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MEdical emergencyPilots lead highly strenuous lives. They are responsible for the lives of hundreds of passengers while flying a 200 ton highly advanced and pressurised aircraft. That’s a whole lot of responsibilities!

As such pilots are mandated to maintain high medical fitness standards. These stringent standards are kept in place to ensure pilots remain at the top of their health as long as they are on flying duty. Keeping this in mind, airlines can ground pilots on medical grounds, both temporarily and permanently. In either case, a pilot can face financial insecurities which can hamper his or her life’s plans. Therefore, it is imperative that pilots of today prepare for such kind of medical contingencies.

While avoiding a medical problem completely may not be possible, it is very much possible to mitigate that risk.  This can be done through meticulous planning and understanding what kind of financial products would help in such scenarios.

Firstly, let us look at a scenario where a pilot, say Mr. X, is temporarily grounded on medical grounds. These could be due a variety of reasons such as chest pain, congestion of the lungs, fractures or incapacity to fly due to external/internal injuries, even pregnancies!

A multi pronged approach can be used to deal with such an event:

One, pilots should always take a health insurance for themselves. This can be sought either personally, many times through the employer or certain pilot associations may also provide such policies. A basic health insurance policy helps financially tackle any hospitalisation expenses for general medical procedures. While this is a basic policy which every individual should have, pilots should go one step ahead.

Second, procuring a Personal Accident Insurance and Critical Illness Insurance plan should be very much on the priority list. In a nutshell, a Personal Accident policy involves payout of a lump sum in the event the insured suffers an accident.  Depending on the policy terms, payout is based on the severity of the injuries from the accident. Some policies have a beneficial feature called Temporary Total Disablement. This is a unique feature in which if the insured suffers temporary disablement of a certain severity, the policy mandates to give a weekly payout to the insured for a certain period! This can be highly useful if the insured is grounded for a while and has his/her’s income temporarily suspended. It becomes an ideal income replacement. Some insurance companies provide this feature for a period up to 100 weeks, that’s two years! Also some companies give a compensation up to a total of Rs. 5 lakhs. That is Rs 40,000 p.m. for 2 years. Not a bad proposition.

On the other hand in a Critical Illness policy, a lump sum is handed out to the insured when he/she is diagnosed with a severe illness that is under the coverage of said policy. The critical illnesses covered are kidney failures, some forms of cancer, major burns and major organ transplants to name a few. The lump sum from either policy can be considered as a replacement of income for the insured as the patient is most likely to be out of work for a certain period. As such the usual sum assured of such policies are in multiples of ten lakhs.

Lastly, tackling a temporary grounding is keeping enough monies handy to pay for the various tests and certifications the pilot has to pass to regain status of an active pilot. While some of these tests might be covered by the concerned employer, some might not, depending upon the certification and seniority of the pilot. And a lot of times these certifications have a substantial fee. So a dedicated liquid corpus to handle such situations is always advisable for pilots.

Like a temporary suspension of the job has its own hurdles, permanent grounding due to medical reasons has its own challenges that must be overcome. The biggest issue in such a case is obviously how to cope with the very significant loss of income. On top of that, major medical conditions add to the depletion in assets. Certain medical conditions related to cardiac conditions, optical and vision issues, mental disorders etc are such examples. Hence funding to treat this illness will also have to be arranged.  Such a sudden loss of income results in compromise on expenditure choices, especially lifestyle expenses. This is a hard pill to swallow, especially if you are used to having the best of everything. While holding all above mentioned types of insurance policies goes without saying, in such a case this might not suffice. Hence setting aside a large enough corpus to deal with such an event has to be planned and arranged for. A lot of factors go into deciding what corpus this should be, such as current income, current monthly expenditures, estimates on current big medical surgeries and medication, inflation, age etc. It requires careful factoring of each aspect and coming to a reasonable amount that is feasible for the person but also able enough to help in such scenarios.

All pilots are aware of the risks that go along with not complying with medical and health standards. Yet many a times they blissfully remain ignorant to the fact of preparing for such events. A financial advisor has the required expertise to help with such contingency plans. Including them in such planning could mean all the difference between comfortably navigating a temporary/permanent job loss or leading a life of compromise and constant worry.

So prepare well before takeoff to have a safe flight!

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Retirement 1Retirement is usually something that is not considered by most of us till we are nearing it, so naturally we do not plan for it, until it is probably too late. This general ignorance or lack of attention to retirement planning can have far reaching consequences.

Retirement planning in the simplest sense means preparing for life after the tenure of paid work ends.  This does not only include the financial aspect, but other aspects such as what to do during retirement, the lifestyle choices that one can take and what dreams one might want to pursue during the remainder of the years.

While the concept of Retirement Planning applies to pilots just as it does to other individuals, there are certain unique points that are exclusive to retirement planning for commercial pilots. These unique points are crucial while developing a retirement plan for a pilot.

Firstly, under the current DGCA rules, the retirement age in India has been pushed up to 65. This is an entire 5 years longer than the mandated retirement age in most other industries. This translates to more income earning years, probably at the highest salary slab of the industry, since usually pilots around this age are most likely to have their designations as Captain. This extra income earning period is crucial in formulating and ironing out the retirement plan before the pilot ultimately retires. The significant income flowing could be the difference between living a compromised and a fulfilling retirement.

One of the most important things a commercial pilot has to consider is Lifestyle Inflation. Because commercial pilots have one of the best salary packages amongst all industries, they tend to have more lavish lifestyles. And they are comfortably able to match up the ever increasing expenses that come alongside their lifestyle choices. But on retirement, the salary stops. Yet expenses continue to stay, with inflation only adding to it. But more significantly no one would want to compromise on their lifestyle they have become accustomed to. As such it becomes imperative to plan much ahead so that lifestyle compromises don’t become the norm during your golden years.

Just to drive home the impact of inflation, let’s take an example. Consider a pilot Mr. A, currently 30 years of age and has a monthly expenditure of Rs 12 lakhs every year (not a very high amount, from what we hear from our pilot clientele). Assuming he will retire at age 65 and taking an average of 8% lifestyle inflation till retirement,  the same Rs. 12 lakhs expenditure will inflate to approx Rs. 1.75 crores. In other words, to maintain the lifestyle that costs Rs 12 lakhs as of today, Mr. A would require Rs 1.75 Crores annually to maintain the same expenditure choices, forget upgrading!

Furthermore, pilots are used to having extremely busy schedules. So when retirement hits, they are unprepared to handle the ample time in hand. Hence they always look for options to keep themselves engaged. This could mean, taking long leisure trips or finding, researching on and investing lump sums in “exciting investment avenues”, committing money to be part of a start up or just following their long drawn passions or enrol at the local flying clubs just so that they can regularly indulge their lifetime love of flying. All this comes at hefty financial expenditures.

All of the above means that Pilots would need to plan and develop customized retirement plans for themselves to ensure a smooth flight during retirement.

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As a passenger, getting from point A to B simply includes sitting on your assigned seat and enjoying the flight till the destination. You are completely unaware of the preparation and planning that goes behind every flight.  A smooth flight is an end result of the meticulous preparatory work including facing any emergency.

All sorts of emergencies can happen during a flight. Engine malfunctions, instrument failures and unanticipated weather issues are just some of the emergencies pilots can face at any time.  In such times the long hours of training, learning from past experiences and pre flight preparations comes to the front and saves the day. Sometimes passengers are blissfully unaware of the issue and continue to enjoy the flight. All this all possible because one aspect, planning! More specifically, planning for an emergency.

Yet, more often than not, pilots in the Indian aviation sector seem to be unprepared for one kind of emergency that is their own personal financial emergencies.

Personal financial emergencies can be broadly classified into two types based on nature of emergency i.e. (A) loss of job or life and (B) unexpected big ticket financial commitments.

While both can prove to be a heavy toll on one’s finances, if we look back to the last 5 years of the Indian Aviation Industry, job losses have been a major theme throughout.

Now as a pilot you earn a handsome salary starting from a young age. Hence your lifestyle tends to be on the more plentiful side.  And this only increases in significant jumps as you climb higher in your career. As such expenses are always on higher side. Luxury cars, high discretionary expenses, significant EMI’s and top notch education for children. All well within your reach. That is as long as you continue to earn that kind of money.

But what happens if you can’t? What if salaries are not paid for months or worse, you are given the golden handshake. What then? Take a step back and think about this for a minute. Ask yourself, will I be able to continue to live the life I have led so far under such circumstances; at least temporarily till I can get things back on track?

A majority of pilots will fail to have an answer to this. And that’s far from ideal!

So what should you do now? How do you start preparing for such unforeseen events? A thousand questions and ideas might run through your mind. Maybe you can get it right, maybe not. But with the help of a trusted financial advisor, who knows the intricacies of the aviation sector, you could stand a much better chance of confidently facing such troublesome periods, safe in the knowledge that you were geared up for it in advance. Exactly like handling an emergency while flying a plane.

As professionals specialized in planning for the worse, it definitely be worth your time for us to meet and discuss how to enrich your life.

Till then, happy flying!

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blog picPilots are probably one of the most stretched professionals when it comes to time management. The constant flux in schedules is always a hassle. Even when you are not flying you are on standby which means that you are still on your toes. The weekly off standard in the Indian Aviation industry is one day every week. And money matters are usually the last thing you want to tackle on such a day. Life is already stressful enough as it is!

By most industry standards, Indian pilots take away a very handsome salary. The more experienced you are, the more significant are your financial takeaways. But it is not all rosy all the time.

With the high earning potential at a pilot’s disposal, it becomes vital to channelize these earnings to fulfil a whole set of commitments and dreams that are unique to a pilot’s life, both during their career and post retirement.

But what are some of these unique problems that only pilots face? Pilots for once, have to always be medically fit. And for good reason! Priority to healthcare hence takes prime importance. Now a pilot reading this might say, oh we are covered by our company, so I don’t have to worry above covering any financial cost regarding my health. But if you really think about it, is that actually enough?

Another thing which pilots always need to be on top of is upgrading their skill sets. Not so much a unique item, but very important nonetheless. And it does not come cheap. Preparing for it well in advance can be far more beneficial than just scrapping up every penny at the last moment to fund for this expense.

One another issue is the state of aviation industry and opportunities. The last few years have clearly demonstrated that problems are plenty in the Indian aviation sectors. For e.g.  Airlines have closed down, (leading large time periods of unemployment), pay can be delayed significantly or indefinitely. All these lead to great financial complications for pilots and their families. Preparing for such circumstances is prudent and must at all times be actively considered.

Probably the biggest challenge a pilot will face is retirement! With no more significant inflows, you are faced with a very real possibility of compromising on your lifestyle just because of a lack of proper planning and this change is not easy! This struggle can be easily avoided with some proper and sustained guidance throughout the earning years so that you can live through your golden years in comfort all the while fulfilling your passions.

Pilots are well aware of the importance of planning. Every flight involves hours of preparation beforehand so that you can take the best possible decisions in terms of route, landing approach and understanding weather patterns of the areas you will fly through, just to mention a few!

As a fellow professional with a prime importance towards professional planning, it would be definitley worth your time for us to meet and discuss how to enrich your life!

Till then..Happy flying!

 

 

 

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Retirement is when you stop living at work and start working at living!

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Retirement is not merely a goal but it’s a journey. There is more to it beyond merely planning for a desired sum as your retirement corpus.

Now that you are retired and you have an accumulated corpus with you, you have to plan wisely in order to sustain the sum till the end.

Expense management

The starting point of your exercise will be to have an expense pattern which you broadly have to stick to. There are many changes which will occur in your expense pattern now that you are retired.

Your retirement expenses will also have phases. Initially in your60s you may see a certain type of expenses going up. For example travel expenses. Now that you have all the time for yourself and your spouse, you may wish to go for multiple vacations –  either domestic or international. Another expense that may increase could be group memberships. You may join a hobby group or a club of your choice. Also it will take some time for your lifestyle to undergo a change so your lifestyle expenses may not change much in the first few years. Later on with age your choices and preferences may change. For instance you may no longer prefer restaurants as often, as you used to prefer at one point in time.

As you move towards your 70s your medical expenses may increase. Your medical costs will go up due to need for regular checkups and dependence on medicines. Health insurance and critical insurance do not cover your costs after a certain age. Even if they do, the cost is very high as the premiums increase with age. Therefore having a health care provision for your retirement is critical.

Plan for a regular and tax efficient stream of income

Another major change is that you will no longer receive any regular salary or business income.

Now that you have an accumulated sum, you have to plan your investments in a manner so that you can have a regular and a tax efficient stream of income. Do not be overly aggressive or overly conservative. Whilst the exact investment strategy may vary from person to person, the focus should be to maintain and grow at least a part of your existing wealth.

On the asset allocation front you have to move a portion of your investments into debt/fixed income instruments, and allocate a limited portion towards equity.

In order to have a regular stream of income you can start a Systematic Withdrawal Plan (SWP) from your existing set of mutual fund investments.  Opting for a dividend payout option could attract Dividend Distribution Tax, especially for non equity oriented funds. Therefore, SWPs can work well. Also dividendscould be irregular at times depending on dividend paying history of the fund but in an SWP you can choose a fix amount that you wish to withdraw.

You can also invest in the senior citizen savings scheme as it provides a better rate of interest amount compared to other small savings scheme options.Do remember that small savings rates have gone down and will be altered on quarterly basis going forward.

You can also look at Bank FDs. These provide an additional 0.25% to 0.50% extra rate to senior citizens which varies from bank to bank. Company FDs can be a slightly riskier option as compared to bank FDs.

If you have a self occupied property which you feel is no more needed since you kids have moved out and it’s only you and your spouse who need to stay, you might consider selling it and buying two smaller properties. One you can use as self occupied and other you can use to let out to avail regular rental income. Do consider the capital gains tax angle to it.

Make a will

It is a very important step. This makes transfer of wealth to your future generation smooth and hassle free.

Also have a nominee attached to all your investments and insurance so that there is succession challenges are reduced. Also make sure that someone knows where all you wealth and investments are lying so that your family does not have to struggle to get what you have left behind for them.

Have a Happy Retirement!

Image credit:www.cbtownandcountry.com

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Just the thought of retirement can cause anxiety and many feel overwhelmed and unprepared. People who have planned their retirement early and saved enough regularly throughout their earning years are comfortable and plan their retirement better. However, in case you have not done so,  here’s how you can plan your retirement when you are in the last decade before your retirement age.

  1. How much money would you need?

The first question one must ask is ‘how much income would I need to maintain my current lifestyle in retirement?’

If the assumption is too high, the goal of retirement may seem absolutely unattainable, and the entire planning process is discouraging.  If the assumption is too low, which is most often the case, the retiree could run into a difficult financial situation later in life and have to make drastic, unwanted changes.

Keep in mind that retirees spend more on travel, entertainment and eating out especially earlier on in retirement, when they have the time and good health to enjoy those activities.

  1. Consider Health care cost:

One of the most overlooked areas of retirement planning is estimating what health care costs could be in retirement, and including this in the calculation of income needs.

Please remember that these could be a combination of recurring and one time costs, and medical inflation tends to be much higher than regular inflation. By overlooking this large potential outlay, retirees could feel strapped for cash in their most vulnerable years.

  1. Choosing the right investment product

It is important to save for retirement, but it is equally important to choose the right investment product. Since the tenure to retirement is in the range of 5 to 10 years, one should look at the mix of growth assets which give inflation beating returns and fixed income instruments which provide stability in returns and liquidity.

 

  1. Estate Planning:

Many people think they don’t need to do any sort of estate planning. Estate planning in necessary to eliminate uncertainties over the administration and inheritance of all your assets and to maximize the value of the estate by reducing taxes and other expenses.  Writing a Will and creating a trust if necessary are some form of Estate Planning.

 

Remember that this phase could coincide with some big expenses for your children, but don’t compromise your retirement in the process. Remember there are no retirement loans, so avoid emotional decisions that could create a challenge in your retirement.

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We all have multiple goals, which we plan to achieve at different points in our lives but retirement tends to be one of the biggest goals. Unlike other goals, which have limited periods of outflows, for example higher education for children could last for 4-7 years depending upon the choice of course, but in the case of retirement,you chalk out a plan for the rest of your life,possibly for almost 1/4th of your life assuming life expectancy till 80 years and retirement age to be 60 years. This implies that the sooner you start the better it is.

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If you are in your 40s then your kids might be in school and as you move towards the late 40s, your kids will be finishing schooling and you may be nearing you child’s graduation goal. The fact that retirement occurs very late in your life maymean that you tend to keep it aside and start working towards your near term goals like your child’s higher education. This way you will never really find an appropriate time to start saving for your retirement.

If you have not started yet, then start now.

Here is what you can do:

Determine goal value

Determine the current value of your expenses. Calculate the cost you would need in the year of your retirement by applying inflation to it. Estimate the expenses which you will incur post retirement. Remember there will be some difference in those expenses. For instance your household expenses will reduce since your kids will be independent by then. You lifestyle expenses could decrease, your medical expenses could go up, your loans could be totally paid off so you may not have any EMI burden, most insurance policies may have matured, so there will not be any premiums outflow to be planned for. Be reasonable while estimating expenses. Do not go overboard nor be overly conservative.

Investment for your goal

You may find the amount of investment that you need to make this goal achievable, will be greater than what it would have otherwise been had you started earlier. This does not mean you need to go up to 100% equity or riskier assets just to accumulatethe desired corpus in lesser amount of time. The correct approach is to have an asset allocation in place depending upon your risk tolerance and appetite. Take calculated risks. If you are too conservative, it may not serve the purpose because it will keep you from generating inflation beating returns. Being too aggressive on the other hand will also not help because risk of loss will be higher since you are not diversifying across asset classes.

After you have an asset allocation in place, you will need to choose products to invest. Since equity performs well if you stay invested for the long term, you can allocate more towards equity, little less towards debt and some amount in gold for diversification purpose. On the equity side you can look at Equity mutual funds. Go for open ended diversified mutual funds. Avoid closed ended products. Within equity funds you can look at flexi cap funds where it is a mix of large, mid or small cap. If you are in a higher tax bracket and you have not exhausted your 80 C limit you can look at Equity Linked Savings Scheme (ELSS).

As you get older, increase exposure to debt and reduce equity. On the debt side you can look at Public Provident Fund which has a lock-in period of 15 years. Beyond that it is extendable every five years. NRIs cannot open a PPF account. If you already have a PPF and in between your status changes to NRI then you will not be allowed to extend for five years once your PPF matures. The EEE ( Exempt Exempt Exempt) status of PPF makes it an attractive investment option especially in a falling interest scenario like the one we are in right now.If you are employed, look at contributions to the Voluntary Provident Fund ( VPF). You can also look at balanced funds which are a mix of ~65% in equity and rest in fixed income if you want a bit of both.

New Pension Scheme (NPS) is another option which is again a good investment option for retirement since it will provide regular income post your retirement. It will also enable you to take an additional deduction of Rs. 50,000 under section 80CCD 1 B which is over and above the Rs. 1.50 lakh benefit under 80C.

To add gold to your portfolio you can use a Gold ETF or buy Gold bonds.

Remember, we are in a dynamic environment. Therefore your investments will need to be reviewed and rebalanced periodically.

Image credits:      www.arabianbusiness.com            , www.workingmother.com

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