31 December 2013

HAPPY NEW YEAR 2014 : : IndiaER.blogspot.com

HAPPY NEW YEAR 2014 :  : IndiaER.blogspot.com

Ensure a smooth transition to retirement :: Business Line

Controlling your non-discretionary expenses in the last five years leading to your retirement is important.
It is obvious that you save more if you spend less. What may not be so obvious is that managing your spending in the last five years of your working life can help you transition smoothly into retirement and, perhaps, even reduce your longevity risk — the risk that you will outlive your investments.
Trial retirement-experience

Your spending can be categorised into discretionary and non-discretionary expenses. Discretionary expenses are spending that can be avoided. This includes buying luxury products and services. Non-discretionary expenses, on the other hand, are spending required to sustain your lifestyle. This includes food, clothing, rental and health-care expenses.
Non-discretionary expenses are more difficult to manage than discretionary expenses. You will most likely cut your discretionary expenses when your income falls short of expenses. Suppose your income for a month is Rs 1 lakh and your expenses amount to Rs 1.25 lakh. Which would you cut: your visit to the movies and restaurant or your grocery supplies for the month? Obviously the former.
You believe that grocery purchases and other basic necessities cannot be reduced. That is not true. Even as a working executive in your prime career, you can typically cut 5-10 per cent of your non-discretionary expenses without compromising on your lifestyle. And if you are a soon-to-be-retiree, you should cut even more during the last five years of your working life. Consider these five years as a trial phase for your retirement. You should strive to manage your household expenses within the cash flow projected for your retirement. This will help you make a smooth financial transition from your working life to your retired life.
Your post-retirement living is largely influenced by the lifestyle that you have maintained in the last years of your working life. Now, it is highly unlikely that your post-retirement passive income will support any extravagant lifestyle that you may have enjoyed in your working life. The choice then is not whether but when you want to cut your non-discretionary expenses. Individuals typically, prefer to reduce expenses after retirement. We believe you should cut your lifestyle expenses just before retirement.
It is emotionally less-stressing to have money and yet tightly manage your spending decisions. That way, you get the satisfaction of having managed your cash flows well. After retirement, managing your expenses is not a choice, because the scope for increasing your income is limited; cutting costs due to lack of adequate income can be more stressful. Besides, you will get accustomed to living within the budget, as you would have already practiced doing so in the last five years leading to your retirement.
Further, your retirement income may be in the form of stable cash flows if you buy annuity and bank fixed deposits or fluctuating cash flows, if you have a stock-bond portfolio. In either case, you will be forced to cut discretionary expenses if prices of non-discretionary items increase. So, manage non-discretionary expenses when you can and spend on discretionary expenses to have a more fulfilling life. You should develop a disciplined approach to spending. First, set up a separate bank account when you are within five years of your retirement.
Second, calculate the amount of money that you will require for your monthly expenses during your retired life, and transfer that amount to your newly set-up bank account every month. You should manage your non-discretionary expenses within this budget. And third, invest the cash flow saved due to lower spending on non-discretionary expenses in bank fixed deposits or in tax-free bonds; you can spend this investment on discretionary expenses during your retirement!

ET top 11: Stock market@2014: Eleven stocks that can return up to 40%

The Indian markets have remained volatile so far in the year 2013 with benchmark indices outperforming the broader market with quite a margin.

The S&P BSE Sensex managed to rally over 1,700 points, or nearly 9 per cent, as compared to a little over 6 per cent fall in the BSE mid-cap index and 11 per cent decline seen in the BSE small cap index so far in the year 2013.

Equity markets recovered from historic lows and hit their respective record highs fairly in the month of November despite a sluggish economy and rising interest rates.

The much feared tapering from the US Federal Reserve has not had much impact on Indian markets, but the rise in the quantum of tapering in near future may come back to haunt markets in 2014.

FII flows, normally sluggish or moderate in December, have also surprised.

So far this month, offshore funds have invested Rs 14,807 crore, the second highest figure in the past 10 years, ET reported.

With two days remaining in the month, flows are likely to top Rs 15,000 crore though it is unlikely to reach anywhere close to last year's record of Rs 24,039 crore, said the report.

However, some market gurus warn investors that the markets have rallied ahead of their fundamentals and more on sentiments.

The market is likely to remain rangebound ahead of elections till more clarity emerges.

"Clearly, 2014 is going to be divided in two parts, pre-elections i.e. pre-June times and post-June times. A lot of optimism is getting built into the fact that there is going to be a change in the government and most of this change is going to go into the NDA coalition which is pro-business and pro-growth and pro-development," said Anish Damania, Head-Institutional Equities, IDFC Securities.

"Market is trying to discount something in terms of what could happen in future and today, most of the bets are therefore placed in that direction," he added.

These were two things that have really taken up the market to near record levels this month. One was the announcement of US tapering which actually reduced the much needed uncertainty around the whole event and the other is RBI, which kept a status quo on rates.

"So, therefore, the call has to be based only on liquidity and sentiment. The market has done its bit based on flows and based on sentiment but as far as fundamentals are concerned, it has gone as far as it can," said UR Bhat, MD, Dalton Capital Advisors, in an interview with ET Now.

"Corporate earnings are also not expected to be dramatically different than what it was at best single-digit earnings growth numbers; and on the macro side, we really do not have much of an improvement," he added.

Bhat is of the view that the whole market call is based on sentiment, based on politics and the second one is on capital flows from abroad. These are the only two things that can drive the market and the call has to be based on that.