Month: January 2019

          Efficiently managed Mutual funds offer investors low-cost access to high quality money managers. Mutual funds span the spectrum of risk and potential returns from non-fluctuating money-market funds. But there is always a need to review the performance of the funds and reallocate your investment from time to time as the return of some funds varies a lot with time.

   Under performance by a mutual Fund may not be the only reason to stop SIPs. There are many other factors also which should be kept in mind while continuing with The SIPs in a particular fund, Here’s why you may like to quit the fund despite the fund performance being well : –

  1 You Need To Re-balance Your Portfolio : –

     If you are re-balancing your portfolio, it may be reason enough to dump some funds and opt for others that are in sync with your goals. The trigger for re-balancing could be many. For instance, you may need to alter the risk profile of your portfolio due to age,say , when you are approaching your 50s. In such a case, you would want to move from an equity -oriented to a debt heavy portfolio. Proximity to a financial goal could also mean that you move out of equity- oriented funds and opt for safer options like balanced or liquidity funds.

    2 Fund Is Not Performing As Well As Peers : –

       It is possible that your fund is giving high returns over a specified period, which may seem acceptable to you in isolation. “However, if you compare it with its peers and find that other funds are giving much better and your fund is lagging behind, you may want to move out of the fund ad invest in a better performer” say some of the experts. So, a fund may be delivering high returns, but its performance should be seen relative to the category’s performance. If it does not match up, shift to a better fund.

      3 You Have Reached Your Financial Goals : –

         Ideally, one should align one’s investments in Mutual Funds with specific goals. So, if you invest in an equity fund for 10 years for your child’s education, you will need to exit after this period as you will require money. Have the discipline to quit even if the fund is doing exceedingly well. “Don’t get greedy for higher returns and continue with SIPs”. For instance, if you were supposed to exit in 2017, but did not do so due to bull run, you would have suffered a loss when the markets fell in 2018. You are jeopardizing your goal by not exiting when you should.

      4 Fund Objective Has Changed : –

        If the fund changes its objectives regarding risk or return in a way that it is not aligned with your objectives, you should quit even if the fund i performing well. For instance, if you had invested in a conservative hybrid fund, but it raises its equity holding, or a thematic fund starts including scrips not related to the prescribed theme, iot is time to end your SIPs. Instead, opt for a fund that sticks to your portfolio’s risk and return profile making it safer to reach your goals.

      5 Fund Management Team Has Changed : –

        If a merger or acquisition of the fund leads to a change in the management team to the fund manager quits, you could consider bailing out under some conditions. If the fund’s investment policy or objectives change and are not in sync with your goals, or you are not comfortable with the new team and believe the performance may be impacted in the future, you could consider shifting to a different fund. You can also move if you are not happy with the new fund manager’s track record.

      6 Fund Overshoots Median Returns Or Benchmark : –

         It is possible that the fund has performed well over several quarters, but significantly overshoots or falls below the median returns or benchmark during the period. In such a case, even though the fund is doing well, you should quit and go for a less risky option. “It may be a nigh beta fund with excessive volatility and the upside or downside swing may be huge”, says Rohira. If you have aligned the fund to a particular goal, it may not be good idea to retain the volatile fund in your portfolio taken in by the high returns. The risk associated with such funds may not be worth the promised returns.

      7 Change In The Macro-economic Environment : –

        If there are changes in the macro-economic policy by the government or the regulator, and the fund does not align with these or these are likely to impact it in the long run, it may be a good reason to move out. For instance, if a budget announcement renders some funds less tax-friendly than others, you may want to shift even if the fund performance is good as it may impact your returns in the long run. In such cases, to safeguard your capital, you can exit and re-invest when the scenario changes.

       Some Other Salient Points For Consideration : –

    The following are some of the other very important points which you must consider while you make important investment choices : –

      1 Don’t Invest Based On Sales Solicitations :-

         All companies have to do some promotion, but beware of the companies that advertise and solicit prospective customers aggressively with various tactics. Good companies get plenty of new business through the word-of-mouth recommendations of satisfied customers.

      2 Don’t Invest In What You Don’t Understand : –

           Before you invest in anything, you need to know its track record, it’s true cost and how liquid (easily convertible to cash) it is. Don’t go blindly by the advice or recommendations of brokers .

      3 Minimize Fees : –

          Avoid investments that carry high sales commission and management expenses. Management fees create a real drag on investment returns. Not surprisingly, higher fees investments, on average , perform worse than alternatives with lower fees.

       4 Pay Attention To Tax Consequences : –

          The more money you pay in taxes, the less you have for investing and playing with. For investment outside retirement accounts, you need to match the types of investments to your tax situation.

       CONCLUSION : –

    Investment in Mutual Funds or Exchange -Traded Fund is a better way of investment by small investors. But to understand their success is a grasp how and why these funds work for you. So, periodic review of the funds vis-a -vis your goals is very necessary. If required, you can re-allocate your investment depending on their performance.

We all know that billionaires, whether Warren Buffett or Bill Gates, have more money than we can imagine. Here’s an interesting question for you though. What do you think is their “ Wealth “ made up of ?

   Is it in their bank balance? Do they have multi- crore F,Ds.? Is it the value of their real- estate holdings, or something like that ?

   The Not-so -Secret Truth.

 The truth though is that they are rich because they own companies and the companies they own are very valuable. The top Five rich people in 2017, from Bill Gates to Mark Zuckerberg, each one has a net- worth more than $50 billions, and each ons a significant share in certain companies.

    Their source of wealth is not “Cash” or buildings or private jets. Nor is it their “Jobs”. It’s the companies they helped establish and /or are part owners of. You might notice that this is also true of the “Rich” people around in general- more often than not they happen to be business owners.

   The rich own not just their own companies, but(like Warren Buffett) may just be part owners of other companies. The top 10 list of richest people doesn’t include any movie stars or sports stars or real estate moghuls.

    So Why Is It That World’s Richest People Own Companies ?

 Companies are generators of Goods, services and most importantly talented people- people like you and me who are key creators of wealth in companies. Their smart ideas lead to the next generation of goods and services.

 The result is that a successful company creates what is called “economic value”. Essentially , their output is more valuable than the sum of all the inputs go into making their product or services. A Domino’s pizza is more valuable to the person ordering than the sum of the flour, tomatoes, building rent and salaries etc. that go into making it. .

     That Is Wealth Creation

      Guess Who Reaps The Maximum Benefit?

   The shareholder does, in the form of an increase in the value of their shares and regular dividends. Since the promoter of the company or the majority shareholder owns most shares in such a “Great” firm, they receive most of the payouts.

  But it’s not just the founders who benefit. Most often there are other investors in these companies- VCs for private companies and individuals like you and me for listed companies. And they benefit Too.

     Why Should You Know All This ?

  Because same solutions to becoming Rich are available to you too. You don’t have necessarily have to establish your own company even.

  The easier option is to part owner of other companies by buying their shares. But, how do you know, among the thousands of companies, which one will be successful?

   That’s where equity Mutual funds come in. Let professionals decide which companies are the most likely to create wealth. You simply invest in them to become wealthy. You might not make it to the top 10 richest people list, But at least you will have enough wealth to enjoy life- or to start your own company.

    What Is A Mutual Fund?

  A Mutual Fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature. The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, and they provide liquidity. But investors in a mutual fund pay various fees and expenses, known as total expense ratio, to manage the funds like professional charges to fund managers.

   Mutual Funds are classified by their principal investments as money market funds, bonds or fixed income funds, stocks or equity funds, hybrid funds or others. Index Funds, a category of Mutual funds are passively managed funds that match the performance of an Index, or actively managed funds.

    Mutual Funds Vs Stocks : Which Is Better?

  In Mutual Funds, for a small fee, the investor gains the stock-picking ability of the professional fund manager, does not have to track his portfolio and also benefits from tax-exemption of the portfolio gains.

     The main reasons why the fund route is better, is as follows :-

1 No Need To Pick And Track Stocks : –

         When you invest in a mutual fund, you get the benefit of a fund manager’s expertise- picking stocks, tracking them, making sector and asset allocation, booking profits, when required- everything is done by a professional fund manager. A professional fund manager ensures that the portfolio holds good stocks with potential long- term returns.

2 Lower Cost Of Investing : –

         Fund houses negotiate with intermediaries and, therefore, have lower costs. If you buy and sell shares, you will probably pay 0.5- 1% as brokerage. You also have to pay demat charges.

       However, due to their scale, mutual funds pay only a fraction of the brokerage charged to the individual investors. This benefit gets indirectly passed to you as a Mutual Fund investor. You also don’t need a demat account.

 3 Instant Diversification : – A well diversified portfolio should have about 25- 30 stocks. But, such a portfolio can be created only with a large corpus. An individual might not have sufficient funds for a large diversified portfolio. Mutual funds provide instant diversification. Since you buy units of the fund that invests across several stocks, you receive diversification benefit without investing a huge corpus.

 4 Low Cost Of Entry : –  Most mutual funds have low minimum- investment requirements, especially for retirement account investors. Even if have a lot of money to invest, consider funds for the low-cost, high quality money- management services they provide.

 5 Flexibility In Risk Level : – Among the different funds, you can choose a level of Risk that you’re comfortable with and that meets your personal and financial goals, like aggressive, moderate or conservative. If you want to be sure that your invested principal doesn’t drop in value, you can select a money-market fund.

       CONCLUSION : –

   You are the master of your destiny. But you must have a Desire to achieve your goal/s; Faith and Strong Belief in you that you can achieve it; Imagination- to rearrange existing ideas into new concepts and Specialized Knowledge and Skills in order to add value and be paid for it. Most of us, at this advanced age of 50- 55 years may be lacking the specialized knowledge of various investment vehicles available and in such a case, the professional knowledge and experience of Financial advisors can be of great help which is available in mutual funds investments. Transforming Desire into money requires specific plans, for which we have to have always deep Desire and Confidence.

           I have been writing about the consumer debt and the use and misuse of the credit card. I have also mentioned , repeatedly, not to use the credit card for purchase of costly consumer goods like car, costly furniture etc, which are known as Bad Debt. You may think that I’m always against using credit card. No, it is not so. Credit Card can be useful if you pay your credit- card bill In Full and On time each month, your credit card gives you free use of money you owe until it’s time to pay the bill, whereas, Debit cards take the money out of your checking account almost immediately.

 Ways To Cut Your Spending On Credit- Cards : –  

1 Reduce Your Credit Limit : – Keep a lid on your credit card’s credit limit. Contact your credit card agency and lower your credit limit to a level you’re comfortable with.

2 Replace Your Credit Card With A Charge Card : – A Charge card requires you to pay your balances IN Full each billing period. You have no credit line or interest charges.

3 Never Buy Anything On Credit That Depreciates In Value : – Meals out, cars, clothing etc. all depreciates in value. Don’t buy these things on credit, unless you pay the bill, in full, each month.

4 Think In-Terms Of Total Cost : – Everything sounds cheaper in terms of monthly payments. Take the total cost including interest charges, sticker price in consideration.

5 Limit What You Can Spend : – Go shopping with a small amount of cash and no plastic or checks. That way, you can spend only what little cash you have.

       Credit Score And Reports : –

 You may not know it, but you have a personal Credit report and a credit Score. Lenders examine your credit report and score before granting you a loan or credit advances.

    Credit Reports : –   Credit Reports contain information about your bill payment history, loans, current debt, and other financial information. They show where you work, and live and whether you’ve been sued, arrested or filed for bankruptcy

     Credit Reports help lenders decide whether or not to extend you credit or approve a loan, and determine what interest rate they will charge you. Prospective employers, insurers and rental property owners may also look at your credit report. It is important to check your credit report regularly to ensure that your personal information and financial accounts are being reported accurately; that no fraudulent accounts have been opened in your name. If you find Error on Your Credit Report, take steps to have them corrected.    

       Credit Score : –  Your Credit Score, which is not the same as your Credit Report, is a three digit score based on the report. A Credit Score is a number that rates your Credit Risk at one point in time. It can help creditors determine whether to give you credit, decide the terms you are offered, or the rate you will pay for the loan. Having high score can benefit you in many ways, including making it easier for you to obtain a loan, rent an apartment and lower your insurance rate.

        FICO, developed by Fair Isaac and Company, is the leading credit score in the industry. FICO scores range from a low of 300 to a high of 850. Most scores fall in the 600s and 700s. Equifax, Experian and TransUnion– have developed their own scoring system, but many lenders still use FICO, the most. You generally qualify for the best lending rates if your credit score is in the mid-700s or higher.

        It is important to make sure your report is accurate, because it can affect the accuracy of a credit score. Your free annual credit report does not include your credit score, but it’s available ,often for a Fee.

      Obtaining Your Credit Reports And Score : –

      The Federal law entitles you to receive a free copy of your Credit Report annually from each of three credit bureaus (Equifax, Experian and TransUnion). If you visit www.annualcreditreport.com, you can view and print copies of your credit report information from each of three credit agencies ,on line.

      When you receive your reports, the first step is to examine them for possible mistakes. But your credit reports do not include your credit score. You can request your Credit Score from Fair Isaac, but you’ll get charged $19.95 for every request.

    Improving Your Credit Reports and Score : –

   Working to boost your Credit Rating is especially worthwhile, if you know that your credit report contains wrong or incorrect information. The following actions can be taken in this regard :-

   1 Get All Three of your Credit Reports, and be sure each is accurate.

   2 Ask to have any late or missed payments that are more than seven years old REMOVED.

   3 Pay All your bills On Time.

   4 Be loyal if it does not cost you. Closing old accounts and opening new ones generally lowers your credit score.

   5 Limit your debt and debt accounts.

   6 Work to pay down consumer revolving Debt(such as credit-card debt)

        Credit Freeze : – Placing a Credit Freeze allows to restrict access to your credit report. This is important after a data or identity theft when someone could use your personal information to apply for new credit accounts. You have the right to place or lift a credit freeze for Free

    Fixing Errors In Your Credit Report : –

  Under the Fair credit Reporting Act(FCRA), you have the right to request a free report within 60 days if the company denies you credit based on the report. In case of inaccuracies in the report_

  — Contact both the Credit Reporting agency(CRA) and the company that provided information to the CRA.

  — Tell the CRA, in writing, what information you believe is inaccurate. Keep a copy of all correspondence

      Rewards Credit Cards ; –

    Rewards Credit Cards are great for people who don’t carry a monthly Credit Card balance. These cards offer benefits for each dollar you spend, typically in the form of redeemable points. These could quickly help you get things like that flat-screen TV or trip to LA. But these cards generally require a good to excellent credit rating for approval and often come with a higher interest rate. Some of the Most popular rewards credit cards are :-

  1 American Express Cash Magnet Card

  2 Chase Sapphire Preferred Card

  3 Capital One Venture Rewards Credit Card

  4 Capital One Saver One Cash Rewards Credit Card

  5 Wells Fargo Cash Wise Visa Card

 

       

 

    

 

     

 

 Most of us get worried at the thought of Retirement , or the D-day . The reason being that most of the Americans have very less in their savings; about 49% are having next to nothing in their Savings’ Account. Maintaining an income stream that will last for the rest of life after retirement will be more difficult as.there will no longer be any healthy income stream that should last the rest of your life, which is now much longer (may be 25 to 30 years) compared to the past when average life after retirement was about 10 to 12 years.

     But, if you follow some of the Key Tips to manage your finances, even at this advanced age of 50 years or so, some of these financial problems can be mitigated to a large extent

          Keys To Personal Financial Success : –

1 Take Charge Of Your Finances : –  You are already late in planning your finances to meet your goals, long-term and short-term. Procrastinating any further will be detrimental to your long- term financial health. Don’t wait for a crisis or major life event to get your act together.

2. 2. Don’t Buy Consumer Items (cars, clothing, vacations and so on), That Lose Value Over Time – On CREDIT: –  As discussed in the earlier posts, use debt only to make investments in things that gain value, such as real estate, a business, or education (only as a last resort).

3. 3. Use Credit Cards Only For Convenience, Not For Carrying Debt : –

   If you have a tendency to run up credit-card debt, then get rid of your cards and use only cash, checks and debit cards.

4. 4. Live Within Your Means and don’t try to keep up with your co-workers, neighbors, peers. Otherwise, you will engage in borrowing. This would seriously affect your financial planning of future.

5. 5. Save And Invest  At least 10 to 20 percent of your Income : – If you start early in life, from young age, the saving can be 5 to 10 percent. But at this advanced age , it has to be much bigger, say 20 percent of your income as the time available is less.

6. 6. Understand and Use Your Employee Benefits : – If you’re self- employed, find the best investment and insurance options available to you and use them .

7. 7. Research Before You Buy : – never purchase a financial product or service on the basis of an advertisement or salesperson’s solicitation.

8. 8. Avoid Financial Products That Carry High Commissions and Expenses : – Companies that sell their products through aggressive sales techniques generally have the worst financial products and the highest fees and commissions.

9. 9. Don’t Purchase Any Financial Product That You don’t Understand :Ask questions and compare what you’re being offered to what you can get from the best sources. Try to gather maximum information.

10. 10. Invest The Majority Of Your Long-Term money In Ownership Vehicles : – that have appreciation potential, such as stocks, real estate and your own business. But you have to measure your investment horizon to your long-term and short-term goals and your other financial commitments

11. 11. Avoid Making Emotionally Based Financial Decisions : – For example, investors who panic and sell their stock holdings after a major market correction miss a buying opportunity. Be careful in making important financial decisions after a major life change, such as a divorce, job loss or any other such change.

12. 12. Make Investing Decisions Based Upon Your Needs : – Your investment should be based on the long-term fundamentals of what you’re buying and your needs. Don’t make knee-jerk decisions based on news headlines 

13.  13. Own Your Home: – In the long-run, owning is more cost- effective than renting, unless you have a terrific rent- control deal. But don’t buy until you can stay there for a number of years..

14. 14. Purchase Broad Insurance Coverage : – The insurance coverage should be enough to protect you and your family against financial emergencies. Eliminate insurance for small potential losses.

15. 15. Discuss Goals, Issues and Concerns With Your Family : – If you’re married, it is better to discuss joint goals and related financial issues with your spouse and grown- up children. Learn to compromise and manage as a team

16. 16. Prepare For Life Changes : – The better you are at living within your means and anticipating life changes, the better off you will be financially and emotionally.

17, Prioritize Your Financial Goals : – and start working toward them. Be patient. Focus on your accomplishments and learn from mistakes.

18. 18. Hire Yourself First : – You are the best financial person that you can hire. If you need help making a major decision, hire conflict- free advisers who charge a fee for their time. Work in partnership with advisers.

19. 19. Invest In Yourself And Others : – Invest in your education, your health and your relationships with family and friends. Having a lot of money isn’t worth much iof you don’t have your health and people with whom to share your life. Give your Time and Money to causes that better our society and world.

       Your Relationship With Money : –

  As we have relationships with the people in our life, we also have a relationship with money- how we earn it, lose it, waste it, and save it. It is important to take a good, hard look at how we use it and misuse money. In this regard, the personal habits of the individual, their liking and disliking as well as the pattern of their living style plays a very important role. Although, it may be difficult to change your style much at the age of fifty or so, but sometimes you may have to take very hard decisions so that you are able to meet your financial commitments as well as save for your comfortable retired life. In this regard, one must remember a quote of Mr. Warren Buffett, the second most richest man of U.S.A. and an investment wizard-”If You Buy Things You Don’t Need Soon, You Will Have To Sell The Things, You Need”. It is always better to have a close and honest look on your credit and Debit position.

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      Retirement is supposed to be a period of joy and relaxation for the senior citizens where they are able to travel, reflect and do whatever they like to do. But are they able to enjoy? Unfortunately for many Americans it is not, as more than a third of all working adults fail to save anything toward their retirement. And living without a steady income is tough and millions of retirees know the feeling. Social Security doesn’t come close to meeting all your financial needs. But some of the burden can be reduced by taking advantage of some of the discounts & perks for everyday saving. They’ll provide a little more freedom during your golden years.

1. Groceries : – The average retired couple spends $283 a month on food at home, which isn’t much, but there are still ways to cut back these expenses. In addition to clipping coupons, you can also save by shopping on scheduled senior discount days. For example, Fred Meyer provides 10% off for shoppers over age 55 on the first Tuesday of every month. Other chains also provide similar deals.

    2 Dining Out  : – There are hundreds of restaurants that welcome   seniors with daily deals, which can help you cut back on your spending. Check out the list of senior discounts in restaurants and take advantage of that.

3. 3. Entertainment : –  Thanks to AARP. members get access to discounted rates at places like Regal Entertainment Group movie theaters, premium RV sites and even Las Vegas show. Ask about senior rates to avail them.

       4 Cars : –  AARP’s auto-dealer network provides real-time online quotes and discounts on new and used cars. It also offers deductible and repair reimbursements. It’s good idea to review the Kelley Blue Book Value and negotiate the price aggressively. Buying a car on a retirement budget could be easier than you think.

         5 Auto Registration : –  You can further reduce your annual auto budget by cashing in on registration discounts and waivers. For example, in Pennsylvania, retirees who receive social security or other retirement benefits need pay only a $10 processing fee for vehicle registration. To learn the rules in your state, check out the National Conference of State Legislature’s full list of vehicle- registration fees and senior discounts.

6. 6. Public Transit : –  Retired city-dwellers have the benefit of access to public transportation, and the prices usually get better with age. For instance, the Chicago Transit Authority, which includes train and bus lines in the city and suburbs, provides free rides of illinois residents who are over 65 of age.

7. 7. Travel : –  Retirees spend more on travel than any other age group, to the tune of $11,077 a year. Although, the majority of senior citizens prefer familiar locations, but some of them travel abroad also. You don’t need to drain your bank account to make it happen. An AARP membership can secure you a week long trip from Seattle to Rome for $1,237 per person, including airfare and accommodations at a four-star hotel. You can contact hotels and airlines to ask about senior discounts and other details

8. 8. Cell phone Service : –  Staying connected is important. For customers age 65 and over, AT&T offers a monthly plan for %29.99 that includes 200 “anytime” minutes and 500 night and weekend minutes. Similarly, T-Mobile US offers customers age 55 and over , a no-contract plan for $50 a month.

9. 9. Internet : –   A research survey found that only 47% of seniors over age 65 had internet access. If this is due to high charges, sign up for FreedomPop.com’s free internet service and hot- spot router. For a one-time  activation fees of $19.99, the company provides 500 MB of free data a month, which will get you about 21 hours of web- browsing time. It also offers service plans for as low as $9.99 a month for 1 GB of data.

10. 10. Medication: –  AARP’s discount program help you “save an average of 61% on FDA- approved generic, brand name, or specialty drugs, not covered by your current prescription insurance or Medicare Part D plan” to its members. Similarly, Rite Aid offers customers 15% or more off, and Costco members receive 2% to 40% off on medication expenses not covered by insurance.

11. 11. Education : –  State Universities and community colleges regularly provide tuition waivers to senior citizens to attend classes, and even to earn degrees. For instance, Indiana waives 50% of tuition costs for retired residents age 60 and over, up to 9 credit hours per semester. Choose a public college or university and talk to the office about state benefits for seniors.

12. 12. Clothing : –  If you check the details, you’ll find deals at hundreds of stores, including 10% off at Banana republic (age 62+), and 15% off at Kohl’s (Wednesday, age 60 and up). Similar discounts are available at many other stores also.

13. 13. Home- Repairs : –  Major home-repairs can badly dent your retirement budget, but you may be eligible for state and federal assistance. For instance, California, retirees over the age of 62 can receive free home weatherization and $3,000 in earthquake retrofitting protection. On the federal level, the U.S. Department of Agriculture(USDA) provides home-repair loans up to $20,000 and home- repair grants up to $7,500 for low income seniors in the same age brackets.

14. 14. Taxes : –  The Internal Revenue Service provides special rules and tax credits for seniors and retirees, including additional deductions for medical expenses, and tax credits for the elderly and disabled. Your senior status could also exempt you from paying taxes on property, social security benefits and retirement account income.

15. Insurance : –  Protecting yourself is easier with senior insurance discounts. AARP partners with insurance companies to offer discounted rates on life, health, home and auto coverage.

         CONCLUSION : –

    Living on a retirement budget can be challenging, but there are ways to ease the burden. The above perks and discounts can be very helpful in reducing your expenses to some extent. Take advantage of these savings as they come..

    Pension in the United States consist of the Social Security System.as well as various private Pension Plans offered by employers, insurance companies and trade unions. Private Pension plans are governed by various federal statutes and regulations, labor laws regarding the establishment(primarily ERISA). Pension law also incorporates judicial decisions with respect to those federal statutes and regulations. Pension Plans and benefits may also be subject to state laws.

      What Is A Pension : –

           A pension is a fund into which a sum of money is added during the employee’s employment years, and from which payments are drawn to support the person’s retirement from work in the form of periodic payments. A pension may be a “Defined Benefit Plan” where a fixed sum is paid regularly to a person, or a “Defined Contribution Plan” under which a fixed sum is invested and then becomes available at retirement age. Pensions should not be confused with “Severance Pay”, the former is usually paid in regular installments for life after retirement, while the latter is typically paid as a fixed amount after involuntary termination of employment prior to retirement.

        Types Of Pensions : –

         The Pensions can be : –

  (i)  Employment- based Pensions

  (ii)  Social And State Pension

  (iii)  Disability Pensions

(i) Employment- based Pensions : –

         A Retirement Plan is an arrangement to provide people with an income during retirement, when they are no longer earning a steady income from employment. Often Retirement Plans require both the employer and employee to contribute money to a fund during their employment. It is a tax- deferred savings vehicle that draws for the tax- free accumulation of a fund for later use as a retirement income. Pension plans are, therefore, a form of “deferred Compensation”.

         Pension may extend past the death of the employee himself/ herself continuing to be paid to the widow/ spouse.

       (ii) Social And State Pensions : –

      A basic state pension is a :Contribution Based” benefit. And depends on the individual’s contribution history. For example Social Security in the United States of America. Typically this fund requires payments throughout the citizen’s working life in order to qualify for benefits later on.Most Social plans, though, are means tested, such as Supplemental Security income in the United States.

       (iii) Disability Pensions : –

      Some Pension plans will provide for members in the event they suffer a Disability. This may take the form of early entry into a Retirement plan for a disabled member below the normal retirement age.

        Classification Of Retirement Plans : –

       Retirement Plans may be classified as : –

      (i) Defined Benefit Plan : – It is a plan in which the benefit on retirement is determined by a set formula, rather than depending on investment returns. Government pensions such as Social Security in the United States is a type of Defined Benefit Plan.

        The Benefit in this plan is determined by a formula that can incorporate the employee’s salary at retirement, years of employment, age at retirement , multiplied by a factor known as accrual rate.

         Many Defined Benefit Plans include early retirement provisions to encourage employee to retire early, before the attainment of normaal retirement age(usually 65 years). Companies would rather hire younger employees at lower wages.

        (ii) Defined Contribution Plan : –

       In a Defined Contribution Plan, contributions are paid into individual account for each member. The contributions are invested , for example in the stock market and the returns on investment(ROI) , which may be [positive or negative, are credited to the individual’s account. On retirement, the member’s account is used to provide retirement benefits.

       Defined Contribution Plans have become widespread all over the world in recent years, and are now the dominant form of plan in the private sector in many countries. The number of Defined Benefit Plans in the U.S. are steadily declining, as more and more employers see Pension contributions as a large expense avoidable by disbanding the Defined Benefit plan and instead offering a Defined Contribution Plan.

      (iii) Hybrid And Cash Balance Plans : –

     Hybrid Plan designs combine the features of Defined Benefit and Defined Contribution plan designs.

    A Cash Balance Plan is a defined benefit Plan made to appear as if it were a Defined Contribution Plan. As with the Defined Benefit plans, investment risk in a Hybrid Plan s largely borne by the plan sponsor. As with the Defined Contribution designs, plan benefits are expressed in the terms of a notional account balance, and are usually paid as Cash Balances upon termination of employment. These features make them more portable than traditional Defined Benefit Plans and perhaps more attractive to a more highly mobile workforce.

       SIMPLE IRA : –

   A SIMPLE IRA is a type of Individual Retirement Account (IRA) that is provided by an employer . It is similar to a 401(K) but offers simplee and less costly administration rules. Like in 401(K), SIMPLE IRA is funded by a pre- tax salary reduction. However, contribution limits for SIMPLE IRA plans are lower than for most other types of employer provided retirement plans.

         SEP  IRA : –

    A Simplified Employee Pension Individual Retirement Account or SEP IRA, is a variation of the IRA. SEP IRAs are adopted by business owners to provide retirement benefits for the business owners and their employees. Because SEP accounts are treated as IRAs, funds can be invested the same way as is the case for any other IRA.

          Tax Advantages : –

        Most Retirement Plans offer significant tax advantages. Most commonly the money contributed to the account is not taxed at the time of the contribution. The other significant advantage is that the assets in the plan are allowed to grow through investing without the taxpayer being taxed on the annual growth year by year. Once the money is withdrawn, it is taxed fully as income for the year of the withdrawl. But there are many restrictions on contributions, especia;llyt with 401(K) and Defined Benefit Plans.

         Currently two types of plans, the Roth IRA and the Roth 401(K) offer tax advantages that are essentially reversed from most Retirement Plans. Contributions to Roth IRA and Roth 401(K) must be made with money that has been taxed as income. Withdrawals from the account, thereafter, are received by the the taxpayer tax-free.

     Social Security is a Government Safety net that can provide you with some income if you’re retired or disabled. The program is based on the idea that government is responsible for the social welfare of its citizens. Social Security is one of the sacred cow political programs. But Social Security generally is not enough to live on comfortably. Social Security is intended to provide you with a subsistence level of retirement income for the basic necessities: food, shelter and clothing, but social Security is not intended to be your sole source of income, whereas, some of the elderly are quite dependent upon Social Security.

        Social Security – Background : –

    When the Social Security system was created in the 1930s, its designers underestimated how long people would live in retirement. But due to improved medical care, life expectancies have risen substantially since that time and many recent retirees get back far more than they paid into the system. (you may know that part of your paycheck goes to Social Security).

       The amount of social Security benefit you receive in retirement depends on your average earnings during your working years. The Social Security benefits calculations increase your older earnings to account for the lower cost of living and wages in the prior years.

            Social Security – Eligibility : –

       To be eligible to collect Social Security benefits, you need to have worked a minimum number of calendar quarters. If you were born after 1928, you need 40 quarters of work credits to qualify for Social Security retirement benefits. You get credits based on the income you earn during the year. You get the full four quarters credited to your account if you earn $4,880 or more ($1,220 per credit) in a year. To get 40 quarters of coverage, you basically need to work ten years. To get credits, your income must be reported and you must pay taxes on it (including Social Security Tax). If you don’t pay taxes, you may be cheating yourself out of valuable benefits.

      The age at which you can start collecting full benefits has increased, and it may increase again. In the “good old days”, you could collect full Social Security payments at age 65, assuming you were eligible. This is still applicable if you were born before 1938. But if you were born after 1959, you have to wait until age 67 for full benefits. For the people born between 1938 and 1959, full benefits are payable to you at age 66.

         How Much You Get From Social Security : –

   The average monthly benefit Social Security pays out to retirees is about $1,328. The higher your employment earnings have been on average, the more you can expect to receive. Working spouses are eligible for either individual benefits or half of their spouse’s benefits- whichever amount is greater. To get the complete details of Social Security benefits, visit the Social Security Administration (SSA) website at www.ssa.gov or call the SSA office on phone. It is advised that you better check your earnings record, because occasional errors do arise and they usually aren’t in your favor.

        It may be mentioned that Social Security is the only source of income for 21 percent of elderly, and about two out of three Social Security recipients derive atleast half of their total retirement income from their Social Security retirement check. Few working people can maintain their current lifestyles into retirement without supplementing Social Security with their personal savings & company retirement plans.

      Social Security Disability Plan : –

   A portion of your Social Security taxes also help fund Disability insurance for you, Survivor income insurance for your financial dependents and Medicare(the health insurance program for retirees).

       Social Security pays long- term benefits only if you’re not able to perform any substantial , gainful activity for more than a year or if your disability is expected to result in death. Furthermore, Social Security Disability payments are quite low because they’re intended to provide only for basic, subsistence-level living expenses.

          Social Security – Survivor’s Benefits : –

    Social Security, if you are covered, can provide Survivor’s benefits to your spouse and children. However, if your surviving spouse is working and earning even a modest amount of money, he or she is going to get few, if any, Survivor’s benefits. Prior to reaching Social security “full retirement age”, your Survivor’s benefits get reduced by $1 for every $2 you earn above $14,640.

       If either you or your spouse anticipates earning a low enough income to qualify for Survivor’s benefits, you may want to factor your Social Security Survivor’s benefits into how much life insurance to buy. For this purpose either visit its website www.ssa.gov or contact by phone, to estimate your benefits. For example, suppose your annual after- tax income is $25,000 and Social Security provides a Survivor’s benefits of $10,000 annually, then you should determine the amount of life insurance needed to replace $15,000 annually ($25,000- $10,000) and not $25,000.

      Social Security – Your Savings/ Investment Strategy

  If you’ve been working steadily , you may already have a good foundation. Money you’re saving toward retirement, may be in the Bank Saving account or Individual Retirement Account(IRA) or 401(K) or similar plan. You must invest your savings appropriately, s the amount of Social security may not be enough to give you a comfortable retired life, as you plan. In addition, make the most of the pension Plans. Pension plans are a benefit offered by some employers- mostly larger organisations and government agencies. These are known as defined- benefits plans. Pension benefits can be quite valuable in your retired life. So, try to understand these plans to take full advantage of these plans.

             CONCLUSION : =

    According to polls, about half of American adults under the age of 35, and more than a third of those between the ages of 35 and 49, think that Social Security benefits will not be available by the time they retire. But they may not be correct . Social security should be available when you retire, because it is a commitment of the politicians of all the political parties. Congress may make some reductions in benefits, probably for the higher income earners, at some point due to federal debt problems. So, if you think that you can never retire because you don’t hve any money saved, then also you are probably wrong and it is Self- deception. So you must save money towards your retirement and also contribute to the various retirement plans.

         Poor saving habits and bad Investment decisions can derail your retirement planning. This is obvious from the following examples ; –

   Selecting Wrong Investment Vehicles : –

       Mr Gabriel, 45 years, started saving early, saved regularly and never dipped into his retirement kitty. Yet, when he took stock of his retirement savings later on, the corpus was far smaller than what he had expected. “ I focussed entirely on risk-free investment options such as Bank Certificate of Deposit(C.D.) and Bonds”, says the self-employed professional.

   His Mistake : – Started saving for retirement quite early, but played too safe. After almost 15 years of investing in Bank C.Ds. and Bonds etc., he realized he will not reach the goal.

     How He Fixed It : – Two years ago, he started shifting his savings from fixed deposits (C.Ds.) to equity funds. He currently has 60 percent allocated to equities.

      Investing In Stocks Without Thorough Study : –

          In Pennsylvania, Mr. Thomas, a working individual is ruing the day he took a friend’s advice and gave his retirement portfolio a dash of equities. Though experts recommend this, Mr. Thomas made a fundamental mistake when he went shopping directly for the equities. A newbie, he invested in stocks directly, and that too, when retirement was just a few years away(He was about 60 years of age). Though the overall market was booming in 2014, but he lost around 12 percent of his investment in one month.

          Mr. Gabriel and Mr. Thomas represent the two extremes of the risk spectrum. One took too little risk with his retirement savings and lost the opportunity to build a large corpus. The other took too much risk and saw his wealth erode.

          Experts warn that equity investments should not be done with a short- term horizon. “ It is harakiri to invest in stocks directly to make up for the shortfall in retirement corpus”. At the same time, relying too much on fixed income options for the long-term can also be risky. In the long-term, investments in the fixed income products are just as risky as equity investment are in the short-term”.

            Common Investment Mistakes People Make : –

          Most of us, make some common investing mistakes that can ruin the retirement plans of an individual. The reasons can be many like lack of knowledge; too much dependence on others advice ;selection of improper financial goals or not considering the effect of Inflation while calculating the amount required for retirement life.

           Some of these mistakes , as mentioned above, can be fixed like Mr Gabriel’s over-dependence on fixed income products. He realised his mistake in time and was able to effect a course correction. However, some mistakes , like Mr Thomas ill- advised foray into equities a few years before retirement, cannot be undone”. It was a terrible mistake. I will just have to live with the consequences”, said Mr. Thomas.

    His Mistake : – Invested $16,000 in stocks for high returns a few years before retirement and lost a handsome amount within a month.

    Can he Fix It : – Small investors with no knowledge of stocks should avoid direct investments. The Mutual Fund route is a safer and better option.

         Don’t Commit Harakiri : –

              Stocks are inherently volatile but some experts contend that they are necessary if you are investing for  long-term goals. “ Long-term investments must be kept in equity backed investments , if you do not want to expose yourself to old-age poverty”. Investors can also insulate themselves against big losses by taking the mutual fund route. Given the Diversification followed by mutual funds , the chances of loss reduce further. Studies show that the probability of loss in equity-based investments decreases as the investment tenure increases. Chances of loss is highest if you hold an equity fund for one year, but come down dramatically if the holding period is longer than five years. If held for 10 or more years, the probability is almost Nil.

           Some experts suggest investment through systematic investment plan, say monthly or quarterly instalment plans, in equity oriented funds. However, expectations should be set straight. “ The investor would be disappointed if he expects unrealistic returns over a 3 to 4 years investment period”.

             The Risk In Insurance Plans For Investment : –

           Many investors consider various insurance policies/ plans, an ideal way to save for retirement because of the multiple benefits they offer. These policies enforce a saving discipline, offer tax deduction on the premiums, cover the life of the individual and maturity proceeds are tax-free. But these policies are not very helpful for money growth as the returns are very less even if you go for a long-term plan.

             Going Wrong With Estimates : –

          Saving regularly and in the right instruments will not safeguard your retirement if you do not estimate correctly how much you will need in your sunset years. Many of us fail to factor in the adverse effect of Inflation while calculating their retirement kitty. Inflation has the power of compounding . If you have not taken inflation into account, be ready to live a life that will be substantially poorer than how you live now. Keep in mind the impact of lifestyle inflation on your retirement needs, as the standard of living improves over time.

           Another misconception is that the expenses will reduce in retirement years, which is not a fact. Although you may not have to spend on children’s education and all your loans may be paid for, but your travel and healthcare expenses usually increase after retirement.

             Putting Retirement Corpus In 1-2 Income Products: –

          Even if you saved enough, you can still sabotage your retirement by putting all your eggs in one basket. Experts say your retirement tool kit should be a mix of various products. For instance, it is not a good idea to put a large sum into an annuity plan. Though annuities assure life-long pension and are an insurance against the threat of outliving your money, they also offer low returns that won’t be able to beat inflation in the long-run. Further, Annuity has poor liquidity too. Experts suggest a diversified income portfolio to optimally meet your retirement needs.

        CONCLUSION : –

    Saving for your RETIREMENT is possibly one of the most important financial goals. You need to invest in a good mix of financial products to make sure that you accumulate enough to live a comfortable life after you retire. Your job of investing should not end once you retire, you need to have a good mix of investment products even while living-in retirement. While selecting the right products for investment, consider the effect of taxation on your returns.