Future Finance Focus #1
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Financial Planning Standards Board Ltd. (FPSB Ltd.) delivering CFP certification in India
Finance Spotlight:?
Job on inflation front not over: RBI Governor
RBI Governor Shaktikanta Das emphasized that the Reserve Bank of India's efforts to control inflation are ongoing and warned against premature policy adjustments that could jeopardize the progress made in stabilizing prices. During the February Monetary Policy Committee (MPC) meeting, Das highlighted the risk of markets anticipating central bank policy changes too early, which could undermine the achievements in managing inflation. This statement underscores the RBI's cautious approach to monetary policy, aiming to ensure that inflation targets are met without disrupting the economic stability achieved so far.
Rising medical expenses top anxiety of urban India: Survey
The sixth edition of the India Protection Survey by Max Life Insurance Company Limited and Kantar highlights rising medical expenses and fulfilling family aspirations as the top concerns for urban India. The survey, which assesses financial protection awareness, shows significant progress in financial readiness among urban Indians, with three-quarters now owning life insurance. The Protection Index reached an all-time high of 45 in IPQ 6.0, up from 43 in the previous edition, indicating a positive trend in financial resilience. The survey also notes a substantial increase in protection awareness and adoption, with the knowledge index and life insurance ownership index both rising. Interestingly, medical expenses have surged to the top anxiety spot, a significant jump from their ninth position last year, while the desire to prioritize family aspirations and the rising cost of goods and services follow as major concerns. The report also points out that Tier II cities lag in insurance adoption compared to metros, with South India being the most financially protected region.
Expert Insights:?
Expert: Suraj Kaeley , CFP Professional?
Retirement Finance is a nuanced topic with abundant advice on saving and building a retirement fund, yet guidance on effectively utilizing these funds is scarce. Often, available resources suggest setting up an investment portfolio once and leaving it unchanged, which is unrealistic. As CFP professionals, we understand that initial plans require adjustments over time to address evolving complexities. It's crucial that our strategies not only aim to build wealth but also guide clients through the intricacies of managing their retirement savings effectively as their circumstances change.
Their lifestyle will determine the expected annual expenses. Ideally, you must go into as much granular detail as possible. But you tend to make some assumptions and move ahead! When you go through a detailed exercise, you will realize that their retirement expenses can range from 50% to 150% of their current expenses (at current costs). It's a very wide range as each individual thinks very differently and has different plans for themselves.
When you take the monthly expense route to estimate the expenses, you realize you have ignored many expenses that are quarterly, semi-annual or annual in nature (for example: insurance premiums, vacations).
The biggest element of unexpected expenses is medical emergencies. You cannot predict it with any manner of certainty! All you can do is to try and encourage them to lead a healthy lifestyle and pray for the best! Check if the medical policy that they own is able to take care of all these expenses. What if their insurance provider does not cover the specific medical procedure that they need to undergo? In any case, a lot of expenses like replacing eyeglasses, dental procedures, and domiciliary expenses may not be covered by their insurance provider.
Set aside a sum of money upfront (over and above provided by the insurance provider) that they can use to meet unforeseen expenses.
It is very different for every individual. You will need to make some assumptions here! In reality, their real expenses may drop significantly especially after age 80 and hence there could be a case to plan for a lower inflation rate.
The least you should budget as a long-term inflation rate is 4% per annum!
After you have answered the above questions, you can move to thinking about the adequacy of their retirement corpus and constructing their ideal retirement portfolio.
There are many ways to answer this question. Some of these ways are technical and complex while others are simple and practical. My favourite way to answer this question is to think in terms of a safe withdrawal rate.
What proportion of their investment corpus can they withdraw every year to meet their regular expenses?
For example, if you estimate annual expense at Rs 12 lakhs per annum (Rs 1 lakh per month) and if you decide the safe withdrawal rate at 6% per annum, then you need a retirement corpus of Rs 2 Crores to generate an annual income of Rs 12,00,000.
Their investments need to generate a higher amount than their safe withdrawal rate to ensure that they are not eating into their retirement corpus.
Market Highlights?
NPS partial withdrawal rule changes from February 2024: How does it work, and when should you go for it?
Starting February 2024, the Pension Fund Regulatory and Development Authority (PFRDA) introduced new rules for partial withdrawals from the National Pension System (NPS). Now, NPS subscribers can make partial withdrawals after three years of account opening. The withdrawal limit is set at 25% of the subscriber's contributions, excluding the employer's contribution and the returns generated. Withdrawals are permitted for specific purposes such as children's higher education or marriage, purchase or construction of the first house (with restrictions), treatment of specified illnesses, disability-related expenses, skill development, or establishing a venture. Subscribers are allowed up to three partial withdrawals during the account's tenure, with a five-year gap between withdrawals, except for medical emergencies. The process requires submitting a withdrawal request with a self-declaration to the central record-keeping agency (CRA). Partial withdrawals are tax-exempt, but experts advise considering the long-term impact on retirement savings before deciding to withdraw.
Benefits of equity-linked savings schemes go beyond saving taxes: Build retirement corpus with ELSS
The advantages of Equity-Linked Savings Schemes (ELSS) for retirement planning, emphasize that their benefits extend beyond just tax savings. It highlights that ELSS funds have historically provided double-digit returns over a 10-year period, making them a valuable tool for building a substantial retirement corpus. The piece notes that ELSS funds offer the shortest lock-in period among tax-saving investments, which allows fund managers to invest in high-conviction ideas that may take longer to perform. It also mentions that profits from ELSS are taxed at 10% for gains over Rs 1 lakh if held for more than a year. The article suggests that ELSS should be considered for long-term financial goals, including retirement, due to their potential for higher returns compared to traditional risk-free investments.
Retirement mutual funds: Why should you opt for these schemes? 3 key reasons explained
Retirement mutual funds in India, encompassing 27 schemes with a total asset size of ?24,489 crore, are designed for long-term wealth creation and effective retirement planning. These funds, which have a mandatory five-year lock-in period, serve as a vital tool for investors to stay invested and combat inflation, ensuring a stable financial future. Popular schemes include HDFC Retirement Savings Fund - Equity Plan and UTI Retirement Fund. Top-performing funds have delivered impressive one-year returns ranging from 35% to 52.8%, highlighting their potential as a key component of a retirement savings strategy.
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