Five essential factors that you need to consider if you plan to relocate back in your silver years
There is a joke in Kerala that every family donates one of its sons to the Gulf (read as the UAE). This would equally apply to Gujarat or Punjab. And after spending much time overseas, many non-resident Indians (NRIs) return to India to live their retired life. It seems they know where to retire, but are not planning enough for it. On 1 May, Standard Life Plc, a savings and investment company, in collaboration with Insight Discovery, a research company, found in its wealth study, NRIs: successfully saving for retirement or not?, that three quarters of the UAE NRIs expected their children to look after them.
This may not apply to all NRIs, but it is an important pointer to the fact that NRIs may underestimate the corpus needed and overestimate the willingness of their kids to fund their retirement. Here are five things that you need to do if you plan to relocate back home in your silver years.
Decide your age of retirement
Deciding when you will retire is an essential first step. Some people have age targets while others may aim at a corpus before they retire. Says Suresh Sadagopan, a Mumbai-based financial planner, “Knowing when you will retire helps in calculating the corpus needed for post-retirement period."
Corpus required during retirement
The corpus required is a tough one to decide because you may not fully understand the costs in India. Also how much you need to save will depend upon the purchasing power of the currency you save in. During your working life, relocation in that sense is a bit easier because your employer would do the math for you but in retirement you are all alone.
Hence take the help of a financial planner to arrive at the living expenses you will need post retirement and the corpus required towards that end. “NRIs who plan to retire in India will need real estate and funds in the homeland. Considering that India is a growing economy and has investment options for NRIs, you can look at India for investment destination," says Amit Kukreja, chief financial planner and founder, WealthBeing Advisors, a financial planning firm.
Pick the right retirement products
Retirement planning is a long-term goal which means you can take on higher risk for higher gain by investing aggressively in equities. If you have an investment horizon of 20 years or more, almost 60-80% of your investment should go into equity and real estate as it is a long-term investment plan and the remaining into debt. India offers a number of products for NRIs in all the asset classes but do NRIs see India as an investment option? Says Narayan Shroff, director, global research and investments, wealth and investment management—India, Barclays, “There is always a home bias. So NRIs do invest in India. Many of those who have migrated to nearby countries such as Singapore and the UAE continue to have linkages in India and they have better understanding of the local markets as well."
Says Vishal Dhawan, a Mumbai-based financial planner, “If you want to invest in equity, NRIs can do it directly or through mutual funds (MFs)." To directly invest in stocks, NRIs have portfolio investment scheme—a facility notified by the Reserve Bank of India to buy Indian equities by non-residents. In MFs, NRIs can invest directly.
The Indian realty market has always been attractive for NRIs as it is easier to earn in stronger currency and pay in Indian rupee. NRIs also get home loans to purchase a house. Besides equity and real estate, debt should also form a part of your retirement portfolio. Says Dhawan, “As you near the age of retirement you should reduce your exposure to equity and move to debt. Again India offers debt investment options for NRIs in the form of debt MF, fixed maturity plans and gold exchange-traded funds."
For conservative investors, bank deposits have always come in handy. NRIs can deposit money in Indian currency or in foreign currency and earn fixed returns on it.
Insurance is a must, but unlike the work years where having a life insurance cover is just as important as having health insurance, retirement days make life insurance redundant to a great extent. That’s because by then you are able to build a sound asset base and have fewer dependants on your income. Health insurance on the contrary becomes very important.
Just keep in mind that if you are healthy, buying a fresh health insurance policy will not be a problem as insurers are required to offer insurance cover to first time buyers at least till 65 year of age.
Beyond that you may find it difficult. Says Kapil Mehta, founder, SecureNow Insurance Brokers Pvt. Ltd, “If you are retiring always take a higher cover of 10-20 lakh as the medical expense for above 60 years of age is expected to be high."
Make a will
Building up assets is very important for long-term goals such as retirement planning, but any prudent financial planning remains incomplete without estate planning. You need to have a succession plan in place to avoid heartburns and conflicts later on in the family.
Says Kukreja, “It is always better to discuss your property matters when you are alive so that there is neither ambiguity nor a cause for conflict later. If you don’t want to disclose your plan, you can issue a power of attorney to a person you trust to carry out the transfer."