India turns 70

As published in The Telegraph on 9 August 2017

At 70, India is one of the fastest-growing economies in the world. What about you, though? Will you be this successful at 70? Ask yourself these 70 questions to figure it out:

Are you on track?

· How much money will you have when you turn 70?

About 68% of Indian retirees borrow money or depend on others for financial support, says an HSBC report. So, Indians may not be as financially prepared as they expect to be.

· Are your savings earning enough returns to sail through retirement?

Use free retirement calculators online like the UTI MF retirement calculator. It shows, a 27-year-old expecting a monthly pension of Rs 50,000 would need Rs 6.3 crore by age 58.

· Will you be able to retire early?

The earlier you retire, the more income-free years and savings you need.

· Can you maintain your standard of living after retirement?

Lifestyles change as incomes increase. While calculating your post-retirement needs, take all these expenses into consideration.

· Do you have enough saved for medical emergencies?

As you age, your medical problems will increase. Insurance support may fall, too. Ensure your retirement kitty has enough to fund any possible medical problems.

· Would you manage if you lost your job in your 50s?

Many people count on saving more money in their latter years when salaries are high. But growing automation could lead to job losses.

· Do you have enough money to repay loans even without a job?

Forget about saving enough for retirement. In case of a job loss, would you manage to pay off your debt? If not, buy loan insurance right away and start saving more every month.

· Would you be able to support your child and grandchild’s future?

Around 73% of Indian workers expect to support family members financially after retirement, says a report by Aegon Religare Life. Plus, there are late marriages and delayed pregnancies. So, more retirees have to support their child financially.

· Do you show love to your parents while investing?

Indians today live 68 years or longer. So, you may have to support your parents along with your children.

· Do you prefer to invest in financial assets over physical assets?

Neither gold nor realty has given good returns in recent years. What have worked are stocks and mutual funds (MFs).

Money habits:

· Are you listening to the right people?

Family and friends may mean well but they could give poor advice. Instead, listen to financial advisors who understand your financial needs.

· Are you saving every month?

Saving only once in a while is the wrong approach. Remember, Rs 5,000 a month can grow to Rs 11 lakh in 10 years at 12% return. In seven years, you would have only Rs 6.4 lakh.

· Do you have all your goals planned out?

Jot down what you want money for in future. Then start preparing for these goals. Your savings and investments can become more systematic as a result.

· How do you monetise goals in your financial plan?

Don’t say you want a house in 10 years. Assign a value — say Rs 1.5 crore. Otherwise, you may not have enough money. Account for inflation, too.

· Do you know what you are saving and investing for?

Saving and investing at random is a mistake. Such investments may give poor returns and increase risk. Instead, assign each investment a goal and decide accordingly.

· Are you investing enough for your child’s future?

Education has one of the highest inflation rates in India. The costs are growing at 13–15% every year. Other costs are climbing too. So, don’t go by the 5% inflation rate.

· How do you plan for adverse scenarios?

Treatments for critical illnesses can cost lakhs of rupees. You cannot rule out a job loss or an accident. In case of emergencies, would you have to beg or borrow?

· Retirement planning, tax planning, investment planning, and financial planning: How are they different?

Without planning your income and expenditure, you cannot save. Tax-saving investments can help for retirement, but not for other goals.

· Do you have insurance?

Insurance comes to your aid in times of need. But don’t invest all your money in insurance.

· Are you investing to save taxes every month?

Do you invest up to Rs 2 lakh every year in a last-minute dash? Then you could make mistakes. Investment decisions need time. Plan your taxes at the start of the financial year.

· Are you withdrawing your tax-saving investments?

Many investors redeem investments after the lock-in period. Never do that, especially not for tax-saving MFs. These need time to generate wealth.

Saving and investing:

· Do you have the right mix of investments?

Have you invested all your money in just one option? It could be gold, real estate, or bank deposits. Consider this a wake-up call. You are unlikely to be financially ready at 70.

· Should you diversify investments across assets?

Yes. Keeping all your eggs in one basket is risky. Consider how interest rates are falling today. Even gold and real estate aren’t reaping good returns. Diversifying helps reduce risk and increase return potential.

· How do you decide where to invest?

Keep in mind these factors: time, risk appetite, required return, monthly investment, and existing investments.

· What kind of investments do you prefer?

Do you only have low-risk options like bank deposits, insurance, gold, and real estate? Then you may have to revisit your investment plan.

· Why should you invest in equity?

Only equity has given enough returns to beat inflation consistently over decades.

· What role does time play in investment planning?

‘Time’ helps you earn more money. But ‘timing’ can be costly. This is why experts recommend consistent investments every month through SIPs.

· Do you have a financial advisor?

If yes, then your chances of financial security just shot up. A financial advisor helps you understand your needs and choose the right investments.

· How do you assess the performance of your investments?

Don’t forget to check up on your investments. Then you may not sell your investments in time to avoid losses. Monitor your investments every three to six months.

· Do you have goal-oriented plans or life stage-based plans in your financial plan?

Your investments need to change with time. You need different plans at age 25, 35, 45, 55, and 65.

· Do you know the best financial planning options to ensure a smooth retired life?

Bank and post office deposits are not the answer. You need a balanced portfolio that contains a lot of equity. Otherwise, wave goodbye to wealth.

Risk and return:

· What do you think is risk?

Risk is not just the probability of loss. It helps you earn returns, too.

· How important is risk for you?

Don’t be too risk-averse, especially in your youth. You have enough time to compensate for the risk.

· Are you as focused on returns as you are on risk when it comes to investments?

If yes, then you could make smarter decisions. Remember, your ‘ability’ to take risk may be higher than your ‘willingness’ to take risk.

· Should preservation of capital be the foremost investment objective?

Time decides the answer. The less time you have, the more you need to focus on preserving capital. Try low-risk options like Debt MFs.

· Should avoiding risk be the foremost objective?

No. Otherwise, you may never manage to build enough wealth to meet your goals.

· Do you prefer Public Provident Fund (PPF) over tax-saving MFs to cut risk?

If yes, then rethink your strategy. PPF interest rates are falling just like FD rates. But tax-saving MFs continue to give consistent returns.

· Do you have the right MFs in your retirement portfolio?

Being too blindsided by risk to consider Equity MFs can lower your returns.

· What role does portfolio volatility play in your financial plan?

Risk is nothing but the volatility of returns. Don’t shy away from volatility completely.

Making the right decisions:

· Have you arranged for a systematic transfer plan (STP) to transfer your investment to Debt Funds before retirement?

This way, you can preserve your Equity returns. Slowly reduce risk in your portfolio in time for retirement.

· Do you know how to use systematic withdrawal plans (SWPs) for post-retirement benefits?

SWPs can ensure a fixed and tax-efficient monthly income.

· Should corporate actions like dividend be the sole criteria for investing?

Dividends are good, but don’t let that be the sole reason for investing.

· Are your investment decisions swayed by emotion?

Try to make logical decisions with the help of your advisor.

· Do tax concessions drive your investment decisions?

This is a good habit to build. When investing, look for tax-efficient returns.

· Do market trends affect your investment decision-making?

If yes, then you are ‘timing the market’. This can be a costly mistake. Instead, invest every month across market cycles.

· Why is planning ‘through retirement’ as important as ‘planning for retirement’?

You may live for 20–30 years after retirement. Plan for all these years.

· Would you rather: a) invest well or b) opt for good investments?

Investing well means ‘buying low and selling high’. Even good investments can turn bad if you buy at a high price.

· Do you consider price to be the most important factor while investing?

This is good, but don’t try to time the market. Consistency is a better strategy.

Mutual Funds:

· Do you know what MFs are?

Does your investment portfolio contain MFs that pool money and then invest it on investors’ behalf?

· What role can MFs play in your financial plan?

Many MF types are available to meet various goals. Choose your scheme accordingly.

· What are the various MF types and which one should you choose when?

The three main types are Equity, Debt and Hybrid schemes. Each has further sub-categories. Hybrid or Balanced Funds are good starting points. Equity MFs are best for the long-term. Debt MFs can be a good alternative to bank and post-office deposits.

· How are MFs different from other financial instruments?

Rs 500 in MFs can get you invested in thousands of assets. This is not possible with other financial instruments. The diversification helps lower risk and increase the return potential.

· What is a systematic investment plan (SIP)?

It works like an EMI. You invest a small amount every month instead of one large amount. It helps ensure financial security.

· How do SIPs help you build a nest egg?

You don’t need large amounts. Start with as little as Rs 500 per month.

· Why should you prefer MFs over investing directly in Equities?

A) You can start with as little as Rs 500, which may not be possible with Equities.

B) You need not do extensive research to find the right stocks and prices.

C) A small amount gets you access to a large and successful equity portfolio.

· Why do liquid funds make your investments work harder?

Your money is idle in a bank account. A Liquid Fund, however, can give you higher returns.

· Do you opt for MFs to ensure tax efficiency?

MFs are tax-efficient. Even the returns attract lower taxes than your bank deposits.

· Do you know the role capital protection-oriented MFs play in your financial plan?

Every portfolio needs such schemes. They safeguard your money through all market conditions.

· What should you keep in mind while choosing SIPs?

Select the right Scheme and amount. You can always increase SIP amounts later.

· What document do you read to understand an MF scheme?

Every Scheme has a Fact Sheet with details of investments, risk, past returns, and more.

Believing in myths:

· Do you believe saving and investing are the same?

No, they aren’t the same. Investments can create wealth. Savings don’t.

· Is an SIP a recipe for success?

No. You need to choose the right Scheme and investment duration. But SIPs tend to increase returns.

· Are MFs all about Equity?

No. MFs invest in Debt instruments and even in gold.

· Do you believe you are too young or old for investments and insurance?

You can never be too young to invest — the earlier, the better. But it’s never too late to start either.

· ‘You have to take big risks to earn high returns’: True or false?

False. Time can reduce the risk and still earn you high returns.

· Do you think investing in anything other than bank deposits requires expertise?

Buying MFs is simple. A financial advisor can help you select the right scheme.

· Is investing like gambling?

No. With gambling, you never know what might happen. Investments are not as risky.

· When the market falls, do you consider selling your investments?

Don’t ditch your investments every time the market falls. Consider it the sale season!

· Do you believe you need a lot of money to invest?

Even a lump sum investment in MFs can be as low as Rs 5,000.

· Is insurance an investment?

No. Insurance is best for reducing risks in life. Don’t confuse it with investments.

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