What is common among the top companies of the world like Alphabet, Microsoft, Mastercard, PepsiCo, Twitter, Chanel, and more? Their CEOs are of Indian origin and have reached these heights through hard work after coming to a foreign country. One of the biggest concerns faced by India today is the brain drain where the majority of our talented citizens are willing to give up their citizenship in the country to work abroad and build a life there. However, the connection to the roots is so strong that most NRIs wish to return to their roots post-retirement. Working abroad or in the country, every individual has to plan for their retirement. But for NRIs, planning for retirement is different than for any average Indian.
Given below are a few factors to be considered by NRIs while planning for their retirement and other related details for the same.
Why is retirement planning needed for NRIs?
Retirement planning is essential for any individual no matter where they are in any part of the world. It is the effective financial planning of a person early on that allows them to have a financially secure future. A sound investment plan focusing on retirement helps the investors reap substantial returns in the post-retirement period. Being financially independent allows them the freedom to live their retired life on their terms without being dependent on anyone, whether their children or relatives and fulfill all their post-retirement dreams or their bucket list. In old age, the need for medical attention also increases, and having an effective retirement plan acts as a safety net against any medical emergencies.
Also Read : Best mutual funds for retirement planning?
What are the factors to consider by NRIs while retirement planning?
As mentioned above, there are a few more factors that have to be considered by NRIs while chalking their retirement plans. Some of these considerations which are essential for an effective retirement plan are highlighted below.
- Country or city for retirement
The first and foremost decision while retirement planning is to decide where the retiree wants to settle down in the post-retirement period. While most NRIs look to return to their native or closest city in retirement, few may also prefer staying abroad. Deciding where to retire is an important step as this will help in determining the cost of living. If retirees plan to spend their days in their native or rural to semi-urban areas, it may cost relatively less as compared to any urban or metro cities.
- Investment options
The best way to achieve all the financial goals is by selecting quality investments after careful analysis of the available options. Some of the most common retirement options available in the Indian market are NPS, Senior Citizens Savings Scheme, Post Office Time Deposits, Bank FDs, mutual funds or Retirement funds, real estate, etc. The choice of investment should be based on individual parameters like investment capital, risks, returns expectations, investment horizon, etc.
While selecting investments the eligibility for investments should also be considered. Some investment options do not allow NRIs to invest on account of their residential status. Therefore, NRIs have to understand the pros and cons of different investment options and then select one which suits all their criteria.
Also Read: Can NRIs invest in mutual funds in India?
- Inflation
Inflation is one of the biggest dents in the returns from any investment. Therefore, investors should always aim for investment options that provide higher post-inflation returns. NRIs need to take extra care while selecting investments as the level of inflation is different in different countries. Therefore, the corpus or the monthly returns received in the post-retirement period should be able to beat the inflation in the place of retirement.
- Financial goals in post-retirement
Retirement is not a period that should be filled with isolation or medical necessities. Rather it can be a period to enjoy one’s life to the fullest without any obligations. The retirement plan should take into account the post-retirement goals like travel and holidays, maintaining a post-retirement lifestyle, having an adequate emergency fund, having adequate medical insurance, having sufficient corpus for buying any asset, etc. Chalking out all these goals will help the NRI decide the contributions needed at the early stage to meet these financial obligations.
- Taxation
Taxation is one of the crucial factors that need to be factored in while making any investment decision. NRIs particularly have a dual decision to make as they first need to analyze which country is beneficial in terms of taxation, the next stage is deciding which investment option is to be selected based on the tax efficiency. India has different tax laws for residents and for NRIs, therefore, considering the ultimate taxation is necessary as it directly impacts the net returns earned by the investors.
What are the mistakes to avoid by NRIs while retirement planning?
Now that we have seen what are the topmost factors to be considered by NRIs while planning for their retirement, let us now consider the top mistakes to be avoided by the.
- Not investing early on
The primary mistake that any investors need to avoid is investing late, i.e., investing at a later stage in life. The most ideal period to start investing and planning for retirement is from the time one starts working. Investing for a longer period allows the investors (NRI in this case) to have a longer time for investment which grows substantially due to the power of compounding.
- Selecting the wrong investment product
There are multiple investment options that focus on retirement planning. However, just adding these words does not make such investments pro-retirement or truly beneficial for the retirees in yeh true sense. Hence, it is imperative that NRIs select the right investment product to not only match their needs but help in achieving their objectives smoothly.
- Not accounting for post-inflation or post-taxation returns
Inflation and taxation are the enemies of higher returns. A country with higher inflation and taxation will definitely attract fewer investors as they may find better investment options abroad. Therefore, selecting an investment option without considering inflation and taxation will ruin the retirement plan making it virtually ineffective.
- Relying on incompetent advisors
Most NRIs do not have a thorough knowledge of the available investment options in India. Therefore, they may hire the help of professionals to guide them in this regard. But when these professionals are not competent enough and lack the ability to provide proper guidance, NRIs do not get to receive the full benefits through their retirement plan. Therefore it is essential that NRIs undertake a good amount of research relating to the potential advisors to determine if they can truly benefit from their retirement plans.
Conclusion
NRIs are an important part of Indian society and the government has also encouraged NRIs to retire in their home country. Keeping this in mind, the government has included many investment options that are solely for NRIs and benefit them in their retirement.
FAQs
Yes, NRIs between the age of 18 years to 60 years can invest in NPS provided they meet all the required conditions in this regard.
ELSS funds are available to both Indian residents as well as NRIs as per the guidelines of the Income Tax Act
Like any other investors, NRIs should also start investing at the earliest, preferably right from the time they earn and build a life for themselves abroad.
Most bank FDs provide interest in the range of 2.5% to 8%. The current inflation in the country is approximately 7%. Therefore, the net returns in the hands of the investors post-taxation are negative. Thus it can be safely said that bank FDs do not provide inflation-beating returns.
