Take note of the longevity factor
August 26, 2015
You must have enough money to sustain a long post-retirement life Saving for retirement is a challenge for various reasons. For one, it is difficult to balance meeting near-term and intermediate goals and saving for retirement, which may be years away. Two, how much you save for retirement is a function of your life expectancy, which is uncertain. In this article, we address the risks associated with your life expectancy and post-retirement living. This risk, called longevity risk, is an increasing concern for retirees. We discuss the reason for this concern and how to moderate longevity risk. Longevity risk You depend primarily on passive income to sustain your post-retirement lifestyle. Passive income refers to income that you earn from your
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Three ways to retire before 60
August 10, 2015
Repaying loans early, moving to cheaper cities and using tax breaks can help you retire early. Can you retire before 60? Well, the answer depends on your ability to live on your passive income. Passive income is any income earned without working. This could be interest income, portfolio income, dividend or rent. Here are a few strategies to get there. Repay your loans faster Most people carry their home loans and other loans for the full repayment period, usually 15 or 20 years. However, if you are smart and have the motivation to retire earlier, commit to put 50 per cent of your annual bonus amount as pre-payment of your home loan. Of course, bonuses are subject to business results
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Portfolio Ideas: When should you go for FDs?
August 10, 2015
If your income flows aren’t stable, you may not be able to take more risk. Invest in FDs then Bank fixed deposits have finite maturity and pay fixed interest. This safety also means lower returns and thus fixed deposits may not always help you achieve your goals. For instance, you will need a lumpsum investment of Rs 36.89 lakh today to accumulate Rs. 1 crore in 10 years, if you invest 75 per cent in equity and 25 per cent in deposits. On the other hand, you need Rs. 48.69 lakh to accumulate Rs. 1 crore if you invest 75 per cent in bank deposits and 25 per cent in equity. That works out to 30 per cent more in
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Portfolio Ideas: Managing the risk of high inflation
July 29, 2015
Unexpected increase in prices can mess up your life goal. Inflation risk is the risk of higher-than-expected increase in prices that leads to failure of your life goal. Let’s suppose you are saving for your child’s college education. You assume that tuition fees will increase by 10 per cent. Based on this estimate’ you decide your savings rate and allocation between equity and bonds. But at the end of the time horizon, you find that college fee has instead increased by 15 per cent. So’ you have ₹1.3 crore in your portfolio’ but you need ₹1.5 crore to meet education costs. You have a huge shortfall of 20 lakh between your cash requirement and how much your portfolio generated. This
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