today, it will cost approximately Rs 216 ten years later at an inflation rate of 8% per annum. However, with a 6.56% post-tax return, your money would have grown only to Rs 188 during that period. You may feel that your corpus has almost doubled in 10 years, but actually it can buy lesser number of thing 10 years later than now. Thus, instead of increasing in value, it has actually lost its value over time. This has happened due to the tendency to go in for absolutely safe instruments which have actually given negative effective returns and made your money lose value.

Second threat to this money is the fluctuating interest rates. Safety net instruments are primarily fixed interest ones. But, almost all of them have defined term maturities like Senior Citizens’ Savings Scheme (SCSS) or Post Office MIS (POMIS) and tenure Fixed Deposits. Only PPF has longer tenure but with stringent withdrawal regime. The issue of reinvestment will always come up after the maturity period. Since interest rates too have their own cycle, it is not necessary that interest rates will be high at the time when your matured money has to be reinvested.

Third issue here is the very long investment periods for the retired people. It is well-known that equity-linked investments give the best returns over long period and their ‘riskiness’ declines over a period of time. Some analysts also quote statistical data to show that Indian equities become almost risk-less after 12 years of consistent equity-related investing. Most of the people retire at the age of 60 years. Taking life-expectancy to be around 85 years, almost a quarter of a century has to be lived consuming the retirement corpus. If this is not long period, then what is? Then, it does not make sense for such people to keep off equity related investment avenues for meeting their needs in later part of their living years.

Hence, we see that resorting to so-called 100% safe investments of fixed income instruments actually erodes your corpus as also exposes you to reinvestment risks. If that be so, what should a retired or retiring person invest in? The best solution for such a person would be:-

  • Instead of looking for investment solutions at the word go, look for your balance requirements instead, which should guide the kind of investments to make. Look at your financial liabilities still pending and a pragmatic assessment of your monthly expenses, including medical needs, over the rest of your lifetime.
  • Short-term needs beget a comparatively safer investment solution which is not dependent on the vagaries of financial instruments. Thus, the money required for next 3-5 years should not go into equity or real-estate related instruments. They should go into fixed return investments like bank/company FDs, SCSS, POMIS, debt mutual funds etc, which are sure not to erode your capital though the returns may be lesser.
  • Longer term requirements, generally your retirement living expenses approximately 5 years onwards after you retire, should go into equity-related products. Prefer equity mutual funds over direct investment in stocks unless either you are very confident of your stock-picking prowess or have a very reliable stock agent. These equity instruments should progressively be switched to debt products one year’s requirement at a time so that your next 3-5 years’ financial requirements remain in fixed income avenues at all times.
  • Real estate, well-researched for the builder, location and price point, also has the capability to give good returns provided not more than 25-30% of your corpus is invested in it.
  • Gold, despite the recent bull run, actually is just a hedge against inflation. It simply implies that it is not likely to create long-term wealth for you since its returns are likely to just about match the inflation rate. One may have a small exposure to it though, typically about 5% of your money, mostly in the form of Gold ETFs or Gold Savings Funds.
  • Insurance is a neglected area by the retired or retirees. If there are dependents or liabilities which need your financial protection umbrella even after you retire, do take or continue your insurance policy till that requirement exists. The best product here is a Term Insurance Plan for you.


With regards,


CEO, Hum Fauji Initiatives,
Your Long-term Partner for Wealth Creation
9999 022 033, 011 – 4054 5977 (Off),  humfauji.in

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01 Jun 2012


Prashant Jain is one of the most respected Mutual Fund managers in India. In a recent article, “Its Tomorrow That Matters”, he makes out a very persuasive case for investing in equity-linked products NOW. By giving behavioural, fundamental and philosophical aspects of equity investing, he asserts that this is the time to invest in equity linked products like diversified equity mutual funds. Some excerpts of the same article are given below in point form for easy assimilation. To download the full article, use the link http://poweraxis.com/projects/emailer/hdfcmf/2012/may/6/pdf/its_tomorrow_that_matters_prashant_jain_hdfcmf.pdf


Good returns are seldom made on investments made in good times.

Rather, Good returns are typically made on investments made in adverse times.

1. Look at the performance of investments made in stock markets at different times:-

Table A: Performance of Investments made in good times

Time Sensex Level 1 yr forward P/E Main news / reason Total returns after 3 yrs Total returns after 5 yrs
Jan 00 5205 25 High optimism in technology stocks -38% 26%
Dec 07 20287 26 Booming global economy, optimistic markets 1% -15%

Table B: Performance of Investments made in adverse times

Time Sensex Level 1 yr forward P/E Main news / reason Total returns after 3 yrs Total returns after 5 yrs
Oct 01 2989 11 9/11 attack on WTC, global markets collapse 91% 334%
Jun 04 4795 10 Unexpected defeat of BJP in elections 61% 99%
Nov 08 9093 11 Sub-prime crisis – Lehman collapse 77% NA


2. Buy low and sell high is what everyone suggests and that is what everyone would like to do. The reality however for a typical investor in equity markets / equity mutual funds is somewhat like this – buy high, buy more higher, buy even more even higher, buy less when market falls, buy lesser if markets fall more and buy nothing when markets are really down.

3. This pattern of an overwhelming majority of investors mis-timing the markets repeatedly and consistently is a key reason for the unsatisfactory experience of the majority from equities and for the poor equities ownership in India. While there can be many reasons for this collective expertise at mis-timing, the key reason probably is that a majority of investments in equities are not done with a long term view, despite the fact that the best that equities have to offer is only over long periods. This is unfortunate, as by investing with a short term view, investors are not benefiting from the compounding potential of equities.

4. As the horizon is short term, the entire focus is on guessing the near term market movements. This inevitably leads to extrapolating the markets in either direction and therefore, in rising markets, expectation is that markets will keep on rising. Greed of quick returns leads to higher inflows in equities and as the trend sustains, the confidence and greed both keep on increasing, leading to even larger inflows. Similarly, in downward moving markets, the expectation is that the markets will keep on moving lower, leading to lower inflows; the lower the markets move, or the longer the markets do not move, higher is the confidence that markets will fall further or that markets are going nowhere, resulting in drying up of fresh investments or even redemption of existing investments.

5. When markets are moving up, the news flow is generally good and vice versa. Therefore, generally, in rising markets the perceived risk is low whereas the actual risk is higher as valuations are high. On the other hand, in adverse times, when the markets are not doing well and the news flow is not good, the perceived risk is high whereas the actual risk is lower as valuations are attractive. The net result of all this is that, time and again, a majority of investors end up investing large amounts at high valuations and small amounts at low valuations.

6. Such an approach to investments is not returns friendly and it therefore comes as no surprise that a majority of investors probably do not get rich by investing. Faced with unsatisfactory returns, most blame the markets when instead, it is their investment approach that is flawed and needs to be corrected.

7. However, in case of Gold in India, nobody looks at real returns as the time-period of investment may border on even indefinite. Comparative returns are as below:-

5 year returns (Compounded Annual Growth Rate) of Equities and Gold in India
Period BSE Sensex Gold returns % Excess returns of Sensex over Gold
1981-85 28.9% -3.3% 32.2%
1986-90 14.7% 11.9% 2.8%
1991-95 24.3% 14.4% 9.9%
1996-2000 5.0% -1.4% 6.4%
2001-05 18.8% 12.9% 5.9%
2006 – Apr 2012 10.1% 23.3% -13.2%


8. It is true that the economy is currently passing through a difficult phase. However, this is neither the first nor will it be the last time the economy is facing challenges. Besides, the problems facing the economy are such that should get resolved over time and through some specific steps. In the face of so many issues and adverse news flow almost on a daily basis, it is easy to forget the several strengths of the Indian economy.

9. Bargains are available only in challenging environments / in markets characterized by weak sentiment and seldom when the going is good / sentiment is strong. That’s why, from an investor’s perspective, a more appropriate way to describe the current markets would be bargain markets and not difficult markets.

  • By the end of June or shortly thereafter, Greece will either be in Eurozone or it will not be. Over the same timeframe, steps if any that are undertaken by the government to resolve some of the issues facing the Indian economy will also be known. Irrespective of what happens, markets should discount these outcomes fairly quickly.
  • Times such as present, when the markets are not doing well should actually be looked upon as a window of opportunity for savers to invest more into equities, so that when the good times come, there are meaningful investments in equities to reap the benefits from. The lower the markets are, the bigger is the opportunity and the longer the markets remain depressed, better is the opportunity for savers. In a lifespan of investing of say 30-40 years, it is unlikely that the markets will provide many such windows. In the last 20 years there have been only 3-4 such windows.


With regards,


CEO, Hum Fauji Initiatives,
Your Long-term Partner for Wealth Creation
9999 022 033, 011 – 4054 5977 (Off), humfauji.in


Visit our Blog http://humfauji.in/blog,   or facebook page http://www.facebook.com/HumFaujiInitiatives or follow us on Twitter  https://twitter.com/#!/humfauji  to get latest insight on matters financial