Sanjivani College of Engineering, Kopargaon

Department of MBA

209- Personal Financial Planning

Unit. No 5- Retirement Planning and
Estate Planning

Presented By:
Miss.P.S.Kawle
MBA(Financial Management), B.com(Cost & Works
Accounting)
Assistant Professor, Dept. of MBA

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www.sanjivanimba.org.in
Contents……
 5.1 Wealth creation, retirement planning for an individual, pension
plans, Provident Fund, Gratuity, Life Insurance Plans., General
Insurance Plans, Reverse Mortgage Plans, Senior Citizen
 5.2 Schemes, What is Estate? Who needs Estate Planning?
Transferring assets during life time, Power of Attorney,
 5.3 Transferring assets post-death – e.g., Nominations, Will, and
Creating Trusts.

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 Wealth Creation
Accumulation of assets (especially those that generate income )
over a long period of time.
Strategies to build real wealth –
1. Buy real estate.
2. Know before investing
3. Invest in residential real estate that one can rent out.
4. Tine the market
5. Spend money on investment.
6. Do your own research to lead the investment.
7. Apply kaizen (Continuous improvement) principles to one’s
cash flows.

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 Retirement Planning
 Retirement Planning – is the process of determining income goals
and the actions and decision necessary to achieve those goals.
Retirement planning includes identifying sources of income ,
estimating expenses, implementing savings program and managing
assets and risks.
 Estate Planning – is the act of preparing for the transfer of a person’s
wealth and assets after his death. Assets, life insurance pension, real
estate, cars , personal belongings debts are all part of one’s estate.
Estate plan must be written signed and notarized by the person who
owns the estate.

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Wealth creation, retirement planning for an individual, pension plans ,
 Provident Fund.
 Gratuity.
 Life Insurance Plans.
 Reverse Mortgage Plans.

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Provident Fund
 A pension plan is a retirement plan that requires an employer to
make contributions to a pool of funds set aside for a worker's future
benefit. The pool of funds is invested on the employee's behalf, and
the earnings on the investments generate income to the worker upon
retirement. Pension is the amount received after the retirement.
Normally pension is received monthly or quarterly.
 Pension funds are of two types-
1. Commuted Pension
2. Uncommuted pension

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 Types of Pension fund

1. Commuted Pension- Pension is the amount which is received

after retirement. Normally the pension is received monthly and
quarterly. However sometimes, employees says that he doesn’t
want monthly pension. He instead ask for lump sum payment ,
this is called as commuted pension.
2. Uncommuted Pension- This the amount which employees
receives periodically (Monthly, quarterly and annually)

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Taxation of pension…
Commuted Pension Uncommuted Pension
Government Employee Fully Exempt Taxable
Including Defense Service
Employees/Statutory
Bodies/ Local Bodies
Non Government Partially Exempt – Taxable
Employee -
1/3rd of the amount had
Who receives Gratuity the employee commuted
whole of the pension
Non Government Partially Exempt – Taxable

Employee- 1 /2nd of the amount had

the employee commuted
Who does not receive Gratuity whole of the pension

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Gratuity
Gratuity refers to an amount of money which an employer pays to his employee in
return for services offered by him to the company. However, only those
employees who have been employed in the company for five years or more than
five years are given gratuity.You may perceive gratuity like gratitude expressed by
the company towards their employees for their services. It is governed by the
Payment of Gratuity Act 1972.
What is the eligibility criteria for payment of Gratuity?
 In order to receive gratuity, you need to fit the following eligibility criteria:
 1.You should be eligible for superannuation
 2.You should have retired from the job
 3.You should have resigned after remaining employed for 5 years with the
company
 4. In case of your death, or if you become disabled on account of sickness or
accident
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 Tax Provisions w.r.t Gratuity Payment
Event Tax Impact
Retirement cum death gratuity received Fully Exempt u/s 10(10)
by members of Defense Service
Retirement cum death gratuity received Fully Exempt u/s 10(10)
by Central / State govt.. employees
Non-government employees covered Exempt up to a limit & beyond that
under Payment of Gratuity Act 1972 & w.r.t is taxable
Retirement cum death gratuity
Non-government employee not covered Exempt up to a limit & beyond that
under the Payment of Gratuity Act ,1972 & w.r.t is taxable
Retirement cum death gratuity
Gratuity received during the period of service Fully Taxable
Gratuity received by widow /children/ Exemption will be available
dependent of the deceased employee u/s 10(10) up to a specified limit

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 Tax Exemption limit for Non Govt.. Employees
Payment of Gratuity Act,1972 Payment of Gratuity Act,1972
is applicable is not applicable
Exemption is available to the least Exemption is available to the least
of the following of the following
Rs 10,00,000 Rs 10,00,000
Gratuity Received Gratuity Received
15 days' salary based on last drawn Half month's salary based on average
salary for each completed year of salary of 10 preceding months, for
service or part there off each completed year of service
Definition of Salary for the Definition of Salary for the
purpose of exemption limit purpose of exemption limit
Basic Salary Basic Salary
Dearness Allowance Dearness Allowance
[if provided in terms of employment
for retirement benefits ]
For 15 day salary calculation, number Commission fixed % of turnover
of days in a month would be 26

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Life Insurance Plans
 Retirement plans are insurance products designed to provide you
financial security once your working income stops. With the proceeds
of the retirement plans, you can also opt for monthly pension benefits
by purchasing annuity plans. They help you invest your earnings over
the years and create a fund which you can withdraw as a whole or in
parts during your retirement years. Further, with dual benefits of
protection with investment, these plans are ideal for covering your
financial needs in the golden years of your life.

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How to choose the best retirement plan?

• Vesting age: it is the age at which your pension will start. Retiring early
or late will depend on your career and financial status.
• Premium payment term: define the period for which you will pay
policy premiums.
• Annuity options: determine how much income will be enough to cater
to your needs post retirement.
• Rider Options: decide what all additional benefits you will need to
provide a comprehensive cover to your family.
• Policy surrender charges: take note of these charges, in case you have to
surrender the policy.

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 Reverse Mortgage Plans
 In a word, a reverse mortgage is a loan. A homeowner who is 62 or older
and has considerable home equity can borrow against the value of their
home and receive funds as a lump sum, fixed monthly payment or line of
credit. Unlike a forward mortgage—the type used to buy a home—a
reverse mortgage doesn’t require the homeowner to make any loan
payments.
 Instead, the entire loan balance becomes due and payable when the
borrower dies, moves away permanently or sells the home. Federal
regulations require lenders to structure the transaction so the loan
amount doesn’t exceed the home’s value and the borrower or borrower’s
estate won’t be held responsible for paying the difference if the loan
balance does become larger than the home’s value. One way this could
happen is through a drop in the home’s market value; another is if the
borrower lives a long time
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 What is Estate?
 Estate Consists of Movable and immovable properties
Movable Properties Immovable Properties
House Jewelry/ Paintings
Farm Investments
Factory/ Shop , etc Cash & Bank balance, etc

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 What is an Estate Planning ?
 Making a plan in advance
 Naming whom you want to receive the things
 Which you own after you die

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Estate Planning Includes :-
 Instructions of passing your valuables and values
 Instructions for your care if get disabled
 Naming a guardian and inheritance manager for minor Children
 Provision for family members with special needs
 Provision for transfer of your business
 Planning to minimize taxes, court & legal fees
 Review of the Estate Planning with changing personal situation and
laws

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Estate Planning for Whom ?
 Estate planning is not for wealthy alone
 Equally useful even for those with modest assets as;
 They can afford to loose the least
 Required for everyone irrespective of economic standing, age and
marital status.

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 What are Estate Planning Devices ?
Estate Planning could be devised using one or more of following:-
 Wills
 Power of Attorney
 Trust -Private /Public

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 Succession- Transferring assets during life time
 Under the process of succession, rights & obligations of a deceased
person gets transferred to a living person.
 Succession takes place as per law applicable to the deceased at the
time of his/her death.
 Succession is required for - Movable Property and Immovable
Property
 Process of Succession - Succession could be- By Will, By Probate,
By Nomination

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 Power of Attorney
 Nobody is immune to illness and incapacitation.
 This may hamper ongoing business and other important activities.
 A Power of Attorney could be made to circumvent such situations.
 A Power of Attorney is an instrument to confer an authority on
somebody else to legally act on behalf.

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 Transferring assets post-death
 Will- Is a document that ensures .
 That the distribution of the property and assets.
 After his/her death is carried out as per the wishes of the testator.
 A person who dies without having made a will is said to have died
intestate

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 Transferring assets post-death

 Trust-Creation of Trust may beneficial in avoiding certain issues

which may arise in estate succession by a Will.
 Litigation might be avoided
 Probate could be avoided
 Estate maintenance by Trustees

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 Establishing client planner relationship-
1. Establishing and defining the client-planner relationship-
The financial planner should clearly explain or document the services
to be provided to you and define both his or her and your
responsibilities. The planner should explain fully how he or she will
be paid and by whom.You and the planner should agree on how long
the professional relationship should last and on how decisions will be
made.
2. Gathering client data, including goals- The financial planner
should ask for information about your financial situation.You and the
planner should mutually define your personal and financial goals,
understand your time frame for results and discuss, if relevant, how
you feel about risk. The financial planner should gather all the
necessary documents before giving you the advice you need.
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 Establishing client planner relationship-
3. Analyzing and evaluating your financial status- The
financial planner should analyze your information to assess your
current situation and determine what you must do to meet your
goals. Depending on what services you have asked for, this could
include analyzing your assets, liabilities and cash flow, current
insurance coverage, investments, or tax strategies.
4. Developing and presenting financial planning
recommendations and/or alternatives-. The financial planner
should offer financial planning recommendations that address your
goals, based on the information you provide. The planner should go
over the recommendations with you to help you understand them so
that you can make informed decisions. The planner should also listen
to your concerns and revise the recommendations as appropriate.
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 Establishing client planner relationship-
5. Implementing the financial planning recommendations-
You and the planner should agree on how the recommendations will
be carried out. The planner may carry out the recommendations or
serve as your "coach," coordinating the whole process with you and
other professionals, such as attorneys or stockbrokers.
6. Monitoring the financial planning recommendations-
You and the planner should agree on who will monitor your
progress towards your goals. If the planner is in charge of the
process, he or she should report to you periodically to review your
situation and adjust the recommendations, if needed, as your life
changes.

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 THANK YOU

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