Before you decide to hang up your shoes and chase your dreams, it’s important to do some financial planning so that you can enjoy the golden age to the fullest.
THE definition of golden period in one’s work or professional life has now assumed a new meaning. Today, the ‘golden age’ is one when at the peak of your career, you decide to snap your ties with competitive work and spend time on what you always wanted to do. In terms of jargons, some prefer to call it — semi-retirement. Take the case of 42-year old Rajesh (Name Changed). He was doing well for himself as a marketing head in an MNC when he decided to take a break from the daily, hectic work schedule and started to learn pottery. Rajesh, who use to head a team of B-school graduates, is now enjoying his stint as a pottery teacher to young kids. But before you decide to hang up your shoes and follow your dreams, it’s important to do some planning so that you can enjoy the golden age to the fullest.
FIRST THINGS FIRST
Analysts believe that though there are no thumb-rules to follow, keeping a few things in mind can help you chart out your life better after semi-retirement. It depends on individuals and on your background and enthusiasm as well. However, it is of utmost importance that you should check out the following aspects — immediate and near future financial requirements, including loan re-payments or EMIs, past savings to support the household expenditure, estimated time when the regular flow of income (part-time income) will start, and in case of married individual, whether the spouse’s income will be sufficient to meet the day-to-day needs.
Also, any major expenditure such as admission to education institutions, marriage in the family and major medical treatment should be borne in mind. Another factor you must consider is adequate insurance coverage, especially medical, household, disability, and loss of income. Inadequate insurance can adversely hit your retirement plan.
The focus should be on keeping your EMIs as low as possible. Second, you must try to pay off all debts before retiring. To retire early, you need a sufficient financial cushion to cover the unexpected, such as medical bills, higher than expected inflation, higher taxes and lower than expected returns on your investments.
STRATEGY AHEAD
According to financial planners, retirement is the time to review your existing portfolio and take a call whether you want to stay invested in the equity market, move out or balance your portfolio. One must evaluate your position as equity investments are always subject to market risks, though they might give better returns.
Some believe that you should play less in the secondary stock market and play more with mutual funds (who has a long term investment horizon). Speculation in stock market should be avoided completely. A small portion of the total investment portfolio should also be kept in the liquid fund.
Some see no risk in playing with investment in the primary market as it has fewer hassles and the chances of making a loss are very remote. From the point of view of investment planning, one should consider the aspect of liquidity as top of the agenda. Do remember that where there is liquidity, there is mobility. Hence, during semi-retirement period, investment planning should be so done that liquidity of funds is maintained.
INVESTMENT MANTRA
Financial planners don’t see any problems with investments in real estate if you are doing it with the purpose of wealth distribution. However, if it is for generating ongoing income, then you should be clear about liquidity issues. Too much dependency on only rentals on the property value may have a negative impact, though it can also bring security. So, if there are no liquidity issues, then exposure to the tune of 15% is reasonable
The rules are still not clear in reverse mortgage schemes on how the property is valued or revalued, so it should be considered in a worst-case scenario. Reverse mortgage is too early for this age in India. Keeping in view that average life expectancy has increased; this may not be an advisable option at the semi-retirement stage, unless you have more than one house property.
Some Financial Planners are of the opinion that options such as reverse mortgage and fixed investment sources such as the rental housing may well fit in your scheme. The rental housing concept is a great favorite amongst people in the semiretirement period. And if you can get a 4-5 % increment in rent on an annual basis, it may well provide you the money required for monthly consumption.
TAX & LIQUIDATION
To start with, financial planners believe that you should gift your funds to different family members so as to achieve optimum level of income tax planning. However, you should not gift your funds to your spouse and minor children. This is because their income would be clubbed with your income as per section 64.
Similarly, if you want to achieve full tax deduction by way of tax deduction in respect of investments made within the purview of section 80C of the Income-tax Act, then the best option would be to invest in shares or mutual funds, which are specifically demarcated for the purpose of section 80C deduction. You should also evaluate the option of repayment of housing loan vis-à-vis tax deduction for housing interest.
On the liquidation part, caution is that you must think twice before diluting your assets in the mid-age, especially those who have planned and invested for their retirement. Analysts recommend that you should first liquidate hazardous and risky investment options during the period of semi-retirement.
To summarize, keeping a few basics intact can help you plan your semi-retirement in a much structured manner and not only you can enjoy your new job but also afford to take those yearly vacations!
The choice is yours
• Keep your EMIs as low as possible and try to pay off all your debts before retirement
• Review your existing portfolio and take a call whether you want to stay invested in the equity market, move out or balance your portfolio
• Gift your funds to different family members to achieve optimum level of income-tax planning
• Speculation in stock market should be avoided, though you could consider investing in primary market which has fewer hassles and less chances of making a loss
THE definition of golden period in one’s work or professional life has now assumed a new meaning. Today, the ‘golden age’ is one when at the peak of your career, you decide to snap your ties with competitive work and spend time on what you always wanted to do. In terms of jargons, some prefer to call it — semi-retirement. Take the case of 42-year old Rajesh (Name Changed). He was doing well for himself as a marketing head in an MNC when he decided to take a break from the daily, hectic work schedule and started to learn pottery. Rajesh, who use to head a team of B-school graduates, is now enjoying his stint as a pottery teacher to young kids. But before you decide to hang up your shoes and follow your dreams, it’s important to do some planning so that you can enjoy the golden age to the fullest.
FIRST THINGS FIRST
Analysts believe that though there are no thumb-rules to follow, keeping a few things in mind can help you chart out your life better after semi-retirement. It depends on individuals and on your background and enthusiasm as well. However, it is of utmost importance that you should check out the following aspects — immediate and near future financial requirements, including loan re-payments or EMIs, past savings to support the household expenditure, estimated time when the regular flow of income (part-time income) will start, and in case of married individual, whether the spouse’s income will be sufficient to meet the day-to-day needs.
Also, any major expenditure such as admission to education institutions, marriage in the family and major medical treatment should be borne in mind. Another factor you must consider is adequate insurance coverage, especially medical, household, disability, and loss of income. Inadequate insurance can adversely hit your retirement plan.
The focus should be on keeping your EMIs as low as possible. Second, you must try to pay off all debts before retiring. To retire early, you need a sufficient financial cushion to cover the unexpected, such as medical bills, higher than expected inflation, higher taxes and lower than expected returns on your investments.
STRATEGY AHEAD
According to financial planners, retirement is the time to review your existing portfolio and take a call whether you want to stay invested in the equity market, move out or balance your portfolio. One must evaluate your position as equity investments are always subject to market risks, though they might give better returns.
Some believe that you should play less in the secondary stock market and play more with mutual funds (who has a long term investment horizon). Speculation in stock market should be avoided completely. A small portion of the total investment portfolio should also be kept in the liquid fund.
Some see no risk in playing with investment in the primary market as it has fewer hassles and the chances of making a loss are very remote. From the point of view of investment planning, one should consider the aspect of liquidity as top of the agenda. Do remember that where there is liquidity, there is mobility. Hence, during semi-retirement period, investment planning should be so done that liquidity of funds is maintained.
INVESTMENT MANTRA
Financial planners don’t see any problems with investments in real estate if you are doing it with the purpose of wealth distribution. However, if it is for generating ongoing income, then you should be clear about liquidity issues. Too much dependency on only rentals on the property value may have a negative impact, though it can also bring security. So, if there are no liquidity issues, then exposure to the tune of 15% is reasonable
The rules are still not clear in reverse mortgage schemes on how the property is valued or revalued, so it should be considered in a worst-case scenario. Reverse mortgage is too early for this age in India. Keeping in view that average life expectancy has increased; this may not be an advisable option at the semi-retirement stage, unless you have more than one house property.
Some Financial Planners are of the opinion that options such as reverse mortgage and fixed investment sources such as the rental housing may well fit in your scheme. The rental housing concept is a great favorite amongst people in the semiretirement period. And if you can get a 4-5 % increment in rent on an annual basis, it may well provide you the money required for monthly consumption.
TAX & LIQUIDATION
To start with, financial planners believe that you should gift your funds to different family members so as to achieve optimum level of income tax planning. However, you should not gift your funds to your spouse and minor children. This is because their income would be clubbed with your income as per section 64.
Similarly, if you want to achieve full tax deduction by way of tax deduction in respect of investments made within the purview of section 80C of the Income-tax Act, then the best option would be to invest in shares or mutual funds, which are specifically demarcated for the purpose of section 80C deduction. You should also evaluate the option of repayment of housing loan vis-à-vis tax deduction for housing interest.
On the liquidation part, caution is that you must think twice before diluting your assets in the mid-age, especially those who have planned and invested for their retirement. Analysts recommend that you should first liquidate hazardous and risky investment options during the period of semi-retirement.
To summarize, keeping a few basics intact can help you plan your semi-retirement in a much structured manner and not only you can enjoy your new job but also afford to take those yearly vacations!
The choice is yours
• Keep your EMIs as low as possible and try to pay off all your debts before retirement
• Review your existing portfolio and take a call whether you want to stay invested in the equity market, move out or balance your portfolio
• Gift your funds to different family members to achieve optimum level of income-tax planning
• Speculation in stock market should be avoided, though you could consider investing in primary market which has fewer hassles and less chances of making a loss
