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Jayalakshmi: 

Hi and welcome back to this episode of Kairos, this time we’re going to talk about how can an NRI plan to retire in India. Most people seek that NRI status, because it means that you’ve made it in life. Surprisingly, a significant population of NRIs want to come back and live here. For them, moving out of the country is only a matter of career. After all, home is where the heart is.  

In this episode we’re going to talk about: 

      1. What does an NRI need to do to retire early in India 
      2. What are the best life and health insurance policies for an NRI?  
      3. Should an NRI take insurance in India or abroad? 
      4. What are some common investment mistakes that NRIs make and how to avoid them? 
      5. Step by step guide to retiring in India for an NRI 

Samyuktha: 

Hi Jaya – looks like we’re going to pack in a lot in today’s episode! 

Jayalakshmi: 

And hopefully it’s going to be super helpful for our NRI listeners. These questions came to mind, because I’ve been thinking about our close family friend – Deepak. He’s 39 and works in the UAE. He’s doing exceedingly well professionally, but over the last few years he’s been talking about coming back. He kind of seems torn because he knows he’s too young to retire and he’s not the kind of person who can retire at 40. But at the same time, if he were to move to India his pay would be somewhere between 50%-60% of what he’s earning outside. It’s inevitable that he will retire in India. So, how should he plan his financial moves?   

Samyuktha: 

This is an interesting but not uncommon situation. I’ve noticed that many NRI’s do look forward to coming back and living in India and the one thing that bothers them is how they’ll make that transition – professionally, financially, and emotionally. 

As a financial planner, these are three questions we always aske before getting into the financial details: 

      1. What is his timeline to return to India? 
      2. What are his financial commitments? 
      3. What is he going to do when he comes back to India? 

Deepak should have a time range – like the earliest and the latest that he would want to come back. He also needs to list out all of his financial goals. And how we plan for retirement depends on what he’s going to do. If he’s going to set up a business, that’s another goal he needs to save for. If he works part-time or full-time that will ease the cash flows from his retirement savings. And if he’s not going to work then the planning needs to be so much deeper. The challenge with retiring early is that you have to provide for more years of outflows with less years of savings. 

Jayalakshmi: 

That’s a really great way of putting it, because that’s exactly what’s been troubling him. As the primary breadwinner of the family, he feels it would be irresponsible to move back so fast. Especially because his work prospects are not as good here. And it would be a big risk to leave his job and come back here without an action plan. While we’re talking about risk, I want to ask about insurance. What are the best insurance plans for an NRI?  

Samyuktha: 

You know there’s a lot of pressure from the banking industry for NRI’s to buy ULIPs. We’ve seen so many cases, where every time the client comes into the country the bank pushes a new policy. And we’ve spoken at length about why ULIPs are neither good investments nor good insurance. So I’m not going to get into that now. Clearly, there are better life insurance plans – the most important being term insurance.  

From what we already know about Deepak, it’s crucial that Deepak takes a term policy now for these reasons: 

      1. He’s the primary breadwinner – if something were to happen to him, his family’s financial security will take a massive hit. And it’s not worth putting his young daughter and wife through that trouble. 
      2. He’s doing excessively well at work – when your income capacity is higher, your insurance requirement also increases. It’s important that you bridge the gap every few years. 
      3. He’s planning to return to India  If he comes back and takes a job here at a lower pay, he won’t be eligible for the same amount of insurance. Yet, his family needs won’t change. 

Jayalakshmi: 

And what about health insurance? 

Samyuktha: 

As far as health insurance is concerned, he needs to have an India specific policy and he needs one for global coverage. It’s also wise for him to build a medical reserve that he can dip in to for any hospital expenses if and when required. 

The India specific policy should cover himself, his wife, and their daughter. Most often, NRI’s skip adding themselves to an insurance policy in India. This becomes problematic when they want to retire. It’s much harder to get a fresh health insurance policy as you get older. You could also develop lifestyle diseases in your 40s. So the policy may have longer waiting periods, more exclusions, or it may be significantly more expensive. 

Jayalakshmi: 

Fair point, I think with insurance, the earlier you get in  the more you get in return. Not specific to Deepak, but NRIs in general should they buy their insurance in India or abroad? 

Samyuktha: 

You can buy your insurance here in India. I think you’d have to do it  while you’re in the country. But it’s worth comparing quotes and features in both countries and then deciding. Since this requires some technical knowledge as well, I would recommend doing it with either a financial planner or an insurance agent that you trust. 

Jayalakshmi: 

Alright, so we’ve talked about how ULIPs are not a great investment, yet are a big part of an NRI’s investment allocation. What are some other common investment mistakes that NRIs make? And how to avoid these mistakes? 

Samyuktha: 

With ULIPs – you can avoid these mistakes by not giving into bank pressure. It’s important to prioritize your financial wellbeing over a banking relationship. 

A common mistake I’ve noticed is a lot of NRIs invest only in property in India. So, they have multiple apartments with the intention of generating rent. The challenge lies in finding and managing a tenant when you live outside the country. The way to avoid it would be to consider other investment options. 

Jayalakshmi: 

You’re right – there have been months when there’s a gap in rental income. And it’s not a great retirement strategy either. We had this conversation a couple of months back, when we were talking about whether it’s a good time to buy a second house. 

Samyuktha: 

Usually when NRIs look at other options, they settle on parking all their savings in NRE FDs. It’s a great investment because interest is tax free in India. So, it’s definitely worth parking your money there, but not all of it. If you’ve locked up your investments in FDs and real estate – you’re missing out on a really important asset class: equity. 

As an NRI it makes sense to have some global exposure in your savings. You could do this through stocks, ETFs, and Mutual Funds. And it’s also crucial that you have investments in India. Amongst the emerging markets, India’s a good investment destination.  

As an NRI, the world is at your fingertips and there are so many choices. I think NRIs should look for a portfolio management service or mutual fund adviser or mutual fund distributor. 

Jayalakshmi: 

Then it definitely makes sense for NRIs to look for professional help. Deepak explored different options in India. He looked up portfolio management services. He also evaluated choosing between an investment adviser and a mutual fund distributor. 

Samyuktha: 

I think for each person, what kind of professional help works out best is going to change. The biggest mistake that NRIs make is not setting financial goals. There’s this abbreviation: HENRY  and it stands for High earners not rich yet. You wind up in this state because you don’t know how much to save, why you’ve saved, or what you’re saving for. When you set financial goals and you map your investments to these goals you know exactly where you stand, what you have to do, and when you need to get it done by. 

Jayalakshmi: 

That’s definitely the power of financial planning – that state of clarity and measurement. Could you outline a step by step approach to retirement for an NRI. We could work with Deepak’s example as well.

Samyuktha: 

Of course, we’ll keep it short and simple to 4 steps: 

      1. Set a timeline to return to India and know where you’re going to live. You should own the house you want to live in when you return without any loan hanging over your head. 
      2. Decide and prioritise your financial goals – treat each goal as a bucket you need to fill. In Deepak’s case, he’s got to plan for retirement, a sabbatical while he looks for work in India, vacations because his family loves to travel, and his daughter’s higher education. 
      3. Fill the most important bucket (retirement) and move on to the next one. Do this until you’ve filled all the buckets. 
      4. Finalize your plan B – what will your life in India look like if you come back for good. 

Jayalakshmi: 

That was short and sweet and very easy to follow. I think Deepak’s plan B would be to start something on his own. He’s been quite clear that he can’t imagine a life where he’s not working. I’m sure each person’s plan B looks different. Thank you for tuning– if you liked it, share this episode with someone else. We’ll see you around next month! 

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