Introduction Retirement planning is the process of setting retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk. What is Retirement Planning ? Retirement planning is being prepared for life after paid working period ends financially as well as all other aspects of life. The non-financial aspects include lifestyle choices such as spending time during retirement, a place to live, designated time to completely quit working, and others. A holistic retirement planning considers alll the areas with equal importance. The level of emphasis on retirement planning varies throughout different life stages. During the youth, retirement planning only means setting aside enough funds for retirement. During the middle of the career, it might change to setting specific income/asset targets and taking the necessary steps to realise them. Once you reach retirement, decades of savings will pay out.Why is Retirement Planning Important? Stages of Retirement Planning: 1. Young Adulthood: Those who are entering an adult life may not have a lot of money to invest, but they can have enough time to let investments mature. It makes a critical and valuable piece of retirement saving. Such investments can make up a large piece of investments with regards to the principle of compound interest. Compound interest allows interest to be calculated on interest the more time you have, the more interest you will earn. 2. Early midlife: “This age can bring in a lot of financial stress in terms of mortgages, student loans, and insurance premiums. Therefore, it may be difficult to save in this period. 3. Later midlife” When time is running out to make up for the difference in the actual savings and retirement plans, you will have the last opportunity to fill the gap. Since you will have higher wages and most of your debts would be fulfilled, you can have a larger sum available for investment.What is Retirement Planning? Retirement planning is a process of setting retirement income goals and taking all the possible actions and making decisions, which are essential to achieve those retirement goals. Retirement planning includes evaluating sources of income, estimating expenses, and setting up an investment plan or savings plan to achieve the retirement goals by managing the risks and assets. When you start earning, retirement planning is not an immediate concern. It may be reasonably easy to put it off till a later time in life. Nonetheless, you must remember that it is always in your best interest to be prepared. There may be many life events that are out of control, but the least you can do is prepare for them in financial terms. The same is true for retirement planning.Each of us has an idea of what our life will look like after retirement. No matter what it is, it requires ample financial support to maintain your standard of life. Retirement planning simply means setting income goals for post- retirement life and determining the steps necessary to achieve them. A significant part of retirement planning is identifying income sources, _ evaluating expenses, investing in savings programs, and managing the risks. To put it plainly, retirement planning means devising financial strategies that will help you save, spend, and invest according to your long- term goals in the later age. There are many financial instruments available that aid in Tetirement planning, depending on_ the individual's profile.Importance of Retirement Planning When you have a steady income source, most problems in life become easier to solve. A financial burden can lead to several harmful consequences, including health issues that will only add to your worries. When you have an adequate understanding of what is retirement planning and how it affects your life, you are better equipped to deal with post-retirement challenges. While you can begin retirement planning at any point in life, it may be more convenient to do it early. Depending on when you start your retirement planning, your goals may also change. The pace of life today makes it challenging to pause and reflect on the long- term plans at the right time.While a comfortable life may have varying connotations for everyone, the importance of retirement planning remains the same. It is crucial to consider the factors particular to you and calculate the adequate amount for a joyful life after retirement. Retirement Planning CalculatorBenefits of Planning for Your Retirement Financial security makes most things in life more convenient. Retirement planning provides that surety of being secure in monetary terms throughout life, regardless of employment. Let's discuss the multitude of such reasons that make retirement planning essential for life. 1. Independence Most people worry about being a burden to their family in their old age. It can also be emotionally distressing to be dependent on someone else for your expenses. Retirement planning allows you to maintain a good lifestyle without depending on family members. Some people think of retirement as a time for achieving goals that were ignored due to more pressing needs in life. If you put in time and effort into retirement planning, such dreams can come true with ease.2. Life Expectancy You may not realize it now, but life after retirement is considerably long. For example, if someone retires at the age of 60, the average life expectancy of 70-75 years gives them many years to manage their post-retirement fund. This is what makes retirement planning at the right age more crucial. 3. Medical Costs With each passing day, the cost of medical treatment is reaching new heights. A medical emergency can burn a massive hole in one’s savings. Furthermore, people are more susceptible to illnesses at an older age.Retirement planning is of immense importance to meet such expenses and receive quality medical care at a time of need. 4. Tax Relief Each earning individual wishes to reduce their tax liability and maximize their savings. The government of India allows certain tax benefits on several financial instruments, which you can include in your retirement planning agenda. It is an effective way to plan for your future and save money in the present simultaneously. Tax benefits are as prevailing tax laws subject to change. 5. Peace of Mind Your peace of mind is invaluable. The stress of managing money to meet your long-term and short-term expenses can be dreadful. It may even cause health-related issues such as hypertension and other unfortunate illnesses. It is more important to shield yourself from such problems at an older age.Types of Retirement Plans in India Currently Indians can choose from a wide range of retirement plans in order to ensure financial security for their golden years. Currently available options include annuity plans offered by life insurance companies, retirement funds from mutual fund companies, unit linked investment plans and the National Pension System. Below are key details regarding these retirement plans in India: 1. Immediate Annuity Plans Annuity plans are designed to provide regular usually monthly income to the subscriber after retirement. In the case of immediate annuity plans, the subscriber makes a single lump sum investment after which the annuity pay outsstart within 1 year. This retirement planning investment option is most suitable for individuals who are close to retirement. 2. Deferred Annuity Plans In this type of annuity plan, the investor has the option to choose the timeframe or period over which he/she wants to receive the annuity payouts. To avail this type of retirement plan, the subscriber has to make multiple relatively small payments over a period of time during the accumulation phase. During this period, these small investments grow and create a corpus for retirement. The payouts from this annuity plan typically start after retirement. 3. Senior Citizen Savings Scheme Senior Citizen Savings Scheme (SCSS) is a government-backed savings scheme designed to give regular income after retirement. This tax- saving investment option can be availed by retired individuals aged 60 years or more as well as by individuals aged between 55 and 60 years.as by individuals aged between 55 and 60 years. The minimum investment allowed is Rs. 1000 annually and the maximum investment allowed is Rs. 15 lakh. The initial investment tenure allowed is 5 years with the option of extending for an additional 3 years after maturity. The interest payouts from this scheme occur every quarter and the current SCSS interest rate is 7.6% p.a. which is applicable till December 2022.4. National Pension System The national pension system (NPS) is a retirement plan that can be availed by any individual between the age of 18 and 70 years. This retirement plan offers tax benefits of up to Rs. 2 lakh in a financial year. This retirement planning option is suitable for investors who have moderate to high risk appetite through investments in market linked instruments. Investors can opt to invest in Equities, Corporate Bonds, Government Bonds and Alternative Investment Funds. NPS account matures after the subscriber is 60 years old and the amount can be used to purchase annuities and receive a monthly pension post retirement.How do Retirement Plans work? Typically, investments in a retirement plan or pension scheme should be started as part of retirement planning as early in life as possible. The early start to retirement planning means your investments will have a longer time to grow and you will also be able to invest a bigger amount as the accumulation phase would be longer. After completion of the accumulation phase, the corpus created is used to purchase annuities that would provide a monthly income post- retirement. Additionally, even after being converted to annuities, the retirement corpus would also continue to grow. Depending upon the type of pension plan purchased, the annuity payouts can be life-long or for a limited term such as 10 years or 15 years post retirement. At the end of the annuity payout term, all monthly payouts will cease.When Should You Start with Retirement Planning? There is no perfect time to start with retirement planning. At different stages in life, your financial profile may look different. However, it is advisable to begin retirement planning in the early years of life. It helps spread the investments over an extended period, thereby reducing the burden on your regular income. Typically, retirement planning includes three phases of investment, accumulation, and withdrawal. The first phase should start at the age of 30-50 when you can afford to save or invest a fair amount.We understand that growing your money safely is important. This is why we have designed retirement plans that suit your needs. Some of these plans offer you the potential to grow your money. There are also plans designed to ensure a guaranteed! regular income for life. 1T&C Apply Benefits of retirement plans® z TY z wl VT fi} | © || & Regular income Guaranteed Safe and secure after retirement lifelong income investment without market volatility ES \gy i Tax? benefits on investments Customisable as per your needs 1T&C ApplySteyitiavicye [Retirement Plans in India Here are the eligibility criteria for purchasing a retirement plan in India: Entry age In most cases, the minimum age for entry into a retirement plan is capped at 18 years, while the maximum age is around 70 years. However, these can differ depending on the plan you choose. Premium Retirement plans generally allow you to choose the premiums you want to pay towards your plan, as per your requirements. A higher premium may lead to a higher income during your retirement.Vesting age The vesting age is the age at which you can start receiving your pension or income from the plan. The general vesting age is fixed at 40. However, this may vary depending on the plan you choose.Tips for Retirement Planning lf you want to start retirement planning, you can follow these steps: Start Saving Now When it comes to planning for retirement, the earlier you start, the better. Starting early gives you more time to save a corpus that will grow steadily each year. The power of compounding works better the longer you stay invested, so purchasing a pension plan in your 20s and 30s will help you enjoy a financially secure retired life.Prepare for Future Financial Emergencies While planning your retirement, you must consider future financial emergencies. For example, purchasing a health insurance plan and setting up a contingency fund to help with medical costs or other emergencies helps you maintain your financial independence once you retire. Explore Life Insurance Options Every good financial plan includes a life insurance policy. You can consider getting a term plan to secure your family’s financial future and help your spouse prepare for retired life. Ensure you evaluate your options and find a policy that provides enough support for your loved ones.4 Diversify Your Investments When it comes to planning your finances for the future, never put all your eggs in one basket. You should find ways to diversify your investments to ensure good returns over the years. Ideally, look for investment options that allow you to lower your risk by investing in different types of funds. Evaluate the various investment and retirement plans available and pick one that suits your financial goals and risk appetite. Think About Your Retirement Goals Finally, before you purchase a retirement plan, understand how much you would need to achieve your post-retirement goals. Consider the cost of travelling in the future or the cost of learning how to play an instrument or set up a consultancy. List your goals and carefully consider how much they would cost. Once you understand how much you need, you can work on a plan to help you achieve your target. _——————“What are Pension Plans? Pension funds are financial tools that help you in accumulating funds for your post- retirement years. By investing a certain amount regularly towards your pension fund, you will build up a considerable sum in a phase-by-phase manner. They generally have two stages-— e Accumulation stage: You pay a specific amount regularly until you retire. e Vesting stage: Once you retire, you get a steady flow of income for life. Who Should Consider Pension Plans? Pension or annuity plans are valuable financial tools that can help you achieve your retirement goals. They provide you with the required financial support to live a financially independent life even during your retirement.You want to continue your current lifestyle even during retirement. You may also have post-retirement goals, such as buying a house, traveling, pursing a hobby, starting a new venture and more. Pension plans provide you with regular income to help fulfil your financial needs during your retirement. You should consider buying an annuity plan if you are looking for a worry-free retirement. Types of Pension Plans in India 1. NPS The government of India introduced the National Pension Scheme (NPS) as a financial cushion for retired persons. Some of its features are as follows: e You have to invest in this scheme until 60 years of age. e The least sum you must invest is = 1000/-. There is no upper limit. e Your money will be invested in debt and equity funds based on your preference.e The returns depend on the performance of the funds you choose. e When you retire, you can withdraw 60% of your savings. e You must use the remaining 40% to buy an annuity — a retirement plan offering periodic income. 2. Public Provident Fund (PPF) PPF is a long-term investment scheme with a 15 years tenure. Thus, the impact of compounding is enormous, especially towards the end of the term. Every year you can invest a maximum of = 1.5 lakh in your PPF account. You can pay upfront or through twelve instalments staggered over the financial year. Your PPF investments are eligible for deductions” under Section 80C of the Income Tax Act, 1961 (ITA).The government sets the interest rate on PPF every financial quarter, based on the profits from government securities. The funds are not market-linked. 3. Employee Provident Fund (EPF) EPF is a government savings platform for salaried employees. Both your employer and you have to make equal contributions towards your EPF account. Your share is deducted from your salary every month. The Employees' Provident Fund Organisation (EPFO) sets the interest rate on the investment. On retirement, you receive the total funds contributed by you and your employer along with the accrued interests. 4, Annuity plans Such plans provide a life cover along with a regular source of income. If an unfortunate event occurs while the plan is active, your family member receives a lump sum payout, however, there are other options too that do not offer this financial coverage. Annuity plans are of two types:A. Deferred Annuity It is a contract with an insurance provider helping you build a retirement corpus. You can make a single lump sum payment or pay regular premiums over a fixed time frame — the policy term. Thus, this scheme helps you invest ds per your resources. When the policy period ends, your pension starts. If your retirement date is far in the future, this plan is suitable for you. B. Immediate annuity It is a contract between an individual and an insurance company, wherein the individual pays a lump sum amount and receives guaranteed” income for a lifetime, starting almost immediately. ICICI Prudential Life's Guaranteed Pension Plan is one such retirement policy that offers both Immediate and Deferred Annuity options. It offers several benefits:e Alifelong guaranteed™ income e Eleven annuity options, including pension for your spouse/family member or return of purchase price to your nominee in your absence e Options to avail income on a monthly, quarterly, half-yearly, or annual basis e Top-up option to systematically increase your annuity income e Attractive discounts for NPS subscribers or existing customers e Tax benefits” on the premiums paid e Option for lump sum payout on the diagnosis of critical illnesses or permanent disability is covered under the plan e Options to get back the purchase price earlier in your lifetime Thus, this plan secures you against all age- related exigencies and can be a lucrative financial cover in your retirement years.How does a reverse mortgage get paid back? With a reverse mortgage loan, the amount the homeowner owes to the lender goes up-not down-over time. This is because interest and fees are added to the loan balance each month. As your loan balance increases, your home equity decreases. A reverse mortgage loan is not free money. It is a loan where borrowed money + interest + fees each month = rising loan balance. The homeowners or their heirs will eventually have to pay back the loan, usually by selling the home.What is a reverse mortgage and how does it work? A reverse mortgage is a type of home loan that allows owners to turn their home equity into cash. With this type of mortgage, you don't make monthly payments, instead, the lender pays you. The amount you can borrow is based on your age, mortgage rate and the value of the home (up toa limit depending on the loan type). A reverse mortgage is due when the owner or owners pass on, sell the home or it is no longer their primary residence. It's important to note that although you don't make regular payments on a reverse mortgage, the loan balance grows. Interest and fees are typically added to the loan balance that's due when you (or your estate) pay back the loan. Otherwise, a reverse mortgage allows you to live in your home without having to pay back the loan as long as you continue paying ongoing homeownership costs, such as property taxes and homeowners insurance.Example of a reverse mortgage 1. You're 68 years old, own a mortgage-free home that's valued at $400,000 2. You successfully apply for a reverse mortgage with a 7% interest rate. Based on your age, home value and interest rate, let's say you qualify for a reverse loan of $192,000. 3. Your reverse mortgage fees are typically taken out of your maximum loan amount. If your fees are $17,000, you'll be able to borrow up to $175,000. Remember you are being charged interest, so your overall loan debt is growing, which means your equity is likely to decrease. 4. The reverse mortgage is usually due when you die, sell your home or it's no longer your primary residence. You'll owe the total loan amount (what you borrowed, plus interest and fees) up to the value of the home. If the home is worth more than the reverse mortgage balance, you or your estate keep the difference.You can choose to have your property taxes and homeowners insurance paid by your reverse mortgage lender with a Life Expectancy Set Aside (LESA). With a LESA, the lender earmarks a portion of what you are eligible to borrow to cover these expenses. And sometimes, you might not have a choice. "If there's been a history ... of trouble paying taxes and insurance then it... will be required by the lender," says George Morales, reverse mortgage product manager at Mortgage Cadence, a mortgage origination software company. All reverse mortgage loans are non-recourse loans, which is a feature that protects the borrower if home values drop. With a non- recourse loan, a borrower (or borrower's estate) won't be responsible for paying the difference if the mortgage balance exceeds the home value when they sell the home. And you're allowed to stay in your home indefinitely without having to pay the loan back. "The caveat is that you have to maintain the home and you have to continue making property tax payments," Harris says.Reverse mortgage types Just like with standard purchase or refinance loans, there are various types of reverse mortgages. You can have a fixed or variable mortgage rate, and the payment can be issued as a lump sum, monthly payments, a line of credit or a combination of payments and a line of credit. Because of how complex a reverse mortgage can become, you should always talk to a financial professional before taking one on. But no matter the structure of the individual loan, all reverse mortgages tend to fall under two major categories: Home Equity Conversion Mortgages (HECM) and proprietary reverse mortgages. The biggest difference between these two categories is one is insured by the FHA and must meet the FHA's requirements, while the other does not.Home Equity Conversion Mortgages (HECM) HECM loans are the most common type of reverse mortgages, and these loans are insured by the Federal Housing Administration (FHA). A HECM has an FHA mortgage limit that the amount you can borrow is based on and you'll pay an upfront and ongoing mortgage insurance premium. Proprietary reverse mortgages A proprietary reverse mortgage is not insured by the government and can allow you to borrow based on a home value that exceeds the HECM limit. This type of loan tends to have higher mortgage rates and may not be available in your state.Reverse mortgage requirements HECM loan requirements are set by the FHA which is part of the U.S. Department of Housing and Urban Development (HUD). HECM loans are only available through FHA-approved lenders, and have these requirements: @ You are at least 62 years old @ The home is your primary residence @ You own the home without a mortgage or have "paid down a considerable amount" of your loan @ You can afford to continue paying property taxes, homeowners insurance, etc. @ You are not behind on any federal debt, such as federal income taxes or student loans @ You must meet with a HUD-approved HECM counselor As part of the application process, your financial information will be verified, including your credit history, income, assets and expenses. The property must also meet all of the FHA’s standards and can be a multi-family home of up to four units as long as one unit is owner- occupied. >The HECM loan limit is increasing to $1,149,825 for 2024 (up from $1,089,300 in 2023). This limit applies to all HECM loans regardless of where the property is located. What this means is, the amount you can borrow is based on your home's value or the loan limit, whichever is smaller. Proprietary reverse mortgages may not be available in your area, and the requirements differ. For example, you may be able to qualify at age 55 and borrow based on home values that exceed the HECM loan limits.Reverse mortgage pros and cons Reverse mortgage loans are a way for retired homeowners to access home equity without taking on a monthly payment. This can help pay the bills or fund a more comfortable retirement, and the payments you receive from a reserve mortgage don't count as income, so the money you get isn't subject to income taxes. On the other hand, a reverse mortgage can make passing your home to your family more complicated or expensive. And because a reverse mortgage exposes the lender to the risk of losing money if the home value drops, it's usually a more costly type of loan in terms of fees and interest rates.Pros ® Nomonthly payment @ Tax-free payments © Protected if the home value drops Cons © Typically higher fees than other types of loans © Potentially higher interest rate @ Itmay be harder to pass on the home to family