What is the corpus required for a monthly income of Rs 1 lakh?

retirement-corpus

Whether you are retiring soon or plan to retire after a few years, generating a monthly income of Rs 1 lakh will not happen automatically. It requires planning and effort.

If you are starting your career and your retirement years are far away, the goal of Rs 1 lakh monthly income can be easily achieved. However, if you are in your 40s and 50s and have decided to start a plan now, you will have to work hard. You need to be more focused on your investment.

Today, we will discuss things you need to take care of if you plan to retire today with a Rs 1 lakh income per month. Also, we discuss if your retirement has time, how you can decide on the retirement corpus.

Inflation is a crucial factor to consider

If you are looking for Rs 1 lakh monthly income, the first thing you should be careful about is the time. Have you decided on the monthly amount based on your current expenses or have factored in the inflation?

For example, if today your monthly expenses are Rs 1 lakh and you want to retire after 20 years, assuming 6% inflation, you will need Rs 3.2 lakh per month to have the same living standard. We recommend all our clients to give due importance to inflation for all their future planning.

If your current expense is Rs 30,000 today and your retirement is 20 years, in that case, you will need Rs 1 lakh approximately. With these two numbers, you can estimate what you need at retirement.

Also, if you are 60 today and think you will need Rs 1,00,000 and that amount is sufficient – You are mistaken. Again, because of inflation, you will probably need a lot more by the time you reach 70 or 80. If you are looking for a rough estimate, you will have to make certain assumptions:

  • The inflation rate: Given the historical data, you must assume the inflation rate of 6% for all your retirement years.
  • Life Expectancy: It is one of the crucial parameters that would decide how much corpus you will need to retire. It is always better to be conservative in this estimate. Taking life expectancy higher than the average is a good idea. Hence, taking a minimum of 80 years and taking 85 years is on the safer side.

Corpus for Rs 1 lakh month income

Before giving you an estimate, we would like to mention that we have taken inflation into consideration post your retirement years. For example, we have assumed that in the first year would need Rs 12.72 lakh (6% inflation), in the second year, you will need Rs 13.48 lakh, and so on.

Assuming a life expectancy of 85 years, you will need approximately Rs 3.5 crore today. We have also assumed that your investment corpus will generate moderate returns of 6%, and your current age is 60 years.

The numbers will change drastically if you are 40 years and you plan to retire today and require the same monthly income.

It is always better to consult a financial advisor to make such calculations as there are too many assumptions and variables that you may miss. We at Right Horizons have years of experience in solving the complex financial needs of our clients and making their financial journey super easy.

Where to invest your retirement corpus?

One of the biggest mistakes most retired people make is that they invest all their corpus in debt with low returns. Given the high inflation, the returns may not beat inflation.

Also, as explained above, the retirement years can be 20 to 25 years or even more. Note that all your retirement funds won’t be needed immediately. Hence, you can put a certain percentage of it in equity. How much? It depends on how much risk you are ready to take. Within equity, there are some safe options, and you can invest in them. Other options can also give you inflation-beating returns.

Before you go

Making the best use of your retirement corpus and generating steady income is not easy – there are too many variables to take care of. If you cannot plan it yourself, please consult a financial advisor. It is something where you cannot afford to go wrong.

P.S – The numbers and assumption used in this article are only for understanding. The actual numbers may vary from person to person.

NRIs: Income Tax aspects on renting out a property in India

NRIs Income Tax aspects on renting out a property in India

If you are an NRI and wondering what you should do with your residential flat in India, you are at the right place. NRIs want to rent out their residential flat, but they are unsure of income tax aspects. In this article, we will answer your queries concerning income tax on renting a property in India.

Why should NRIs rent the property?

NRIs staying abroad must rent out their residential flat in India for two main reasons:

  • It takes care of the maintenance and other expenses related to the flat.
  • You generate a steady income that can help you with specific financial goals.

Rent a property - Get the basics cleared

You can rent your property in India as an NRI and receive the monthly income. The only difference is that the rent amount should be credited to your NRE or NRO account. You are free to repatriate the amount received. If you do not have the NRO/NRE account, you can ask your tenant to transfer the rent amount to your local account.

For either option, your tenant should submit Form 15CA online to the Income Tax Department. You may also need to produce an appropriate certificate from a Chartered Accountant (CA) certifying that all taxes are fully paid.

Do NRIs have to pay taxes on rental income?

Most NRIs are unaware of it, but they need to pay taxes on the rental income they earn in India. In fact, the tax is deducted at the source (TDS) by the tenant. Your tenant must obtain a TAN number and deduct tax of 30% from the rent amount and only transfer the balance to your account and share a TDS certificate.

What if a tenant does not deduct TDS? If the tenant does not deduct tax and you fail to declare your income and pay the tax, the IT department will hold you responsible in this case. If a tenant is not deducting TDS, it is your responsibility to declare the income and pay the required taxes.

Do NRIs have to pay taxes in the country of residence?

In general, as a resident of the country and getting global income, you are required to pay taxes. Hence, the tax is deducted from a source on your rental income in India, and your foreign income will be subject to tax in your residing country.

However, we have many countries with whom India has signed Double Taxation Avoidance Agreements (DTAA). India has signed DTAA with 88 countries (with 86 countries, it is in force). If you are not sure how you can benefit from the DTAA, you can take help from a financial advisor.

The DTAA rules are different in different countries. For example, India-US DTAA states that the rental income will be taxed in the country where the property is located. Hence, if you are an NRI resident in the US, you will only have to pay taxes on your rental income in India. However, you will have to disclose your rental income while filing your tax returns in the US. You will get a credit for taxes paid in India. You must check the tax laws for the country you are residing in or consult an expert.

Are there any exemptions around tax for rental income?

Yes, if your total income in India, including your rental income, is below Rs 1.6 lakh, you get a TDS exemption – your tenant should not deduct the TDS. However, the process for the exemption is not easy. The first thing you need to do is apply for a tax exemption certificate from the tax authorities. Once you have your certificate, submit the certificate to the tenant. The certificate issuance is at the discretion of the tax office. and he needs to be convinced about your case.

There is an alternative – you can file your returns and claim a refund of the TDS paid. Please note, in this case, the rental income may be taxed fully in the country of your residence. For example, if you are a US resident and your income is below the basic exemption limit in India, you pay no taxes in India*. However, your rental income gets added to your US income and taxes as per US laws.

What is a deemed rent?

Below are different scenarios related to deemed rent:

  • If you have one residential property in India and do not rent it out, it will be deemed to be self-occupied. In this case, there will be no tax liability for you.
  • If you give your property on rent, the rental income is taxed for that financial year.
  • If you have two houses in India and rent one out, the other will be deemed to be self-occupied. You pay tax only on the rental income of a single property.
  • If you have two houses and don’t rent any, then one will be deemed to be self-occupied, and the other deemed to be let out. It will be taxed based on the valuation of rent. You have the choice to choose any of the properties as self-occupied for taxes.

Conclusion

Taxation for NRIs is not simple, and taking an expert’s help to manage the taxes gets crucial in most cases. We at Right Horizons have years of experience helping NRIs with taxation and other money-related matters. Get in touch with us and leave all your financial worries to us.

*The tenant is supposed to deduct TDS irrespective of the value of the rentals. So, one would need to get a certificate not to deduct tax at source by disclosing all income data to the IT department and showing that your income is below the taxable limit. The IT officer may not easily give this, so technically possible, but practically difficult not to pay tax in India.

When should you start planning for your retirement?

When should you start planning for your retirement

A distance of 100 miles begins with a single step.

The saying holds true for everything big in your life – retirement planning is no different. Retirement planning is one of the mandatory long-term financial goals, yet, most people are not ready to take that first step.

You may be in your 20s, 30s, or even 40s, and retirement seems like a lifetime away, and you always think you can do it later. However, the reality is that your retirement is coming faster than you think, and it will be too late if you do not act now.

At Right Horizons, over the years, we have met clients that are doing financial well but have ignored their retirement planning altogether. Research shows that people usually place retirement planning as the last financial goal. Many don’t even consider it a key event and plan for it. It is crucial for everyone to know the right age to start preparing for their retirement.

The need for retirement planning

Before we talk about the right age, it is essential to understand the need for retirement planning. You must do retirement planning to maintain your desired lifestyle in your later years and ensure financial stability for you and your dependents. Also, it helps you financially prepare for major life events.

The right age to start planning for retirement

The best time to start retirement planning is the day you get your first salary. However, when you start earning, there are other dreams and desires you need to fulfill. Hence planning for retirement gets delayed. After a few years, you get married, your expenses increase, and savings get sidelined.

However, when you start early (for example, in your 20s or early 30s), you have time on your side to start building good habits and compounding savings. You can achieve more with fewer savings if you start early.

At Right Horizons, we tell our clients that if they have not started retirement planning, the right age to start is NOW. You should not delay retirement planning even a single day after reading this article or knowing about the importance of a retirement plan.

Doing what others are doing

We are social animals, and our natural instinct is to follow the herd. When it comes to finances, we tend to do the same – another common financial mistake. Your friend recently went on a Cruise, and now you want to do the same? He invested in the small-cap funds, and you want to do it. You may be tempted to do everything that people around you are doing. You can avoid it by asking yourself questions like – Do you need what others are buying? Once you start asking yourself questions before making a financial decision, you will automatically save more money. Everyone’s financial situation and needs are different. Hence, you must not imitate someone else’s life. You can be in big financial trouble soon.

Why should you start retirement planning early/now?

Below are some benefits of starting early with your retirement planning:

Good Return on Investment :

There is no point in keeping your money in the savings account or having most of your investment in a low-return investment option. Selecting the right investment instrument is the key to generating more returns. When you start early, you have flexibility in choosing an investment instrument and a lot of time to rectify your financial mistakes, if any. With more time in hand, you can opt for high-risk, high-return instruments – with more time, investment risk gets reduced significantly.

Tax benefits :

There are many retirement plans or retirement investment options that help you save tax. When you invest in retirement plans, you can take advantage of various tax benefits that you may not be able to take if you wait for a unit later. Also, retirement plans may assist you to increase the size of your tax returns.

You have time for other important financial goals :

If you are already in your late 40s or 50s and starting retirement planning, your focus will be on this single financial goal. However, when you start retirement planning early, you will never be burdened with the amount you need to put in the retirement bucket. As mentioned above, you can achieve more with less investment. You will have more financial goals like child education as you age. You can work on other financial goals without impacting your living standards when you start early.

Things to know before starting retirement planning :

You can do retirement planning on your own or take an expert’s help. In either case, you need to answer below:

  • Your retirement age: Gone are the days when retirement meant 60 years. Today, many people want to retire early. If that is the case with you, you must decide the age at which you want to retire.
  • Your retirement corpus: You should figure out the retirement corpus you will need before you retire. It will help you invest the right amount to achieve the goal. Advisors at Right Horizons can help you with the numbers as it requires expertise for this calculation.
  • Your post-retirement lifestyle: If you want to live a simple and relaxed life, you will need to save less for retirement. However, if you plan to venture post-retirement, you need to save more. Hence, you must be sure of your lifestyle post-retirement.

Conclusion

Start your retirement planning now. If you are unsure of the path, experts at Right Horizons can help you secure your present and the future. Contact us today and leave all your financial worries on us.

5 Financial Planning Mistakes You May Be Making

financial planning mistakes you are making

Financial planning is a long-term process. There are many actions you need to do on the journey. Most of you are not financial experts. Hence you may make some mistakes along the way. However, when it comes to money, the fewer mistakes you make, the better it is for you. You can avoid the mistakes if you know them. Let us look at common mistakes investors make.

Common Financial Planning Mistakes

Procrastination

The most common mistake is not starting with financial planning. Why do most people avoid or postpone it? It is not exciting – there are no short-term rewards. Below are some reasons you give yourself and others for not doing it:

  • I have started earning recently. I want to live my life first.
  • The plan is ready in my head.
  • I don’t have much savings, no point in financial planning.

If your reason is one of the above or something similar, it is not a valid reason. Everyone should start financial planning as soon as one starts earning. The earlier you start, the better it is for you. You will know your financial goals and also get an idea of how much money you need to achieve your financial goals.

Fulfilling all family demands

You earn so you can do what you want – travel, shopping, entertainment, etc. You also feel good when you can fulfill all the financial needs of your family members. However, you need to draw a line between needs and desires.

You should fulfill all the needs of your family and also their desires. Desires are endless, and if you decide to meet every desire, you may not have enough money to invest towards your goals. At Right Horizons, we have seen many people making this mistake. We have helped them prioritize their financial goals and align their savings and expenses accordingly.

Invest without planning

Today, thanks to social media, most people know the importance of investing. So many influencers are talking about investing. A mistake most people make is that they start investing without any plan. You see your friend buying a stock and you invest in it too. A newspaper ad talks about a ULIP plan. You invest in the ULIP plan without figuring out if it is right for you. Does the situation sound familiar? You are not alone in the boat. There are more people like you.

To invest, you must know your needs, risk tolerance, and investment tenure. Based on these, you can decide your asset allocation. In short, you need planning. Every penny you invest should be part of your financial plan. Right Horizons can help you with financial planning – we have been in the business for more than 18 years.

Doing what others are doing

We are social animals, and our natural instinct is to follow the herd. When it comes to finances, we tend to do the same – another common financial mistake. Your friend recently went on a Cruise, and now you want to do the same? He invested in the small-cap funds, and you want to do it. You may be tempted to do everything that people around you are doing. You can avoid it by asking yourself questions like – Do you need what others are buying? Once you start asking yourself questions before making a financial decision, you will automatically save more money. Everyone’s financial situation and needs are different. Hence, you must not imitate someone else’s life. You can be in big financial trouble soon.

Ignoring retirement planning

People who start financial planning tend to overlook retirement goals. They believe it is something that can be done later – they spend or invest money on other financial goals. If you are doing the same, you are on the wrong path. Yes, the goal is far away, but retirement planning is one of the most important financial goals – your retirement will come – it is evitable. Hence, the best thing to do is start investing for your retirement – start NOW. Understand the importance and start investing to enjoy your sunsets years comfortably.

Conclusion

There is a saying – we learn from our mistakes. However, you don’t have to make all the mistakes to learn. You can take help from financial advisors at Right Horizons to reduce your investment risk and maximize your returns. Get in touch with us now.