As an NRI settled in the Gulf or elsewhere, you might be contemplating returning to your homeland after retirement. Retirement involves a thorough financial planning process which is common to all. However, when you are earning in a foreign land and ultimately settling in India, there are some additional factors to consider.
First of all, decide at what age you want to retire. Usually, ex-pats in the private sector in UAE can work only till 65 years. It is relatively lower at 60 years for those working in Saudi Arabia, Kuwait and Oman. However, your retirement age need not necessarily be limited to such foreign laws as you can continue to work in India after quitting work abroad.
There is an unspoken rule in retirement planning – you spend two-thirds of your life in the accumulation phase – saving for retirement and a third in drawdown. With increased life expectancy, you should also plan to work for longer years.
Target nest egg
Once you arrive at your retirement age, calculate the target retirement corpus. Since you are going to retire in India, it should be set in rupee terms.
Where do you plan to retire? Cost of living in metropolitan Indian cities is going to be higher than that of Tier-two cities. Moreover, you might not want to compromise on your lifestyle that you got used to in the foreign land. Accordingly, figure out a household monthly expenditure that you would be comfortable with. One should, however, exclude any house EMI or contribution towards other financial goals like child education from the above monthly expenses.
Assume that a monthly household expenditure of Rs 50,000 (or Rs 6 lakh annually) in India at current prices ensures a decent lifestyle for you. After 30 years, such expenses will rise to Rs 2.9 lakh a month (about Rs 35 lakh a year) with annual inflation of 6 per cent.
One rule of thumb suggests building a retirement nest of at least 25x (times) the annual expenses at the time of retirement. The idea is that you build a kitty large enough to generate income at least equivalent to that of your expenses (then). In this example, a retirement nest of Rs 8.6 crore (Rs 35 lakh*25) at the end of 30 years is expected to yield at least Rs 2.9 lakh every month at 4% per annum.
Once you know the target retirement corpus, take stock of your current financial assets in the form of mutual funds, stocks, bank FDs in India as well as abroad. Include any additional house you own (besides the one you stay in) in it.
It will give you an inkling of where you stand financially at this juncture and the amount of monthly savings you need to do to achieve the target. Assuming you have no existing investments, a SIP of Rs 24,000 - that increases by 5 per cent every year – will get you to the targeted retirement nest of Rs 8.6 crore in 30 years.
This is assuming you are investing 60% in equities and rest in debt that effectively yields 10 per cent annually. If you are investing 100% in equities, you can do so with a lesser SIP amount (Rs 16,500) assuming an annual yield of 12%.
So, if you are earning 20,000 dirhams (AED) annually in Dubai, your income works out to Rs 4 lakh a month in rupees. In the above case, saving 5% of your monthly salary and investing in Indian equity funds can help you achieve the target. Investing more than that can, of course, accelerates your progress towards retirement goals. Moreover, you also need to calibrate your investments based on currency price fluctuations and ensure you invest at least the targeted monthly rupee amount at all times.
Where to invest?
Since you are retiring in India and would be spending in rupees, you need to predominantly invest in Indian financial products for achieving your retirement goals.
Before coming back to India, gradually start liquidating all your foreign assets - especially physical assets like that of real estate. A Last-minute sell-off would otherwise prove counterproductive.
Similarly, liquidate retirement savings products like 401K (of US) after considering its lock-in period and cost implications. For instance, there is a huge penalty for withdrawing 401K funds before you are 60 years old.
Last but not the least, ensure you channelize these investments back home into equities in a systematic way. Use this calculator to figure out how much you will need based on your current income and expenses.