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financial planner

A lot of people wonder “Why do I need a financial planner?” or “Why do I need a planner when all financial calculators are available online?”. Some people also think that “I cannot afford a financial planner as I do not have enough wealth!”. Many people who are not aware of the benefits of having a financial planner think this way. These thoughts and ideas are some of the myths that we shall address in this blog today.

With the abundance of information available online, the role of a financial planner becomes even more critical as every financial plan is customized to suit the needs and goals of the individual. A planner will give you a bird’s eye view of your financial situation because they are on the outside and can look at your finances holistically.

With the ever changing and dynamic global and domestic economic conditions and financial markets having a financial planner is of utmost importance. A prudent planner cannot predict, but will always guide you well to be prepared for global or domestic events which can have material impact on your financial goals.

A financial planner advises you on the following-

  • How much you need to save while you are earning?
  • How much would you need for retirement as per your lifestyle and nature of expenses?
  • What type of loans you should have or payoff?
  • How much and what type of insurance you need?
  • How much you should have as contingency funds?
  • How can you be more tax efficient in your investments?
  • How much returns should your investments generate in order to achieve your goals?
  • How inflation will affect your goals and finances? What projections and estimates are to be considered to account for inflation while planning for goals?

 

A financial planner helps you to organize your finances and assesses how prepared are you for your goals – for example – retirement. Professional financial planning goes far beyond just picking stocks or products. Hiring a planner arms you with the expertise and resources with which to approach planning your financial future.

 

A common misconception that people have when it comes to financial planners is that they will make you a millionaire overnight or advise you to invest in stocks which will give you multi-bagger returns. Financial planners help you to prioritise your financial goals and work with you to devise ways to achieve them.

 

A financial planner would be aware of appropriate financial opportunities and investments which will help you in taking wise financial decisions. Helping clients avoid ‘buy high and sell low’ is also one of the great benefits financial planning can bring. A planner will help you stay invested  in a bear market and at the same time will help you not get over-optimistic in a bull market.  A recent neuroscience experiment has proved that people with expert financial guidance are less stressed and better able to face challenges and absorb information relating to their own financial decisions.

 

So you may say that – “Why do you need a Financial Planner? I can do all this for myself”. For this you have to ask yourself these few questions-

  • How prepared are you to spend hours to assess the fundamentals of a mutual fund or company whose stock you are buying?
  • Can you spend hours analysing and building a portfolio that can give you retirement income and is tax efficient?
  • Can you analyse the complexities of different PMS products, mutual funds, insurance plans and annuity plans and determine the best mix for yourself?
  • Can you keep regular track of your goals and related investments?
  • Can you objectively assess your portfolio and keep emotions out of your financial decisions?

Usually we find the answers to most of the above lead to the need of seeking the professional help of a financial planner.

 

A financial planner possesses specialized training, knowledge, certifications and the requisite experience to handle all the above possible options. A financial planner is therefore better equipped to plan for you.

To put all of this in a nutshell, a financial planner helps you set your priorities and financial goals, helps understand the corpus needed for each of them and guides in devising customised ways and means to achieve your set goals.

Even in the busiest or most stressful times in your life – be it marriage, birth of a child or job change or any such transition, the financial planner is able to safeguard and nurture your wealth with sound advice and experience. In such situations of transition, a planner instils a kind of financial discipline and diligence which is much needed.

When you normally want to get a job done right, you usually hire an expert, so why should the same not hold true in the case of your finances? Talk to Plan Ahead Wealth Advisors today to know how a financial planner can help you.

 

 

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The Indian story is pretty simple and straight forward, as you grow you are told to study hard to find a good job. When you finally find that good job you work harder day in and day out trying to keep up with work pressure and your expenses. Then comes in Jack Ma announcing that he plans to retire early and says “I would rather die on a beach than in my office”. This one line is enough to reignite the dreams and fantasies to retire early and move to a quaint town away from the hustle and bustle of the big city. If this is your dream then read on to find out how you can retire early.

Rome was not built in a day and Jack Ma didn’t become a billionaire overnight. While you don’t have to wait to become a billionaire to retire early, you will need to save and create a substantial corpus to be able to take the plunge. This would require dedicated regular savings and beware, sacrifices will have to be made. You will have to try and save as much as possible which would mean spending less on your life style expenses, and trying to live a modest life.

  • List down all your goals-Just because you are going to retire early doesn’t mean you wouldn’t want to live a full life and realize you goals which could include travelling, sending kids overseas for higher education, buying your dream home etc. Yes you can achieve these goals and retire early too, but you will need a good plan which will take the cost of funding of these goals into account and adjust it against inflation.
  • Know your expenses-Most people especially the ones who live in a metro don’t know how much they spend on a monthly basis. Knowing your expenses is important for two reasons one it will help you know how big your retirement corpus needs to be and two you might need to cut down some unnecessary expenses to be able to save more. Take your life expectancy into consideration and your expenses till that time to calculate your corpus size.
  • Set the SIP for the 1stweek of the month- For most people the only investments that happen are either a minimum SIP started some time back or whatever is saved at the end of the month. This way you will never be able to retire, forget retiring early. Your savings and investments have to be planned and in line with the future goals that you have. So invest before you pay your bills. This is also what Robert Kiyosaki the author of “Rich Dad Poor Dad” believes is the secret to getting rich.
  • Ensure it’s not a one sided love story– Giving up a good lifestyle and a free hand on spending can take its toll. It can be very frustrating at times, that’s why its very important that your spouse supports this choice a 100% else you might find your self quite often at the receiving end which trust me is neither pleasant nor encouraging. From time to time you might need to remind yourself of your end goal and it should bring you back on track when you start to stray away. I would highly recommend not giving up on things that you love and keep aside some money for some indulgence every now and then if not regularly. Remember Jack Ma will retire at 55, so you will have to give yourself a considerable amount of time to prepare for the big shift.
  • Secure your self and you family-We can not stress enough on the importance of a sufficiently large personal life and health insurance. Its better to take one now while you are still young, this way the premiums will also be lower.

Albeit retiring early and getting away from the rat race and the pressures of the world, spending your days relaxing in a quaint house on the hills or by the side of a brook sounds so inviting, it can get boring and mundane after a while. Having spent so many years crossing one hurdle after the other throughout your life, doing nothing after a while doesn’t feel so enticing; so plan for a small business or some activity that would keep you busy in your free time or else you might find yourself missing and craving what you have left behind.

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retirement

It is one of the biggest, if not biggest, money question that often keeps people awake at night. The uncertainty of whether what you have earned and saved is enough for that dreamy retirement life can be quite stressful. And it is this ambiguity that often leads to making incorrect assumptions which, in a vicious cycle, leads to misguided money decisions.

Through this blog, we hope to focus of some items that need to be looked at to better judge just how much preparations you need for your Golden Years.

  1. Goals:

First of all, it is important to accept that your retirement will not mean doing absolutely nothing for the remainder of your life. Chances are you would still be at least partially responsible for your child’s post graduation/ marriage. If not those, then planning for those holidays and long travel plans, or having a dedicated medical corpus or even starting philanthropy or your own consultancy would need financial planning and funds.

There even might be recurring goals to consider such as cars. If you drive a Honda City today, chances are you would want similar car throughout your life. Assuming a Honda City costs Rs 13.75 lakhs as of today, you would need Rs 65.8 lakhs at the start of retirement just to fund purchasing the same car every 5 years (accounting for 7.7% inflation)

 

  1. Your Current Expenses:

While we usually have approximate amounts in our heads, rarely do we know our exact expenses for a year. If you think you may know, even so the detailed expenses are not known. If you do track and compare average expenses of the year versus that of two years ago, you would probably see higher than expected changes. This is due to inflation and lifestyle changes. It is critical to keep tabs on your expenses, as discretionary expenses tend to creep up and inflate your overall expenses.

  1. Changing Expenses during Retirement:

It is common notion that expenses will reduce once you retire. But data and experience shows otherwise. For example: Travelling and Medical costs tend rise whilst dependent cost tend to go down and groceries tend to remain the same.

Also, how expenses change depend on the stage retirement you are at. Early on during retirement sees uptick in expenses due to higher travel and entertainment costs. Then they slowly start coming down in the intermittent phase of retirement. Towards your super senior years, they tend to same constant.

  1. Medical Costs:

As per Willis Tower Watson Global Medical Trends Survey Report 2018, medical inflation in India is currently at 11.3% p.a. In other words, the cost of the same surgery will double every 6.5 years! Your retirement needs to plan for this.

  1. Lifestyle Expenses:

Urban inflation is around 7.7% p.a. on an average in the past 20 years. But that does not account for everything. We aspire for better things during our retirement. For example, you would have a Sony Home Theatre System which would cost approximately Rs 35,000. But aspirations would strive for a Bose System which is closer to Rs 90,000. That is a 181% jump! It is crucial to have both sets of inflation accounted for during retirement.

  1. Life Expectancy:

An incorrect assumption of life expectancy can have significant consequence. Data shows the life expectancy of Indians is closer towards 70 years and above. Furthermore, it is a fact that women have higher life expectancy than men. So planning for your spouse’s life expectancy is something which is not given adequate thought.

Life expectancy in developed countries are much higher. And as India steadily progresses to that status, it can be reasonably assumed that our life expectancy will only increase.

These are just some items, amongst others, that need to be carefully looked at to ensure you are planning for a good enough retirement corpus and are financially well placed to live your retirement years in peace.

To provide an even deeper understanding, Plan Ahead Wealth Advisors is conducting a seminar on Planning for Retirement on the 7th of July 2018.

For a complimentary invite do write in to us or leave us a comment to this blog.

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Retirement-Coin-Jar-Thumbnail

National Pension Scheme (NPS) which is a defined contributory savings scheme was introduced by the government with an intention to provide retirement solutions for Indian citizens.

Under the NPS there are two types of accounts – Tier I (pension account) and Tier II (investment account).

  • Tier I is the a mandatory account which allows limited withdrawal options until the person reaches the age of 60.
  • Tier II which is a voluntary savings/investment account is more flexible and allows the subscribers to withdraw as and when they wish without any restrictions.

In Jan 2018, the PFRDA (NPS regulator) relaxed the withdrawal norms and allowed the subscribers to withdraw up to 25% of the balance after the completion of 3 years. The purpose of withdrawal included treatment of specified illness of a family member, education of children, wedding expenses of children and purchase or construction of house.

Partial withdrawals – some more options now

The PFRDA has recently added two more events under which partial withdrawal from the NPS can be made before retirement. They are as follows:

  • Partial withdrawal towards meeting the expenses pertaining to employee’s self- development/ skill development/ re- skillingwill be allowed. This includes gaining higher education or professional qualification for which the employee might require in and out of India. However, if such activities on request of the employee are sponsored by the employer then these will not be considered as a class for withdrawal as in such cases the employer bears all the expenses.
  • Partial withdrawal towards meeting the expenses for the establishment of own venture or a start upshall be permitted. However, if an employer-employee relationship exists, then in that case the partial withdrawal will not be applicable.

There are certain limitations to the partial withdrawal clause which remain unchanged:

  • The subscriber should have been a member of NPS for a period of at least 3 years from the date of joining.
  • The subscriber shall be permitted to withdraw accumulations not exceeding 25% of the contributions made by him or her, standing in his/her credit in his or her individual pension account as on the date of application from the withdrawal without considering any returns thereon.

For instance, if you have Rs. 2 lakhs in your account out of which Rs 1 lakh was contributed by you and Rs 1 Lakh was contributed by your employer, then you will be able to withdraw only Rs. 25000 or 25% of your contributions.

  • The frequency of total partial withdrawals shall remain unchanged i.e. the subscriber shall be allowed to withdraw a maximum of 3 times throughout the entire tenure of the subscription of the NPS. For the withdrawal, the subscriber must make a request to the central record keeping agency or the Nodal office.


Adding equities to your retirement corpus

In addition to adding more withdrawal options, there have also been increases in the allowed equity percentage to the retirement corpus. The percentage of equity assets that a subscriber can choose under active choice have been increased. The percentage of equity assets allowed has been increased to 75% from 50% (applicable for non government employees).

All in all the PFRDA is trying to make the NPS more attractive as a retirement solution. Depending on your age, time horizon, risk profile and current retirement corpus investments, the NPS could still prove as one of the avenues that you could consider using for building a retirement corpus.

 

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Ulips

 

Unlike a pure insurance policy, a Unit Linked Insurance Plan (ULIP) is a product designed to give investors the benefits of both insurance and investment under a single integrated plan. ULIPs are insurance + investment plans suited for investors with long investment horizons. They work well with investors who may not otherwise keep the discipline of investing as they usually come with long lock ins and high exit costs.

The tempting benefit ULIPs offer is the administrative convenience of not needing to execute the two legs of transactions i.e. insurance and investments separately.

From our experience with investors, we understand that there’s a good chance you already own a Unit Linked insurance plan (ULIP) that either your parents bought for you, or you landed up buying one in the hurry scurry of tax related investments, only to realize later that one should not be mixing insurance and investments.

In the case that you may have purchased a ULIP or you may be contemplating to buy one, it is critical to know a few important items related to them so that you are more aware of what you have or might get yourself into.

 

1. Understand the purpose for purchasing the ULIP – tax planning cannot be the sole motive

While tax planning is clearly on the agenda, you should also assess the objective for which you want to purchase an insurance policy. Is the policy being bought for long term wealth creation, retirement planning or building a corpus for your child’s future? A decision that is prompted solely by the need to save taxes often results in the purchase of a wrong or an unsuitable product.

 

2. Check the charges carefully

All Ulips come with a host of charges. Understanding each of them is crucial to understanding if the product is suitable or not. Such charges include:

  • Premium Allocation Charges: As the name suggests, these fees are to cover expenses incurred by the company to allocate funds, do the underwriting, medical expenses, etc.Your agents commission is also covered under this head.
  • Policy Administrative Charges: These are the charges that are deducted on a timely basis to recover the expenses incurred to maintain the policies under the fund.
  • Surrender Charges: Similar to the exit loadin a mutual fund, these are the charges applicable when encashing a part or the full investment in a plan. As we know that in most of the Mutual Funds, exit load is at about one percent. In ULIPs, surrender charges could vary from a few percentage points to very exhorbitant amounts, basically to deter investors from exiting the plan in a short horizon.
  • Mortality Charges: These are the fees that are deducted on a monthly basis to cover the costs borne by the insurerfor providing a life cover to the policy holder. Depending on the age and the sum insured, these charges are deducted for life cover.
  • Fund Management Charges: The allocation of investment in debt and equity requires the insurer to bear the costs of managing the fund.These are charged as fund management charges.
  • Fund Switching Charges: As the name suggests, switching from one fund to another requires the insuredto pay an amount for covering the expenses borne by the company for making the switch.

 

3. Understand the flexibility to Switch

An investor’s need for liquidity, time horizon, and risk appetite will determine the initial allocation but these change over time. ULIPs offer the flexibility of switching between the funds based on changes in market cycles and changes in investor preferences. The number of free switches during a policy year, the cost of switches and the ease of switching are factors that are important evaluation points when choosing a ULIP.

 

4. Analyse and estimatperformance

With the complexity of the ULIP structure plus the huge list of charges and expenses that comes with it, it is difficult to approximate the kind of performance the product may have given during its existence. Always insist with the insurance agent/advisor to show illustrations and data demonstrating how the fund would has performed and is likely perform considering markets ups and downs. More often that not, data would help you decide better on the decision to invest or not.

 

Probably the only benefit, though largely accidental, of an ULIP is that the investor’s money is locked in due to the structure of a ULIP, forcing him to think long term. However, it is needless to say that other options must also be evaluated in comparison to ULIPs before making a choice to invest in them. The most common strategy might be a combination of Pure Term Life insurance policies along with separate investments in Mutual Funds. But like every investment decision, the first step to take is to determine the investment horizon and risk appetite and not get swayed by fancy words or past performance.

 

 

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Landing airplane

This 7th of December is the International Civil Aviation Day and marks the 50th Anniversary of the signing of the Convention on International Civil Aviation.The purpose of this day, as pilots all over might be well aware of, is to recognize the importance of aviation to the overall development of the world.

And while pilots draw great confidence from being able to manage the process of reaching passengers to their destinations safely and comfortably, a more pressing question can be that are they confident when it comes to management of their finances?

The profession of a pilot demands almost all their time all year round. Hence they are left with limited personal time which they wish to live to the fullest. And like most busy professionals,more often than not money management seems to come at the end of this wish list. Pilots go through meticulous preparation and planning for their flights daily but sometimes are unable to do so for their finances.

While money is not the end, it is definitely a means to achieve certain objectives. Proper planning and structure to a pilot’s personal finances can result in he/she being prepared for all kinds of life events and responsibilities. Events such as:

  1. Sudden Illness:The requirement for pilots to be medically fit is of prime importance as they are responsible for the lives of hundreds of passengers daily. Every pilot needs to ensure a good health cover to cover sudden illness and hospitalisation. A pilot may wonder why would he need insurance when he is already covered. But if one actually things about, it might be prudent to have a separate health insurance cover for times when you may not be employed or between jobs or in cases where employer insurance is inadequate.
  2. Need for upgradation of Skill Sets:Like all professions, skill updation is a critical requirement that must be met by all pilots on periodic basis. But these do not come at a cheap cost. Ensuring enough provision and funds are kept aside and is available at the time of requirement can go a long way in avoiding last minute stress.
  3. Contingency Needs: A major issue plaguing the aviation industry is the availability of opportunities. The last few years have clearly demonstrated that problems are plenty in the Indian aviation sectors. For eg. Airlines have closed down, pay cuts are becoming common, or there have been significant delays in salary payments. Such events can have huge financial implications on pilots and their families. Having contingency funds parked in highly liquid assets can help bring some normalcy in such difficult times.
  4. Retirement and Sunset Years:Insufficient planning for your golden years i.e. Retirement can cause stress. In case of pilots, who are among the top earners amongst professionals, this only magnifies the problem. Why so? Pilots more often than not tend to have busy lifestyles with high discretionary expenses. As such they are accustomed to a lifestyle that will only get more and more expensive as years pass This year on year rise in prices is called Inflation and it is an important factor that more often that not, is grossly underestimated. Furthermore, like any other busy professional, even pilots like to keep themselves occupied during retirement years. The interests or activities that they might pursue would also usually have financial implications. Activities such as investing into various ventures, pursuing hobbies or dream goals, continuing leisure flying by enrolling in the local flying club can be just some of the examples. To be able to fund these without affecting retirement corpus requires careful planning early on.

Take the case of pilot Mr. Sharma. Currently aged 30, the household expenses for him and his family is Rs. 12 lakhs per annum. Even if we assume a general inflation of 8%, the same Rs. 12 lakh will become Rs. 1.75 crores at the age of retirement at 65. ( Rules permit pilots to fly till the age of 65 ). In other words, Mr. Sharma would need to have a big enough corpus at retirement that will provide them atleast Rs 1.75 crores every year that will help them maintain current lifestyles.

Pilots are aware of the importance of planning. Each flight requires hours of pre flight preparation which means going through weather reports, system checks among other items to ensure that the flight goes by without any hitch. Similarly having a strategic plan in place for one’s finances can also help prepare for any “rough weather” that could come along in a pilot’s financial life.

 

 

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