The NRI guide to retiring in India.
– Vishal Dhawan, Chief Financial Planner, Plan Ahead Wealth Advisors.
Siddharth (all names changed) left India for his masters in the US when he was 21. Whilst he loved the quality of education and the freedom that he had, he was sure that he would return back to India once he was done with his education. Whilst still completing his masters, he found a job with a Fortune 500 company, offering him a very exciting opportunity and an ability to earn a handsome salary. He decided to take up the offer and deferred his plans to return to India for another couple of years. One thing followed another – he started to go out with a colleague at work, Amrita, and before long, they were in Chennai exchanging wedding vows. Kids followed and Sid suddenly found himself on the wrong side of 40, living the great American dream with a nice house, nice car and a happy family. All of a sudden, whilst speaking to some friends one evening, Sid and Amrita realized that besides paying down their home loans and cars, they also needed to plan for the education of their children and their own retirement. Since they were on their way to India for their holidays in a couple of weeks, they decided they would discuss it in greater detail once they were in India.
Having clarity on where you are going to retire to is one of the most crucial decisions to make before you decide on how your investment portfolio needs to be constructed. This is one of the most difficult decisions to make for a large number of NRIs, irrespective of which part of the world they are currently based in.
Since I was the financial planner for one of his friends, Sid called me when he was in India to understand how he could get started with his investments. As we started to discuss his financial goals, I asked him what his future plans were. Was he looking to retire to India or was he likely to continue to be in the US? Well, well, Amrita and me have discussed this a lot. Its always wonderful to spend time with friends and family. Life is good in the US – its convenient, its comfortable and we have a great work life balance. But if I put my hand on my heart and ask myself where it feels like home, its when I land back in India. So India it is for us, where we finally wish to retire.
Thats great, I said. In our experience, this is one of the most difficult decisions to make for a large number of NRIs, irrespective of which part of the world they are currently based in. Having clarity on where you are going to retire to is one of the most crucial decisions to make before you decide on how your investment portfolio needs to be constructed. Sid was surprised to hear this and asked me to explain this in greater detail. Why would that be? There are two critical reasons for that, I said.
There are two critical reasons for that, I said.
1. Inflation levels in India tend to be much higher than most other parts of the globe. Whilst the current inflation rates in the region of 10% as per the consumer price index may be a little higher than normal, they have ranged between 7.5% to 8% pa over the last couple of decades. Thus, going by historical trends, portfolios for investors looking to retire in India need to be designed keeping these high inflation rates in mind, rather than the low inflation rates that are prevalent in the developed world.
2. Costs of maintaining the lifestyle that NRIs have got used to overseas, can end up being significantly higher in India. Take for example, the sizes of homes. An NRI moving from most cities in the US will not only find it difficult to find houses of the size that he has got used to, but also find it far more expensive in large cities in India. Thus, he could end up having to buy more than one apartment and then look to consolidate them, so that he has more living space. Alternatively, he may need to look at gated communities in certain locations, that will allow him to get a feeling of the lifestyle that he has been used to.
Portfolios for investors looking to retire in India need to be designed keeping these high inflation rates in mind, rather than the low inflation rates that are prevalent in the developed world.
So whats a good way to begin, asked Sid.
First of all, its a great idea to get a good estimate of what your retirement in India are likely to be, as of today’s cost. For a lot of NRIs, this may not be easy to do , as they may not be completely aware of multiple living costs in India. They may either need to sit down with a close family member to go item by item in terms of expenses, both recurring and annual, or sit with a financial planner who can guide them on the various components and estimates that make up the cost of living for a particular lifestyle in India.
Once these cost of living estimates have been made, an appropriate retirement age will need to be established. This choice could either be driven by the retirement age in the country of residence of the NRI, or by other parameters such as the ages of children or dependent parents.
Post establishing both the likely costs and retirement age, by using an appropriate inflation rate, the quantum of the retirement portfolio needed can be established. Post this, the investment portfolio can be created keeping in mind the risk profile, expected rate of return, and product restrictions if any. For example, some investment products are not available for NRIs or may have restrictions for NRIs from certain geographies to invest in them.
First of all, its a great idea to get a good estimate of what your retirement in India are likely to be, as of today’s cost. For a lot of NRIs, this may not be easy to do , as they may not be completely aware of multiple living costs in India. They may either need to sit down with a close family member to go item by item in terms of expenses, both recurring and annual, or sit with a financial planner who can guide them on the various components and estimates that make up the cost of living for a particular lifestyle in India.
This portfolio could be a blend of real estate, equities, fixed income and commodities and could be created using managed solutions like mutual funds or portfolio management services, or can be created through directly buying an investment product like a stock, or physical real estate or a bank deposit.
There are a few more things to be kept in mind if you are planning to retire in India.
1.Establish the location in India that you would like to retire to, so that you can start to plan to purchase the ideal home that you would like to retire to. It is not critical to make the purchase today, if you wish to retire after 20 years. However, it is crucial to plan for this purchase as well, so a portion of your investments need to go towards supporting this goal.
2. Start thinking about your plan for some of the assets that you own for example, whats your exit strategy for your current home in Singapore. Its great for you today because you are working there but what happens to it when you retire.
3. Different countries have different tax treatments for global income and reporting of global assets. Be sure to consult with a tax advisor in both India and your current country of residence.
4. There may be retiral plans that you are contributing to, in your country of residence. Please understand how they would work when you would leave the country and go back to India.
5. Since you will need medical coverage during your retirement, start building a medical corpus or look for a medical insurance cover that will support medical treatment in India as well.
Sid and Amrita now have their retirement plan in place and are looking forward to spending their golden years in India. Start thinking about your retirement location and plan accordingly, if you have yet to decide. I promise, it will throw up many more questions than I have covered.