What Retirees Worry About The Most?

Introduction

In this article, we are going to discuss retiree’s top financial concerns. Though retirement is an exciting milestone to look forward to, the idea of it can be nerve-wracking.

Retiree’s Top Financial Concerns

Though retirement is an exciting milestone to look forward to, the idea of it can be nerve-wracking. After all, there is a host of financial unknowns associated with retirement. And living on a fixed income leaves many seniors struggling to make ends meet. 

Formal retirement has been identified as the tenth most stressful life event. The retirement life stage, whichever way you choose to structure it, can be an incredibly stressful time for those experiencing it.

Out of the most stressful events could happen in one’s lifetime, about one-half of these events are likely to happen during a person’s retirement years. These include events such as the death of a spouse or close friend, severe illness, retrenchment, formal retirement, change in financial state, change in living conditions, change in social activities and moving residence.

What Retirees Worry About Most?

Compounding the above mentioned stress is the fact that many of these life events take place simultaneously in retirement. In addition to these life events, there are many other things retirees worry about the most.

Here are the retiree’s top 7 financial concerns explained in detail.

1. Outliving the Retirement Corpus

• Inability to anticipate future financial needs is the main roadblock to planning
  • A Retirement Study found that 76% of working age people in India expect a comfortable retired life, but only 33% are actually putting aside money to fund that their retirement phase of life.
  • 45% people feel it’s better to spend money on enjoying life now than saving for retirement, while 53% save for short-term goals rather than longer term.
• Increased Human Longevity Due to Advanced Medical Technology
  • Running out of money is one of the primary concerns of most retirees. Longevity risk is an even larger concern today, as life expectancy has risen.
  • As medical technology continues to advance, this trend will continue to extend human life expectancy. Increased human longevity means that more retiree are outliving their retirement corpus.

2. Beating Inflation

• When you are earning a fixed income, inflation can have a profound impact on the quality of your life. Beating inflation is often cited as the most essential function of long-term saving because of the risk it poses in retirement.
• Example: If the current yearly expenses of an individual is Rs.6 Lakh, then assuming the rate of inflation to be 7% per annum, the value of yearly expenses after 20 years would be Rs.23.21 Lakh.
• Decreasing Interest Rates on traditional investment products like Fixed Deposits, Post Office Schemes like Kisan Vikas Patra, LIC are not even matching the inflation and therefore savings are not growing. Lower interest rates reduce retirement income by lowering growth rates for savings accounts and assets.

3. Rising Healthcare Costs

• Ageing and increased levels of chronic disease are the main drivers of medical inflation. The Medical or Healthcare inflation in India is rising at double the rate of overall retail inflation, almost at 10-12% currently in 2019.
• For retirees, the major concern is whether they will be able to pay for good quality healthcare when they need it.
• Paying for private nursing home care can quickly wipe out a lifetime of savings. A retiree’s ability to pay for the cost of in-home healthcare, adult day-care and nursing home expenses may determine the quality of healthcare the retiree can receive.

4. The Onset of Major Life-threatening Disease

• A number of major life-threatening disease, including Cancer, Stroke, Heart disease and Diabetes are common worries amongst the retirees.
• In India, more than 4 million people are estimated to be suffering from Alzheimer’s and other forms of dementia. India’s dementia and Alzheimer’s burden is forecasted to reach almost 7.5 million by the end of 2030. The disease primarily occurs in patients over the age of 60. The legal and estate planning complications, and adjustments to living arrangements need to be considered in such cases.
• The lifetime risk of cancer for people born since 1960 is greater than 50% now. The cost of cancer treatment has also gone up many-fold in recent years. In fact, treatment costs now have the potential to wipe out a retiree’s entire life savings.

5. Becoming a Financial Burden on Adult Children

• According to one survey, 7 out of 10 Indians expect their children to support them in their retirement and relying on their adult children for financial support.
• The retiree’s adult children struggle to educate their teenage children and care for their ageing parents at the same time.
• Many adult children end up delaying their own retirement funding in order to support their retired parents, which in turn perpetuates the cycle of dependency.

6. Being a Victim of Fraud

• The risk of losing money to scams, fake schemes and investment fraud is a very real fear for many retirees.
• Recent PMC Bank Fraud (Punjab and Maharashtra Bank) is one of the example of this kind of frauds, where many retiree’s life-time savings and deposits are still engaged in the scam. These retiree are not able to even withdraw their entire corpus from the bank and struggling for the same.

7. Losing a Spouse or Partner

• The death of a spouse ranks as the most stressful life event in the retirement phase. The fear of losing one’s life partner in retirement is a major stressor for retirees.
• Also, there is the financial impact : A spouse’s death (who was financially independent) can lead to a reduction in pension benefits or bring additional financial burdens, including lingering medical bills and debts.
• Besides for remaining socially connected in retirement, retirees are advised to ensure full transparency with regard to their finances and estate planning to reduce the burden on the surviving spouse.

Choose the Right Financial Asset – Equity / Debt / Gold / Real Estate

Introduction

In this article, we are going to discuss how one can invest smartly during economic slowdown. In these challenging times, how and where one should invest, because choosing the right financial asset between equity / debt / gold / real estate is very crucial in building the financial portfolio.

Invest Smartly During Economic Slowdown | Where One Should Invest?

There are 4 main type of asset classes in which Indian Investors invest overwhelmingly.

1. Equity

Entry into Equity Market with High Returns Expectations

• The current economic slowdown and a volatile stock market are two main reasons spreading the nervousness amongst the investors. Many investors started investing in mutual funds in 2018 after the ‘Mutual Fund Sahi Hai’ awareness program by conducted by AMFI (Association of Mutual Funds in India).
• The investors had started investing mutual funds with a high expectations of returns, just by seeing the higher side trailing returns specifically from Mid cap and Small cap funds in 2017-18.
• However, now they are wondering whether they have made a mistake by investing in equity mutual funds. Because since the peak of January-2018, Mid Cap Index has corrected by 25%, while the Small Cap Index has corrected by almost 40%.
• On the other hand, Nifty is up around 7% for the same period. Some good stocks are pulling up certain indices, but most mutual fund schemes are gazing at losses.

Equity Mutual Funds – Benchmark Trailing Returns

• With this scenario, some investors are thinking whether they should stop their SIPs in equity mutual funds.
• Others are feeling depressed after comparing the negative returns offered by equity schemes with decent returns offered by fixed deposits, debt schemes, PPF etc.
• Some fainthearted investors are looking at even to sell their equity mutual funds.

2. Debt

• Debt Funds :
  • Close-ended debt funds (Fixed Maturity Plans) :
    • These plans invest in various types of fixed income options such as bonds, bank certificate of deposits etc. which mature on or before the maturity date.
  • Open-ended debt funds
    • These funds are considered less volatile than equity thereby offering stable returns as compared to equities. They also invest in various debt instruments such as corporate bonds, treasury bills, government securities etc. These schemes are professionally managed by debt fund managers.
    • There are different types of debt mutual funds such as liquid funds/money-market funds, short-term income funds, gilt funds, corporate bond funds etc.
    • These funds invest in various instruments of different time horizons and carrying different levels of risk. An investor can invest in these funds depending on his/her time horizon and risk appetite.
• Fixed Deposits (FD) :
  • Bank fixed deposits (FDs) is another popular investment option which offers fixed returns. One can invest in a bank FD by visiting his/her branch or via Net-banking.
  • Bank FDs offer cumulative and non-cumulative options. In the cumulative option, the interest is re-invested and payable on maturity whereas, in the non-cumulative option, interest is payable periodically (monthly, quarterly or annually depending on the bank).
  • Interest is added to your income and taxed as per your income tax slabs. Interest is subject to tax deducted source (TDS).

3. Gold

• During the recent volatile or falling equity market since IL&FS crisis, investors saw the appreciation in the value of the Gold and can easily get fascinated towards it as an investment option.
• From an investment perspective, it is true that during short term turbulent times, gold has historically provided some safety cushion against riskier asset classes like equity.  
• However, when we look at relatively longer time periods, gold has underperformed equities. For example, since the beginning of this decade till prior to the IL&FS crisis in mid 2018, gold had generated a compounded annualized growth rate (CAGR) of 6% vis-a-vis almost 10% for Nifty50.
• And this will always be the case in future also. The reason is that gold does not actually produce anything or create any value. Unlike equity or bonds or bank deposits, the money that you invest in gold does not contribute to economic growth. The same amount of money put into a good business or any other productive economic activity will create wealth.
• Hence, gold should not be viewed as an asset class to meet long term financial goals. If an investor wants exposure to gold, it should be from the perspective of stability in portfolio returns when other asset classes are performing poorly. Investment options in gold come in the form of :
  1. Gold Funds
  2. Gold ETFs
  3. Digital Gold

4. Real Estate

• People buy a house either for self-occupation or to earn rental income and capital gains from it.
• However, investing in real estate to earn rental income is not considered as a good investment. This is because:
  1. Rental income earned from house ranges usually between 2-3 per cent a year.
  2. The appreciation in the prices of house property depends on various factors such as size, locality, location etc.
  3. Before making an investment in property, one must evaluate based on safety, liquidity, returns and other similar parameters.
• Thus, Real estate investment is good from self-occupation perspective only, but one should not invest in real estate for getting regular returns from that investment.

Thus, in this kind of confusing mind state amongst the investors right now, let us try to answer how one can invest smartly during current economic slowdown phase.

Invest Smartly – Follow a Process Based Approach Rather Than a Product Based Approach

• One should build the portfolio by executing a proper financial planning rather than referring the trailing returns of any fund.
• A proper financial plan should be created in accordance with the parameters like :
  1. What is your financial goal?
  2. How much is the investment horizon?
  3. What is your risk profile?
  4. How much returns are you expecting?
• You can choose the suitable asset allocation strategy with respect to the financial goal and investment horizon.
• Thus, you should follow your investment strategies, especially in times of market volatility. You should always remember that equity investments are only suitable for long term, more than five or ten years.

Conclusion

• Thus rather than taking the panic decisions regarding your portfolio, one should use the current economic slowdown phase as an opportunity to make money. It is a good time to review your investments and diversify your portfolio.
• The key is to follow a proper financial planning approach, which is a process base approach. You need to stick to the financial plan, irrespective of any temporary or short term market movement. In this way, you can create wealth and meet your financial goals. 
• One can assess the market conditions by linking it to your financial planning and current investments and redefine the path to your financial goals, if needed. Not making rash decisions and staying invested is the key to wealth creation.
• Market slowdown is a good time for you to check and correct your expectations from the stock market for the next couple of years. You need to realign your portfolio expecting returns accordingly.

RD Interest Rates of Top Banks (October 2019)

Introduction

In this article you will find the Recurring Deposit (RD) Interest Rates of major banks in India. These interest rates are as on last updated by the respective websites.

Recurring Deposit

What is Recurring Deposit (RD)?

• A Recurring Deposit, commonly known as RD, is a unique term-deposit that is offered by Indian Banks. It is an investment tool which allows people to make regular deposits and earn decent returns on the investment. 
• Due to the regular deposit factor and an interest component, it often provides flexibility and ease of investments to users/individuals.
• However, it is essential to know that RDs are different from Fixed Deposits/FDs . RDs are flexible in most aspects. An RD account holder can choose to invest a fixed amount each month while earning decent interest on the amount. RDs are an ideal saving-cum-investment instrument.
• Most major banks in India offer Recurring Deposit Accounts, with a term that often ranges between 6 months  to 10 years, also providing individuals with the opportunity to choose a term according to their needs. However, the interest rate, once determined, does not change during the tenure.
• On maturity, the individual will be paid a lumpsum amount which includes the regular investments as well as the interest earned.

Below are the Recurring Deposit (RD) Interest Rates offered by major banks for various durations :

Recurring Deposit (RD) Interest Rates for tenure up to 2 years

Recurring Deposit (RD) Interest Rates for tenure from 2 years up to 10 years

Notes :

1. Citibank provides RD’s with minimum tenure of 1 year and maximum tenure of 2 years.
2. All the banks mentioned above offer 0.50% extra interest rates for senior citizens.
3. Only Bandhan Bank offers 0.75% extra interest rates for senior citizens. And Axis Bank provides variable higher interest rates for senior citizens.

Summary

• IndusInd Bank provides the highest interest rates 7.50% on RD’s for 1 year tenure (12 months).
• Yes Bank  provides the highest interest of 7.75% for the tenure of 24 months.
• Bandhan Bank, HDFC Bank, Kotak Mahindra Bank, IndusInd Bank, Yes Bank, DBS Bank and IDFC Bank provide high and competitive interest rates on RDs.

Latest Interest Rates of Savings Account October 2019

Introduction

In this article you will find the Interest Rates of Savings Account provided by major banks in India. These interest rates are as on last updated by the banks respective websites.

Interest Rates of Savings Account of Major Banks October 2019

Digi bank by DBS (DBS Bank) offers the highest interest rate on savings account. The interest rates are as follows :-

(Balances up to 1 lakh will get 5.5% interest rates. Any balances over and above 1 lakh & up to 2 lakhs will get 7% on the incremental amount, 2 lakhs & up to 5 lakhs will get 5% on the incremental amount & 4% on the remaining balances.)

The list of banks below offer the following interest rate :-

Some banks offer the following interest rates on their savings account :-

Summary:-

• We can see that most of the major banks in India offer almost same interest rates. The most basic interest rates offered by the maximum bank ranges around 4%.
• DBS Bank is the one that provides the highest interest rates on the balance in your savings account. But, DBS has very limited reach. They are only based in metropolitan cities and some other few cities. It is only beneficial to choose DBS Bank if you have a branch near you. Otherwise, opting for another bank would be better as getting services and other advantages from DBS Bank will be an issue.

• After DBS Bank, RBL Bank (formerly  known as The Ratnakar Bank limited) and Yes bank offer higher interest rates on your balance in savings account.
• Kotak Mahindra Bank as well as Bandhan Bank also provide high and competitive interest rates on their savings account. In comparison with top banks in India, Kotak Mahindra Bank has the widest reach across India. Their branches and ATM’s are spread all over India. It has quite high reachability.

Home Loan Interest Rates October 2019

Introduction

In this article you will find the Interest Rates on Home Loan of Major Banks in India. These interest rates are as on last updated by the respective websites.

Interest Rates on Home Loans of Major Banks

You can choose the bank which provides lowest interest rates and also which you think has good reputation, great service and easy accessibility.

Given below are the interest rates for home loans offered by major banks for October 2019 :

Note:-

• The above details are as specified by the banks on their website.
• Some banks have only mentioned a range of the interest rate offered by them. For a more detailed specification will have to contact the bank.
• The above way of presentation of interest rates is not common to all the banks. It has been standardized for a neat presentation of interest rates. Some banks may have presented the information differently.

Summary –

• State Bank of India has lowered its interest rates for home loans up to Rs.30 lakh.
• Punjab National Bank, Canara Bank , Oriental Bank of Commerce and Indian Overseas Bank also offer comparatively lower interest rates on home loans provided by them.
• The above list of interest rates on home loans of major banks can help you decide which bank to choose. You can choose the bank which provides lowest interest rates and also which you think has good reputation, great service and easy accessibility.