The Hindu Business Line : For a relaxed retirement

AS if to transport you to a different world, James Thomson speaks of "an elegant sufficiency, content, retirement, rural quiet, friendship, books, ease and alternate labour, useful life, progressive virtue, and approving heaven". To achieve that, a mild work I'd suggest is a skim through "Planning for Retirement Pension Products," of the Indian Institute of Banking and Finance (www.iibf. org.in), from Taxmann (www. taxmann.com), which is a prescribed read for IIBF's Post Graduate Diploma in Financial Advising.

"Youth is often occupied with thoughts of saving for everything but old age," notes the book, highlighting how priorities such as children's education, house and car overshadow any thoughts of retirement. Thinking of retirement when one starts nearing one's forties might be too late, cautions the book, because "you might not be able to build a corpus that will ensure a comfortable lifestyle in old age". Dwight L. Moody would agree: "Preparation for old age should begin not later than one's teens. A life which is empty of purpose until 65 will not suddenly become filled on retirement."

If that hits you like a brick, a bouquet however is that there's a good 25 to 30 years after you retire. Ironically, that can be a new worry if you haven't planned the resources to finance the longer lifespan. The book cites the OASIS (short for Old Age and Social Income Security) Report to say that men and women in India at age 60 today are expected to live beyond 75 years of age; and the present 40s can expect to live up to 80.

It is not only age and health that should bother you when you think of retirement; there's the invincible inflation too. "An inflation rate of 5 per cent cuts your buying power in half in just 14 years," please note. Thankfully, the antidote is the power of compounding, provided you start early.

"Retirement may be looked upon either as a prolonged holiday or as a rejection, a being thrown on to the scrap-heap," points out Simone De Beauvoir. And Abe Lemons would lament that the trouble with retirement is that you never get a day off! To save yourself from belated desolation, think of `retirement planning'. This begins with an estimate of how much you would need to maintain a comfortable way of life when old; then, look at the resources you have. The gap between the two is where you need to work at.

A short chapter in the book guides you in `measuring needs'. As a rule of thumb, you can take 50 per cent of the terminal wage rate as the `expected monthly expenditure'. More detailed computation should help, especially under the suggested heads, such as daily consumption, housing, medical, travel, hobbies and children.

Don't forget to factor in electricity and telephone bills, corporation tax and water tariff, plus rental increases! Remember that `medical' head is likely to be the most expensive item, not just for small and regular ailments but also to meet hospitalisation expenditure. Retirement is when you wanted to pursue your hobby. "Hobbies could be anything from travel to clubs to movies to reading. Each recreation activity comes at a price."

There are chapters too on the available pension schemes and the applicable taxation provisions. Recommended read before retirement!

The `bond' bonding

The second book for the week is "Bond and Money Markets", again from IIBF. The book skips a clear-cut definition of bond, so you can look at www.moneyglossary.com to know that bond is a written promise to repay money furnished a business, with interest, and at some future date. Bond is "a certificate of debt that is issued by a government or corporation in order to raise money with a promise to pay a specified sum of money at a fixed time in the future and carrying interest at a fixed rate," explains www.investorwords.com. Bonds can be secured or unsecured. Examples of secured bonds that the book speaks of are mortgage bonds backed by real estate or physical equipment, and bonds secured by "revenues created by projects".

An August 25 news release from HDFC is about $ 500 million raised by the company through Zero Coupon Foreign Currency Convertible Bonds (FCCBs). The largest-ever convertible bonds offering by an Indian issuer, one learns; and this is "the first by an Indian Financial Institution since liberalised RBI guidelines permitted Housing Finance Institutions to raise external commercial borrowings through the issue of convertible bonds." Tenor of the bonds is 5 years and one day, and these are convertible into equity shares any time after August 24, 2006 at a price of Rs 1399 per share. But if you wonder what zero coupon bonds are, the book would explain that these bonds don't pay any interest prior to maturity. "When such a bond is issued for a very long tenor, the issue price is at a significant discount to the face value. Hence such bonds are called `deep discount' bonds a.k.a. `zeros'," educates the book.

BookValue@TheHindu.co.in

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