Retirement Planning

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V̈œ˜Ê*>˜Ê • Invest in companies with low debt and good operating margins. • Invest in cash, do not leverage your investments. • Invest with long term horizons (3-5 years). • Invest in defensive sector (staples, telecom, healthcare, and utilities) till bear market ends and eventually start shifting the investments in cyclical and financials stocks as we see signs of recovery.

compared with averages of 6.6% and 6.0% in the preceding three and five years, respectively. The most important driver of this acceleration in growth above potential was the sharp rise in capital inflows over the past five years. India received an average of US$10 billion per annum over 2000- 2002. During 2003-2005, capital inflows more than doubled, to an average of US$21.3 billion, followed by increases to US$38.5 billion in 2006 and to US$98.3 billion in 2007 The Indian equity market will continue to follow global developments in 2009 and also expected to follow the global market trend. In 2008, market participants have burnt their fingers in the equity market because of the global turmoil which has affected many investors and the corporate in a big way. Apart from global events, domestic factors such as earnings growth, GDP growth, inflation, interest rate, IIP data and the general elections are also important factors which will affect the market in the coming years. I believe bear market rally to continue for another 12-15 months, which will keep Nifty in a broad range (2600-3200) with flat to negative biases. Market could even break the October lows. Recovery of bear market could be seen by upward movement in the cyclical stocks. 12| MARCH 2009

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part of our financial planning exercise till we are faced with the prospect of actually retiring from our jobs or a bit earlier. But by then, it’s too late!

In the current scenario, we are aware of the term “financial planning” and we tend to plan for our long term needs like marriage or our children’s education. But have we ever spared a thought for our own days after retirement of who will take care of expenses when our income runs dry? We tend ignore the need to address this

For the many who still have a long way to go before opting out of regular work life, retirement relates to dreamy clichés -- tending to the garden, walks in the park, playing golf on weekdays, playing with grandchildren, and so on. We may view our current income as adequate for a good lifestyle today, but for the dreamy clichés to come alive, we need to plan for funds when the days of earning are over. As years go by, our income will increase but so will the cost of living. If planning for a sustained fund flow

etirement brings to our minds a whole range of thoughts– for some of us; it is taking out quality time for ourselves, while for others it is time for interests that we couldn’t pursue during our working days. However, what neither of us desire is – days of compromised living on account of lesser funds!

ADVISORS

post retirement is not done at the right time, it may be difficult to sustain a quality livelihood then. An early start to saving for retirement ensures more time to contribute to the kitty and for the fund to grow in value. The longer the delay in pension planning, the higher will be the contributions to the plan. Needless to say, those who are faced with the prospect of imminent retirement invariably have to worry about serious issues like health care, costs relating to daily commodities like vegetables, groceries, etc. and allocate larger portions of their saving towards retirement funds. Hence, much against the liking of many who assume that retirement planning after the age of 45 years is sufficient time to save for nonearning days, the actual need is quite different. We need to understand that retirement like all other long-term needs in life requires a long-term plan. If we can start planning for our child’s future from the day he or she is born, why do we not start planning for our own retirement from the day we start earning? Of course, such an early investment would be an ideal situation as it offers the investor the power of compounding. When realization, of the importance of planning on time for retirement and doing it early, does set in, we can then choose from a range of retirement planning tools. It is crucial that we take the advice of a financial planner before choosing a particular plan. Choosing a financial planner to take care of the financial needs will also ensure that we make the right investment decisions. Retirement or pension or superannuation plans are an arrangement to provide us with an income when we no longer have a steady income from employment. They are usually in the form of guaranteed annuity. Most of us would like to believe that contribution to provident

funds (PF) - an option provided by most companies - is sufficient to sustain the current lifestyle needs even after retirement. Most of us fail to realize that the funds sowed through PF, given macro-economic eroding factors, is actually not sufficient in the long run at all! Specialised unit-linked plans (ULIPs) addressing retirement needs are an important component of any retirement planning exercise. ULIPs are structured to offer long-term benefits. Ideally a ULIP is structured to give results through a 10, 15, or even a 30 year plan! It is an ideal solution to guarantee comfortable living after retirement, considering the long-term nature of the need. With such ULIPs, customers also have a choice of allocating their funds into equity, debt, balanced, or liquid funds. The customer can decide asset allocation depending on changing age, tenure of investment, and risk portfolio. It is hence imperative to review plans at reasonable periodic intervals to ensure their relevance. In the event of such a need to alter fund allocation, insurance companies offer the switch facility in unit-linked plans, wherein the customers can switch their allocation, into debt or equity. Most plans offer four free switches a year. If planning long term, choose to invest in equities at the beginning of the cycle and rebalance your investments along the way till maturity. If assets have been effectively allocated through the entire tenure of the policy, it will provide maximum benefits at the end. Several of us would know that for the retirement kitty to show sure signs of health, investment in equity is a must, despite short-term market volatilities. Research proves that investments oriented for long-term wealth generation will need to have ADVISORS

exposure to equities to give back the required benefit. Pension funds are long-term investments that should ideally be kept for around 20 years. This gives the fund adequate time to offset losses arising out of short-term market falls. Also, the fund value increases with the tenure of the contributions. Hence the longer the term of the retirement ULIP, the better will be its benefits. In short, we plan for retirement to ensure peace of mind. We can attain it if we have managed to invest wisely and well in time to take care of our retirement needs. It is important to remember that retirement planning is not restricted to a mere number. It is directly linked to larger and unexpected needs that arise later in life. If you wish to have a comfortable life then, then the time to start planning is NOW! MARCH 2009 |13