Retirement planning is an on going process.

During the initial stages of planning, clients goals are determined by quantifying them in rupee terms. Once goals are fixed, asset allocation is done as per the clients risk profile and investments are made accordingly. After this, there is a need to monitor the plan at regular intervals and undertake constant review of portfolio evaluation. Portfolio evaluation is the process of going through the existing portfolio of the client to check whether the current asset allocation is in line with his future financial requirements.

Reasons for conducting regular evaluation of ones portfolio

Changes in life cycle stage of the client for instance, the client may get married and there may be a need for a change in the asset allocation. To contain systematic risk - the evolving dynamic market conditions require review/changes in the asset allocation.

Example Rajesh and Bina are a just married couple. Lets take a look at their financial situation and chalk out a financial plan for them. Age : Rajesh 26 yrs; Bina 25 yrs; Number of dependants : None; Occupation : Rajesh - Accountant; Bina IT Security officer Monthly income : Rajesh Rs 50,000 pm; Bina Rs 30,000 p.m.; Monthly expenses : Rs 30,000 p.m. Monthly savings : Rs 50,000 p.m.; Assets : Own house; Insurance : No insurance policies taken yet; Investments : Bank FD Rs 5 lacs, Gold Rs 5 lacs; Mutual funds Rs 3 lacs; Balance in bank savings account Rs 3 lacs.

Future financial goals

(a) Buy a car in 2 years down-payment required is Rs 2 lacs (in todays value)

(b) Holiday in Europe in 5 years Amount (in todays value) Rs 6 lacs

(c) Provide for couples retirement in 30 years Amount required Rs 50,000 pm (in todays value) for 20 years after retirement;

Analysis

Rajesh and Bina are a just married couple with the above future goals. Surplus funds lying idle in their bank account to the tune of Rs 3 lacs. To start off, they can create a contingency fund by putting away 6 months expenses (amounting to Rs 180,000) in liquid mutual funds or auto-sweep facility in their savings account to counter any sudden emergencies in future. The balance in the savings account (Rs 120,000) maybe diverted into buying adequate life and health insurance for couple and invest the rest (either through lump sum or regular contributions) to reach their above specified goals.

Reverse mortgage
A reverse mortgage is a loan available to senior citizens. As its name suggests, it is exactly opposite of a typical home loan, where repayments are made to the housing finance company (HFC)/ bank every month until the tenure of the loan. Reverse mortgage is so named because the payment stream is reversed, that is instead of the borrower making monthly payments to the lender, the lender makes payments to the borrower. The process is simple. Once you pledge your house for reverse mortgage with any HFC/ bank, the HFC/ bank estimates the value of the house. Then, taking into account the cost of credit, it makes monthly payments to you.The loan is typically settled after the death of the owner/co-owners.

Features of Reverse Mortgage

1. In a typical mortgage, you borrow money in lump sum right at the beginning and then pay it back over a period of time using Equated Monthly Instalments (EMIs). In reverse mortgage, you pledge a proper ty you already own (with no existing loan outstanding against it). The bank, in turn, gives you a series of cash-flows for a fixed tenure. 2. The scheme is applicable for the entire country including rural areas. The property should be mortgagable. In some rural areas agricultural land cannot be mortgaged and hence reverse mortgage loans cannot be considered against a house constructed on such agricultural land.

3. Eligibility Criteria Indian citizen of 60 years or more, Married couples will be eligible as joint borrowers for joint assistance. In such cases, the age criteria for the couple would be at the discretion of the RML lender, subject to at least one of them being above 60 years of age and the other not below 55 years of age. Should be the owner of a residential property (house or flat) located in India, with clear title indicating the prospective borrowers ownership of the property. The residential property should be free from any encumbrances. The residual life of the property should be at least 20 years. There is no minimum period of ownership of property required. The prospective borrower(s) should use that residential property as permanent primary residence.

4. The amount of loan available under RML depends on the age of the borrower, appraised value of the house and the prevalent interest rates of the lending institution. 5. A reverse mortgage loan cannot be availed against commercial property.The property should be self-acquired, self-occupied and having clear title in favor of the borrower. 6. The rate of interest and the nature of interest (fixed or floating) will be decided by the lender. The rate of interest is determined by market conditions. Therefore, each lender will determine its lending rate as per its own policy. Each lending institution offers loans as per its own lending policy and the borrower can decide whether to take the loan on fixed or floating basis depending upon the respective terms. 7 . The maximum tenure of an RML will be 20 years.

On the borrowers death or on the borrower leaving the house property permanently, the loan is repaid along with accumulated interest, through sale of the house property. The borrower(s)/heir(s) can also repay the loan with accumulated interest and have the mortgage released without resorting to sale of the property. The borrower(s) or his/her heirs also have the option of prepaying the loan at any time during the loan tenor or later, without any prepayment levy.