retirement planning Archives – Vipin Khandelwal

Annuity – When is it a good investment choice?

March 22, 2017 by Vipin Khandelwal

What is an annuity?

An annuity is a solution for post-retirement income. How it works is simple. You invest a fixed initial amount and in return you get a lifetime of assured income.

When you buy an annuity, you get

an assured income
lifelong income (pension)
no risk income
no hassle income
no bother about investment options, advisors, rebalancing, etc.

Take an example.

You are 60 and you need an assured Rs. 50,000 per month to meet your post retirement expenses. If you want an assured income of Rs. 6 lakhs a year, then you simply buy an annuity for approx. Rs. 75 lakhs, as a one-time payment. (Estimates based on an immediate annuity plan of a private insurer)

You don’t have to bother at all. No money management hassles, no investment selection, no dealing with bankers or advisors and collecting cheques from various investments.

The annuity provider will transfer the amount to you every month/year as per the frequency you choose.

An annuity ensures that you earn an income for the rest of your life.

But is it all that good? Not really.

How much will you need to Retire? Updated Calculator with 9 scenarios

January 7, 2017May 31, 2016 by Vipin Khandelwal

For all the financial savviness that one might have, numbers still find a way to stump us.

This is what exactly happened with Vaibhav.

“You will need Rs. 25 crores as your retirement fund.” I announced to him after inputting the numbers in the retirement planning calculator. I was working with him on his financial plan.

“What! Really?” was his instant reaction.

“Yes. Why do you seem so surprised? Did you have something else in mind?”

“Well, I had done some back of the envelope numbers for my retirement. But this one is way off what I had got.”

“Hmm. What did you factor in as post retirement inflation and rate of return?”

“Well, I took more aggressive numbers – higher rate of return and lower inflation. Though I understand that it may not be the right thing to do. I also see that my life expectancy assumption at 80 is lower.”

“Yes, that’s a big mistake one can make. My question always is “what if you lived longer?”

“You are right. It’s better to plan for a longer life. Anyways, I guess I now know what I have to prepare for.”

Retirement Planning Calculator – revised

June 1, 2016April 20, 2016 by Vipin Khandelwal

Good planning depends on two things:

To have a goal
To establish a path to reach that goal.

Financial Planning is no different.

Once you zero down on your goals, you need to know what would it take to reach that goal and build an action plan.

One of such goals that everyone plans for is Retirement, or a more modern phrase, Financial Freedom.

Call it by any name (not quoting Shakespeare here), the purpose is the same – to know, how can you retire / achieve financial freedom as soon as possible.

Let’s use our retirement planning calculator to figure this out.

The Retirement Planning Calculator

Few months ago, I had shared with you an Excel-based retirement planning calculator. To say the least, it was a little simplistic. It only told you a constant amount that you need to invest every month.

What if you lived longer?

April 17, 2016April 17, 2016 by Vipin Khandelwal

“I want to retire at 50” Dinesh announced, “and then just enjoy life – reading, cooking, writing, everything that I always wanted to do.”

“That sounds like a plan Dinesh. But are you ready to do it?”

“Means?”

“I mean, are you financially ready to retire at 50?”

“I guess so. I am saving up enough that I can live carefree till 70.”

“How do you know you will live only till 70?” I paused. “What if you lived longer?”

“Well, no one in my family has lived beyond that age”, he winked at me. “Plus, isn’t that the normal life expectancy of a urban male in India”, he turned the screen of his smartphone towards me. The Census of India site confirmed the life expectancy number. I took his phone and read further.

“Do you notice here that the life expectancy has been continuously increasing over the years? There is a fair chance that you could go on to live till 80, 90 or even 100.”

“I don’t want to live that long.”

“I am not saying you have to. I am saying you may. In that case, will you have enough money to take care of you and your wife?”

This got Dinesh thinking. After a couple of minutes, he replied, “I don’t know.”

He looked at me and said, “You tell me. What would it take?”

What if you lived longer?

I had just been working on retirement planning for various life expectancy numbers. I opened my laptop and turned the screen towards him.

“Here, see this.”

Retirement Planning for Me – What does it take?

February 22, 2017November 18, 2015 by Vipin Khandelwal

As a part of my client engagement for financial planning and investment advisory, one of the key goals that is discussed and planned for is retirement.

Typically, retirement has been the most undervalued goal. It never seems like a priority.

Recently, in my latest engagement, I was working on calculating the retirement needs of my client – let’s name him Deepak.

Deepak is in his early 40s, in a well-paying job, expected to do well in the future too. He wants to ensure that he can provide enough for his daughter’s education and his own retirement.

“When do you want to retire”, I ask.

“At 55 age”, was the immediate reply.

“OK, let’s work this out.”

As I worked out the numbers, I saw something terrible. With the current situation, Deepak cannot retire by 55. In fact, he might have to well carry on working till over 65 years of age.

I am working with Deepak to find out the best solution to help him reach his goals. With some adjustments to his portfolio and investment habits, it would be achievable.

So, that was Deepak.

But wait, don’t I need a retirement plan for me?