99 Not Out – How to go for Legacy Planning, planning for a family in real sense

March 22, 2021 2:30 PM

We typically plan for certainties during our lifetime and aim to secure our families in our unplanned absence. However, there is one certainty; a very implicit and understated need that we subconsciously aspire for and rarely plan for i.e. leaving behind a legacy.

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Life is full of certainties. Most of us go through very similar life stages – We start our careers, we marry, we have children and we retire. We start with preparing for the certain and make provisions for the googlies that come our way.

We typically plan for certainties during our lifetime and aim to secure our families in our unplanned absence. However, there is one certainty; a very implicit and understated need that we subconsciously aspire for and rarely plan for i.e. leaving behind a legacy.

Legacy planning is a financial strategy that prepares people to bequeath their assets to a loved one or next of kin after death.

Planning for your legacy is easier said than done. We have so many dreams and aspirations that compete for our finite time and resources, that it is unlikely to prioritize posthumous wealth or memories.

Let us take the example of Suresh, 38 years of age. Suresh is a dedicated father and husband who runs a hardware store in Pune, Maharashtra. Suresh is doing well today and earning about Rs 15 lakh p.a. He is looking to secure an alternate source of income giving the changing market dynamic with e-commerce and infusion of cheaper replicable hardware. He also wants to leave a legacy behind for his 5-year-old son. He currently spends Rs 6 lakh annually on household expenses. He is saving to educate his son and also to take his family on a well-deserved holiday. He will also need to replace his car in 3 years and ideally would prefer an upgrade.

How can he meet all his aspirations? Just like every goal and dream, this too will take conscious effort. A few questions we need to answer are:

How do we create a legacy without compromising on immediate requirements?

We need to look at saving, creating, and sustaining wealth, in that order. We usually save for goals and not save for the sake of saving for the future – be it for ourselves or for leaving behind a legacy. In order to do this, we need to put aside, regularly, some amount of money in an asset, which will pay lasting and assured returns.

In the case of Suresh, can we put aside Rs 25,000 per month (monthly investment without taxes) for ‘saving’ and alternate income generation for 7 years?

How do we ensure our retirement or non-income generating years are comfortable without compromising on our legacy?

The key is the discipline in saving and investing in your income-earning years and not withdrawing within those years. Your investments should ideally compound and give you regular returns post your income-earning years without compromising on your legacy plan.

In the case of Suresh, it has put aside Rs 25,000 per month for 7 years, can he hold the same for 3 more years without more input or withdrawal to enable an overall compounding effect?

What type of instruments should one look at while creating a legacy fund?

Your risk appetite plays a role in deciding this. If you are a regular middle-class person who is earning a modest income and catering to family goals and dreams, you would need to work on creating your legacy fund consciously without compromising on today’s goals. You also will need to be mindful of your retirement years.

In the case of Suresh, can the instrument he has invested Rs 25,000 per month provide for some assured annual income while also being part of his legacy plan?

Hence, an instrument that absorbs long term reinvestment risks, allows for tax-free gains and optimizes the power of compounding is an ideal combination.

For instance, the IndiaFirst Life-Long Guaranteed Income Plan allows you or your family to earn uninterrupted income till your age of 99 years. At this age, your or your family receives the value of the original payments made.

In the case of Suresh, if he invests Rs 25000 per month for 7 years and waits 3 years. He can enjoy an alternate tax-free (as per current tax laws) income of Rs 1,35,057 guaranteed per year. This will continue to be paid to either him or his family till he is or was to turn 99 years of age. At that point, he or his family will get Rs 20,11,492 returned back to them as a legacy fund!

What more, he will also have a life cover of Rs 34,10,916 for the first 10 years when he has made the payment and was waiting for payouts to start. Additionally, he can also choose to have an add on benefit wherein the company actually invests on his behalf in case diagnosed with either a critical illness, accident, or death. This takes care of any exigency in the accumulation years and the family continues to get the benefits as planned by Suresh to leave behind a legacy.

In conclusion, Suresh has only paid Rs 20,11,492 in 7 years and enjoyed a total payout of Rs 91,69,530 over a period of 52 years – ensuring for his family that he is 99 and not out!

By Sonia Notani, Chief Marketing Officer, IndiaFirst Life Insurance

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