Retirement Planning is something that is being stressed by most financial experts as well as us these days and is being done only because of the sheer ignorance of people towards their future. Being able to retire means that you are financially independent, and now you will not require to wake up early, and put in the effort to work long hours as you used to do earlier.
The concept of retirement has evolved, now there is no need for you to work till the age of 60 and then live relying only on a mere pension amount. The days have literally gone by when the pension used to be the only source of income for most retirees.
But, this still continues in the case of a lot of people who don’t plan their retirement early and then regret their ignorance later. And, if you are also one of those who have not planned their retirement yet, and now are worried about what their future will look like, then don’t worry you are not alone in this. Like every problem, this problem also has a solution. And we will provide you with the solution in this case.
So, let’s deep dive into this by examining why you have not planned your retirement yet or are not planning your retirement.
Retirement Planning is and must be a high-priority goal for every earning individual, irrespective of their age, that is, if you are earning then surely there must be some amount that should go to your retirement fund or retirement investments.
And, if you are not doing this, or have not done this, then you are in trouble. But, Don’t worry
Through this blog, you will find your way out of this trouble for sure.
For anyone, who is not planning for retirement, the given below can be one of the reasons for not doing so.
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Financial Management |
Lack of finances, or messed up finances is one of the key reasons for ignoring retirement planning. But, in reality, if you are serious about retirement planning then you can even start with a ₹500 investment, i.e., with the order value of your one swiggy or zomato order. |
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Age |
People while talking about retirement tend to believe that it is too soon or that it is too late for their retirement planning. And, if you are also following the same approach then you need to change that right now. There is no right time for a right time, i.e., every moment is right for the right thing. |
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Ignorance |
A whole lot of people feel that they have enough money for their post-retirement survival, but what they forget and ignore here is the effect of ‘inflation’. This means, they don’t realize the price of everything will only rise in the future, and their money will lose its present value. For example, what was valued at ₹100 in 1980, is now valued at ₹2,115 in 2022 or we can say that the purchasing power has reduced 20 times in 40 years. Therefore, you should realize that inflation is inescapable, and if you are not considering it, then this will hit you hard in the future. |
If one of the above reasons is also your reason for not planning retirement then make sure that you change your approach because you cannot let your post-retirement life be a mess.
There are a variety of options to plan your retirement, like investing in instruments that offer fixed returns, National Pension Scheme (NPS), Equity Linked Savings Scheme (ELSS), Senior Citizen Savings Scheme (SCSS), Employee Provident Fund (EPF), etc., which you can explore more in our previous blog ‘Why, When and How Should You Plan Your Retirement?’.
But, these options become limited if you have not planned for your retirement earlier. And in this blog, we will cover one of the key options for late starters of retirement planning, primarily,
For Indians, having your own home is a basic necessity, but what they fail to understand is that if they are not using their homes to generate a secondary source of income then, their homes are a liability rather than what they believe as an asset.
But, how can you turn your home into an asset?
Let’s explore.
Early retirement planners usually don’t need to count on their homes for retirement, but late starters of retirement planning need to do this.
Now, we will explore a key way in which your home will help you out.
A reverse mortgage is a type of loan which aims at providing income to senior citizens post their retirement, typically to those above 60 who have a self-occupied and self-acquired home.
This unique kind of loan assists senior citizens who only depend on interests received from fixed deposits, Senior Citizen Savings Scheme, National Pension Scheme (NPS), etc, even if they have some residential assets with them.
Reverse Mortgage loans are the opposite of home loans because, in the case of a home loan, the ownership of the loan gets transferred to the borrower when the payments are made to the lender, whereas in the case of a reverse mortgage loan, as the bank makes the payment to you, the ownership gets transferred to the bank.
In the case of typical loans, a borrower has to make payments to the lender, but as the name suggests, in the case of reverse mortgage loans, payments are made to the borrower by the lender.
So, basically senior citizens who have a self-acquired and self-occupied residential property can use their property as collateral to avail of a reverse mortgage loan, against which they will receive specific monthly payments over a particular period of time.
For example, suppose you have a home, and you want to avail reverse mortgage loan on that, then the bank to which you are applying for the loan will send a valuator, who will value your home, and in most cases, you can get up to 80% of the value of your home. So, if your home is valued at ₹1 Crore, then you can get a loan up to ₹80 Lakhs only.
And rather than paying a lumpsum amount, the bank will decide monthly payouts for you, for a specific duration ranging anywhere between 15 to 20 years.
6.1 You must be at least 60 years old, and in case of availing a joint loan with your spouse, then your spouse must be at least 55 years of age.
6.2 Your residential property against which you are availing loan, should not have any outstanding loans, or dues.
6.3 The property used as collateral should not be used for any commercial purposes.
6.4 The residual life of the house property used as collateral for the loan i.,e the period until which the property requires reconstruction, should be at least 20 years.
6.5 The property that is being used to obtain the loan should be owned by the applicant for at least one year.
Similar to the case of other loans, the interest rate on reverse mortgage loans also varies from lender to lender.
Interest on reverse mortgage loans is generally 1-3% higher than the interest charged on home loans.
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8.1 Taxability |
The loan amount received in the hands of the borrowers is not taxable. |
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8.2 Default Risk |
If you keep paying regular house property tax, and insurance premium, then the default risk is almost eliminated. |
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8.3 Dependency |
The borrowers are no longer dependent on their children. |
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8.4 Occupancy |
The borrower along with their spouse can continue to occupy their home, even if the tenure of the loan is over. |
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9.1 Liquidation of property |
The ownership gets shifted to the bank. |
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9.2 Lumpsum Payments |
There is a limitation on the lumpsum payments, even if there is any medical emergency, the bank will only allow 50% of the total eligible loan amount as the lumpsum payout. |
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9.3 Restricted Payments |
There will be no payments made after the loan tenure is over, and that will again put you in a difficult financial situation. |
Retirement planning is crucial to lead a comfortable life, but even if you are late in this game, you can find yourself in a better position only by getting a lumpsum amount of knowledge about various ways to plan your retirement. A reverse mortgage loan is one of the ways of doing this, and moving forward, in the next blog, we will explore more about mortgages.
Till then, remember,
“Your home is an asset only when you use it to put money in your pockets”