Sandriano made a comment the other day with a question as to whether it’s better to invest in the NHAI bonds at 8.2% or pay off housing loan at 9%.

My response was that it’s probably better to pay off the housing loan if all your EMIs consist of mainly interest right now, but if that was not the case then we’ll have to look at it in more detail. He is in a stage where bulk of the EMI still consists of interest, and here’s how his loan looks like right now.

Thanks always for your inputs; always helpful in making informed decisions.
I think I got my answer. Nevertheless, here are the details. Bulk of the EMI goes towards interest.
Loan Amount: 28 Lakhs (LIC Hsg Fin)
Tenure: 20 yrs
Commencement: Dec 09
Interest: Locked for 8.9% for 3 yrs (until Nov 12) and market rate thereupon
Current Interest: 8.9%
EMIs paid till date (in months): 24

We will need to use the EMI calculator to see what the payment terms for this loan currently is and how will different payment terms affect this.

This calculator shows that the monthly installment is Rs. 25,000 – and during the term of this loan you pay Rs. 32 lakhs in interest in addition to the original 28 lakhs repayment. So, the whole repayment totals Rs. 60 lakhs over the period of 20 years.

This obviously sounds like a lot at first blush but consider the fact that Rs. 28 lakhs invested at 8.9% for 20 years compounded once a year yield Rs. 1.54 crores!

Now, Sandriano has already paid 24 installments so he has 18 years left, and the NHAI bond had a 8.3% / 15 year option so let me just assume that you will be able to get 8.3% for three more years so we can have a straight comparison.

I downloaded this excel calculator for easy reference and found that on these terms – you would have paid about Rs. 6 lakhs in EMIs for the first two years, but the principal component of that would only be Rs. 1,11,084 and your outstanding principal is still Rs. 26,88,916 (out of the original Rs. 28 lakhs).

So, in a manner of speaking – it’s as if you’re going to take a loan for 18 years at 8.9% today for Rs. 26,88,916 and you suddenly get a windfall of Rs. 1 lakh and you want to see whether it makes more sense to pay off 1 lakh from the principal of this housing loan or would it make more sense to invest this in a tax free bond at 8.3% for 18 years.

If you pay off 1 lakh from the housing loan then your new principal is Rs. 25,88,916 and your new EMI is Rs. 24,082. So, your total cash outflow for 18 years is  Rs.52,01,712 (24,082 x 12 x 18)

If you hadn’t paid off this house loan then your total cash outflow would have been Rs. 54,02,808 (25013 x 12 x 18). So, by paying off Rs. 1 lakh from the house loan, you save yourself Rs. 201,096 in lower EMIs over the course of this loan.

Now, in this case – you invested Rs. 1 lakh in the tax free bonds which earned you an interest of Rs. 1,49,400 (1,00,000 x 8.3% x 18 years) and you got the 1 lakh principal back at the end of the 18 years – so the total money you made in this investment was Rs. 2,49,400, which is Rs. 48,304 more than what you would have saved had you paid off your loan in the beginning of the time period.

So, based on this simple calculation I would say I was wrong earlier as you do get a higher cash-flow  if you invest in the tax free issue instead of paying off the loan.

The one thing I would like to add is that in this comparison is that in case of investing the money – you get a very large chunk – Rs. 1 lakh at the end of 18 years, and even if you assume an inflation rate of 6% for 18 years – that one lakh will only be worth approximately Rs. 35,000.

In contrast – the EMI savings are constant throughout the time period and by virtue of not being lumpy their value might be more in terms of present value despite the absolute number being low.

I know that you can add many more variables to this calculation like tax saved, present value of future cash flows, reinvestment of interest etc. but based on my earlier post in which I compared the tax free bonds to a SBI fixed deposit – I feel that adding so many variables right at the beginning overwhelms many people without having any commensurate benefit.

Finally, given this situation what would you do and what are the other factors that you consider while deciding whether you should pay off debt or make an investment?

There were some great comments on yesterday’s post on financial planning for your baby, and the one that Indian Thoughts left had a lot of insights and since these are costs she has incurred recently, they’re very close to what you can expect in a similar situation.

There were plenty of things to learn from her comment, but the thing that struck me most was that a lot of these things don’t sink in or we don’t plan for them because it just doesn’t feel all that important or that big a deal.

I experienced that primarily because a lot of the things she wrote were things that I had read in articles earlier, but frankly, they didn’t quite feel that important until I read it in her comment, and realized that there is a reason why people keep mentioning these things again and again – because they are real!

For example – IT talks about eating healthier which costs more, and this is something I had read earlier, but it didn’t sink in as to how big of a difference that would make. Same thing with baby vaccinations, and the advice about controlling your urge to buy any and everything when it comes to your baby. I read these things several times earlier, but they never really sunk in.

It was a great comment, and she edited it slightly and posted it as a blog post on her own blog – I would highly recommend that you read it even if you’re not expecting a baby in the immediate future, it might just be something that lingers in your mind and helps you a few years down the road.

Read Cost of bringing baby on this earth

Neha Sharma left a comment about what factors you should keep in mind while expecting a baby, and I was a bit disappointed to see that there is hardly any good information on this important topic online.

The best article I found was by Hemant on your child’s future plan and I must say that if you are interested in this topic and are pressed for time you should much rather read that article instead of spending more time here.

If you have time to read two posts then here are my thoughts on the financial planning aspects of expecting a baby. I have penned down my thoughts, but I am also unclear about a lot of these aspects, so those of you who have gone through this stage, please share your experience in comments or email and let everyone benefit from them.

Financial Plan NOT Financial Product

The most important thing that I would want to emphasize is that you should distinguish between making a financial plan for your baby and buying a financial product for your baby. A financial plan is not the same as a financial product, and if anything, the insurance products that are meant to be children plans have relatively high costs and may not turn out to be the best vehicles as far as investing for your kids is concerned. So, much better to have a plan and then execute that by buying term insurance, good mutual funds and debt products.

Elements of the Plan

1. Having a baby and the first year costs

Neha’s first question was when you should start planning financially for a baby, and while the earlier the better, as far as I’m concerned the most practical time to start planning is when you think about starting a family.

I would like to have a sense of what the doctor’s visits, hospitalization etc. costs and what are the big costs that you incur one year from having the baby. Those are the things that you have to face in the very near future, and you want to deal with those things and take care of them first.

These costs will depend on where you live, how much of this is covered by your health insurance, and asking friends and colleagues about these is probably a good start. I’m sure a lot of you have way more experience and insight on this than I do so please do leave a comment about this.

I think having a ballpark of this expense and saving up for this for about 12 or 18 months is a good start. I think the best vehicle for this is a recurring deposit. You know that you need the bulk of this money at a particular date, it has to be a very safe instrument, and it’s not likely to be a lot, so you can probably stash away a little every month from your salary in a recurring deposit without feeling too much of a pinch, and in the end meet this expense easily.

2. Accounting for increased expenditure

It’s only natural that you spend more now that you have an additional member in the family, so the question is how do you account for that – reduced savings, increased income or a change in lifestyle?

From what people tell me it’s a mix of a changed lifestyle and reduced savings – if you have a one year old you don’t go out to movies as much as you used to earlier, but now you have to buy six plane tickets instead of four – so that makes a big difference.

I’m not sure how one takes care of this, but you have to somehow mentally prepare for these changes in the time to come.

3. School Admission Fees

Starting school and sometimes even playschool is an expense that goes over a lakh these days! So, this is one medium term expense (3 – 5 years based on when you start to plan) that you have to take care of and it is big enough to merit attention right away.

A good way to plan for this is look for a mix of fixed income instruments – I think a mix of high yielding company fixed deposits, cumulative bonds and bank fixed deposits are a good way to build this portfolio.

The good thing about this is you have plenty of options these days, and most of them with very good yields so you can invest in a new fixed income product every three or four months, and keep building on this corpus – if you have 3 years to plan, then that’s 12 quarters, and plenty of time and option to save and invest.

4. Life Insurance

Now that you have added responsibility, you need to re-evaluate if you have enough life cover. A term insurance is the best way to do this, and it’s inexpensive enough that you don’t have to blow a hole through your pocket. Think about this, and the sooner you get the better it is.

Conclusion

I think this is a good place to stop, get some feedback and hear out some real life experiences from the readers here – I’m looking forward to the comments on this one more eagerly than the other posts because I am certain people who have gone through this have a lot more to add from their experience, and I’d like to do a follow up post with those insights.

Reader Pattu  has developed a retirement calculator for his own use, and was interested in sharing it with other OneMint readers as well. I took a look at it, and liked what he’s done, so I’m sharing the calculator here.

Download Retirement Planner

He has also described his thought process, which I’m sharing below.

Retirement planning is a complicated financial goal. When you save for a new car, exotic holiday or even for the education of your children, all or most of the accumulated corpus would get spent when the time for the goal arrives. So it is easier to calculate the corpus required for such goals.

When it comes to retirement planning the corpus calculation is complicated because the corpus does not get spent in one shot. Typically it is allowed to grow at some post-retirement interest rate (usually underestimated for safety) and monthly withdrawals are made from it. For complete financial independence during retirement, these withdrawals or pension must increase according to the post-retirement inflation rate.

So the retirement corpus calculation has to take into account not only the years to retirement, present inflation rate but also post-retirement inflation, number of years in retirement and post-retirement interest rate on the corpus.

Given these input parameters, retirement planning consists of two major steps.

1. Calculation of the corpus required:

(a) Compute projected future monthly expenses at the start of retirement. This amount can be taken as the initial monthly pension which will be withdrawn from the corpus.

(b) This monthly pension amount is assumed to increase every year according to the rate of inflation, while the corpus is assumed to grow at some constant interest rate. Using these inputs the corpus is calculated using Excel’s present value calculator (PV).  The inputs to the PV function, the formulae used are a bit technical and can be found here.

(The site also has a nice annuity calculator which will be of interest to people close to retirement).

Since the withdrawals are indexed to inflation, the corpus will decrease each year and become zero at the end of the retirement period given as input. A typical rise and fall of the corpus is shown here.

Retirement Corpus

2. Calculation of the monthly investment amount required:

Once the corpus needed is known this calculation is similar to any other financial goal. It uses the number of years to retirement, estimates of present inflation and annual interest rate, annual increase in investment if any, and amount accumulated so far if any.

The excel based calculator does the above tasks and present an annual cash flow chart of the monthly investment made, monthly expenses, the growth of the retirement corpus prior to retirement and its decrease post retirement. Annual salary is also shown for reference.

Please note:

1. The calculator has been repeatedly tested and checked. However no guarantee is made that it is free of errors. Like every other tool it serves only as an estimate for the monthly investment required and depends on the input parameters. It is meant to be used for education purposes only.

2. For simplicity the pre- and post-retirement inflation rates are taken to be the same. Use a reasonably high value to be safe. A financial expert suggested using 8-9%

3. The pre-retirement interest rate is taken as constant. Since equity allocation would decrease as retirement approaches this would change. The calculator can easily be modified to take into account variable interest rate. Contact me if you need to look at such a calculation.

Download Retirement Planner

Bugs, comments and suggestions are welcome.

Pattu

pattu@iitm.ac.in

Update: Fixed a divide by zero error bug.

A question that pops up quite frequently in comments is how much pension will I get from NPS, and I think it’s not clear to a lot of people that the NPS itself won’t give them a pension.

There are two things that you need to keep in mind:

• NPS doesn’t pay a pension directly.
• There is no fixed rate at which your money will grow.

NPS doesn’t pay a pension directly

The way NPS works is that you invest regularly in the scheme and the scheme invests that money on your behalf.

At the age of 60 you will get the money and it will be up to you to invest it and generate an income for yourself. In this regard you can think of it more like a provident fund than a pension.

Under NPS there is no fixed rate at which your money will grow

When you open the NPS account – you will be asked to select a fund manager and your money will be invested by this fund manager. You will also be asked whether you want to choose an Ultra Safe, Safe or Medium approach, and based on your selection the fund managers will spread your money between debt and equity instruments. The rate of growth will depend on the performance of the fund managers and the choices you make, so to that extent it’s not like a bank fixed deposit where they tell you that you will get 8 or 9% interest regardless of anything else.

How to calculate pension amount from NPS?

Keeping these things in mind it should become clear that you can only get an idea of how much pension you can generate and not an accurate answer.

So, how do you get that idea?

Suppose you have the following question:

I am 28 years old – how much pension will I get if I invest Rs. 2,000 every month?

CAMS has got this great corpus calculator which allows you to input the parameters and tells you how much your final corpus will be.

In this case I’ll put in the following numbers:

• Contribution Amount: 2000
• Periodicity: Monthly
• Rate of Interest: 9.5% (Assumed)
• Number of Years: 32 (60 – 28)

The calculator shows me a value of Rs. 50,05,164.

Now, this is the amount that you will get at the end of 60 years, and you will have to invest it in order to get a pension. You could create a bank fixed deposit with it or buy an annuity. NPS requires  you to buy an annuity from 40% of your money in the Tier 1 account compulsorily, but there is no such restriction on the Tier 2 account, so you can keep that in mind while opening the NPS account.

Conclusion

The first thing you should keep in mind is that NPS won’t pay you a pension directly, the second point is that the rate of return is not fixed either, and the third thing is when you get the NPS money you will be free (to an extent) to invest it, and generate an income for you as you see fit.

I got this email early last week (slightly edited):

I would like to know something about annuity. I am 49 yrs old, suppose I am investing Rs. 100,000 yearly till i attain 60 years and NPS is showing growth in total of 1600000.
40% will be 6,40,000.
Now explain to me how annuity of 6,40,000 will help me for rest of my life?/for how long?/how much?
I am still confuse about retirement plan.
If I calculate inflation and I retired at the age of 60 yrs and live up to 75 years. What so ever I save for my retirement plan appears to be peanuts.
Thinking daily on “life after retirement” a am spoiling my today.
If you have some better idea about retirement please guide me.

To me the heart of the problem is the sum that this person expects to accumulate when he is 60, and not the annuity itself because if you can accumulate a decent sum at the time of retirement, then you can do an annuity, fixed deposit, plan your withdrawal rate, whatever, but if you don’t have a lot at that age, then what is the point of thinking about anything else?
In that sense, I think this is slightly different from the earlier discussions we’ve had on this topic here.

In an economy like India where the inflation rate is quite high it is only reasonable to be worried about how inflation will eat into your retirement nest, however the other side of the coin is rarely talked about, if ever at all.

Your salary should also increase to match inflation and you should at least be able to increase your savings by the inflation rate or even if it is a smaller number, there should be some increase right? But this is too often not accounted for even when it’s quite clear that it can be quite a big number.

Let me give you an example: If you invest Rs. 1,00,000 per year for 12 years, and get 8% per annum returns on your investment, at the end of the 12 years you will have a corpus of Rs. 18,97,712, but if you increase your investment by 8% every year by age 60 you will accumulate about Rs. 25 lakhs, and one more year will make this sum go to Rs. 30 lakhs.

I’ve done these calculations here so you can see how I reached that number.

The key is not to be despondent, and start doing the right thing – better late than never right?

In the last poll I had asked you how much money do you need per month to retire in India today, and 48% of you (190 votes) said between Rs. 20,000 and Rs. 50,000. To my surprise, the next biggest segment was the more than Rs.1,00,000 segment with 20%, and you can see the rest of the results below.

(click for bigger image)

In this post, I am going to be what I think is called a party pooper, and say that a lot of you believe that you’ll need lesser money than you spend today during your retirement, but you are probably wrong.

For starters, if you’re salaried and not in your forties yet, then you are probably far away from what is going to be your peak income. Your income might look like a reasonable sum to you today, but wait till you start making a lot more, and see Parkinson’s second law kick into effect:

expenditures rise to meet income

Now it’s true that you will have more responsibilities at that time than today, and a lot of those will not be present during your retirement, but it’s just as likely that there are some unforeseen liabilities as well; how is that percentage going to work out? How do you calculate something like that anyway?

Next up, when you think that you will need lesser money during retirement than today, that automatically implies that you need to save less today, and that in turn implies more money to splurge; think about it – aren’t you much more likely to lull yourself into making some assumptions that make spending easier today? After all, delayed gratification is hard, really hard.

That said, I believe that a lot of you are way ahead of the game just by thinking about retirement, and planning for retirement. Starting retirement planning early means that you develop a long term approach to retirement, think about various alternatives where you can invest your money, not fall in credit card debt, and give yourself the benefit of compounding which makes a huge difference.

As long as you are not looking at huge debt, saving a decent amount by being frugal (but not stingy), and making good investment habits, whatever your number is – you will be alright.

So don’t fret too much about the number, which is too far out in the future, and so variable that it’s hard to predict, and focus instead on developing good financial habits. And thank you all for your wonderful comments!

]]> http://www.onemint.com/2010/09/30/poll-results-how-much-money-do-you-need-per-month-to-retire-in-india-today/feed/ 8 http://www.onemint.com/2010/09/27/a-primer-on-the-new-pension-scheme-nps/ http://www.onemint.com/2010/09/27/a-primer-on-the-new-pension-scheme-nps/#comments Mon, 27 Sep 2010 08:00:46 +0000 Manshu http://www.onemint.com/?p=4598

I’ve wanted to write about the New Pension Scheme (NPS) a lot sooner, but never got around to it. Reader Gaurav sent me some great material on it, and got me started.

The stuff that he sent me was an entire post in itself, but I thought I’d add to it, and create a comprehensive post on the New Pension Scheme.

First off, you can call it New Pension Scheme, National Pension System, New Pension System or NPS, anything you like. They’re all the same; I’ve seen different articles call them different names, so that might get a bit confusing, but you’ll soon get used to it.

Next up, some of the things this post will address, are:

• What is the New Pension Scheme?
• What are Tier I and Tier II accounts in the NPS?
• What are the three categories in the NPS?
• Fees and Expenses related to the NPS?
• What is the minimum amount needed to invest in the NPS?
• What are the tax implications of NPS?
• How can I open a NPS account?
• Why hasn’t this become popular?

What is the New Pension Scheme?

The NPS was introduced by the government last year to give people a way to get a pension during their old age. Employees of the government sector already get a pension, so this scheme was introduced as a social security measure that enables people from the unorganized sector to draw a pension as well.

The working mechanism is quite simple – you contribute a certain sum every month during your working years, which is then invested according to your preference. You can then withdraw the money when you retire, which is currently set at 60 years old.

When I say you invest according to your preference, I mean that there are a couple of different options that you need to select from. These options pertain to your preference on withdrawal, and asset allocation.

What are Tier I and Tier II accounts in the NPS?

The NPS is meant to be a pension scheme, so it is geared towards giving you a steady stream of income on your retirement.

That means that NPS makes it difficult to withdraw your money during your working years or till the age of 60 in this case.

Tier I and Tier II are two options under the scheme where you can invest your money, the primary difference between them is how they differ in allowing you to withdraw your money before retirement.

NPS Tier I

There is severe restriction on withdrawing your money before the age of 60, because it is necessary to invest 80% of your money in an annuity with Insurance Regulatory Development Authority (IRDA) if you withdraw before 60. You can keep the remaining 20% with you.

When you attain the age of 60, you have to invest at least 40% in an annuity with IRDA; the remaining can be withdrawn in lump-sum or in a phased manner.

Here are the details of how your money can be withdrawn in a NPS Tier I account.

Death is another way of getting the money, but that might come in the way of other plans you have.

NPS Tier II Account

The first thing about the NPS Tier II account is that you need to have a Tier I account in order to open a Tier II account.

The Tier II account makes it easy for you to withdraw your money before retirement because there is no limit on the withdrawals you can make from the Tier II account.

You need to maintain a minimum balance of Rs. 2,000, and you can transfer money from the Tier II account to Tier I account, but not the other way around.

There is a Rs. 350 CRA (Credit Record Keeping Agency) charge which is not present in the Tier II account, but the rest of the fees remain the same.

Asset Allocation and Categories in the NPS

There is an Active Choice option, and an Auto Choice option. If you select Auto Choice then your money is invested in a certain percentage in the various classes based on your age.

Here are the three investment classes:

In the Active Choice you can select how much of your money will be invested in the different classes with a cap of 50% in Class E.

Now, there are pension funds that will manage your money, and in either of these options you have to select the fund manager who will manage your fund. So even if you select the Auto Choice, you still have to tell them which fund manager you want to manage your money.

Fees and Costs related to the NPS

I talk about expenses a lot here, and the expenses on the NPS are really low. The annual fund management charge is 0.0009%, which is probably the lowest in the world.

There are some other expenses associated with the NPS, but as you will see all of them are quite low as well. Here is a list of the other expenses.

What is the minimum amount needed to invest in the NPS?

For a Tier I NPS account you need to contribute a minimum of Rs. 6,000 per year, and make at least 4 contributions in a year. The minimum amount per contribution can be Rs. 500.

Minimum amount for opening Tier II account is Rs. 1,000, minimum balance at the end of a year is Rs. 2,000, and you need to make at least 4 contributions in a year.

What are the tax implications of NPS?

The revised Direct Tax Code proposes to make the NPS tax exempt at the time of withdrawal. Initially NPS was going to be taxed at the time of withdrawal, and that had put it at a disadvantage to other products like ULIPs and Mutual Funds. But the revised code proposes it to be exempt from tax, and that really adds to its lure.

How can I open a NPS account?

You can open a NPS account by going to the bank branches of the banks that are authorized to sell this.

Conclusion

This is quite a good option for people who wish to invest for their retirement, and the government has done good to come up with such an option. It is still early days for the scheme so there are going to be some teething troubles, and I am sure you have come across several articles that write the NPS off completely, or suggest major changes.

While it has not gained in popularity the way you would’ve expected with the low cost structure, a primary reason of that is there is no real incentive for anyone to push this to consumers, so it has not gained any real traction.

That being said, the scheme is a good initiative, and given enough time, the chinks should be ironed out in its favor.

As a final word – a big thank you to Gaurav who sent me all the material, and pushed me to write about the NPS. Thanks Gaurav!

When I wrote my post about how much money do you need to retire, I focused on the number that you will need at the time of retirement, and how to get to that number by starting off on your investment today.

I see that a lot of people reach that page looking for information on how much they need today, not necessarily thinking about the future.

At some level it makes sense because that is really the starting point in your calculation. You see where you stand today, how much you need today, and then make certain calls about how your retirement lifestyle will be, and extrapolate your needs for then.

Personally, I think that this question is best answered by each individual himself, but that doesn’t mean there aren’t general guidelines and pointers that help frame the answer.

With these thoughts, I start off on my new poll: How much money do you need per month to retire in India today?

a) Less than Rs.20,000

b) 20,000 – 50,000

c) 50,000 – 1,00,000

d) More than 1,00,000

All of you have different assumptions, life-styles, needs etc. and that might give a lot of variation to the answers, but we won’t know if we don’t poll!

Please leave your comments about your thoughts on this question, and vote using the poll options on the left sidebar just above the “Recent Posts”.Readers getting this in email will have to click through the link and reach the website first.

Hoping to see some great comments like last time.

Authors Bio – Today Marie Nelson will be writing a post for us. Marie is passionate about personal finance, and is going to share a retirement related post with us.

Life has been divided into 3 stages and the last stage is retirement. A new lifestyle waits post retirement. This transition would not only affect you but also have a remarkable impact on the people associated with you. If you are not prepared for retirement then it might affect you and your family adversely. But this article would share few tips that would help you have a post retirement life without any financial hardship.

Before you retire keep the following thing in mind:

1)   Prepare a post retirement budget:

Other than your professional work clothes or transportation to the office your other expenses would remain same. But your income might be less than before so it would be advisable to prepare a budget plan according to your standard of living. Your expenses would not go down post retirement so maintaining a budget would save you from incurring debt. So plan your future that it does not take a toll on your pocket.

2)   Observe your cash flow:

There are several sources for the retirees to draw their income for instance Social Security, pensions, investments and, increasingly, part-time jobs. Before you retire you need to scrutinize your source of income so that you can avoid financial doldrums and can pave a smooth post retirement life. Ensure you have source to pay all of your monthly bills. Retirement income such as home equity, annuities, insurance, royalties and rental income are not that popular among the retirees.

3) Reduce your taxes:

When you put your money in retirement investment plans like 401k and traditional IRAs it is not considered taxable income till the cash is withdrawn. As tax bracket fluctuates year after year so in order to minimize taxes withdraw the cash after you have researched on the market. When you find tax brackets are lower than either you withdraw it or it to a Roth IRA plan. And when the tax bracket is higher on the graph then withdraw a fraction of the amount.

4) Increase Social Security:

Retirees should sign up for Social Security before they retire in order to secure their future. As a certain percentage of your paycheck is directly deposited into the social security fund you can easily reap the benefit from it. Try to avoid claiming it before you turn 70 years as the payments is increasing per annum. Higher return can be expected if you delay your claim it would save you from the financial crisis at the time of your old age.

5) Plan for a long term goal:

Retirees need to do a long-term planning as they might not have any other source of income and they might come across uncertain emergencies. Medicare pays for nursing up to 100days but if you are struck by some chronic disease then you might require longer period of time to cure. In this case hefty amount of cash would be drained out from your savings account making you penny less. Look for a long-term-care insurance policy in order to protect yourself from high chronic care costs.

6) Maintain the emergency fund:

Maintaining an emergency fund is crucial at any stage of your life. This is because you never know when you require cash to mend the leaky roofs, repair the cars, and other large uncertain expenses. Make sure that you keep the emergency fund in FDIC-insured account or invest it in some profitable fund. FDIC insured account would allow you to delay withdrawal from investment accounts when the stock market would be down.

7) Existing debts needs to be paid off:

Before you retire make sure to pay off your entire debts. As these are liabilities and you would never want to carry the burden of debt post retirement. Calculate the total amount of debt you owe and then start paying the debt with high interest rate. By the time you retire you can unshackle yourself from the clutches of debt.

8 ) Synchronize with your spouse:

Retirement would bring a new change in your life and this change might have an impact on your marital relationship. One of the spouses decides to retire then the other spouse may continue with his job. You can divide the financial responsibilities if both of retire together. In this way you can achieve financially secured future even after your retirement.