Retirement planning pose a critical role for an individual due to increase in life expectancy. If you don’t start to invest for retirement corpus early in life then you will have few years to achieve your goals. In that case you will get smaller amount in retirement corpus. With increase in life expectancy along with difficulties to estimate it accurately, there’s a need to sustain expenses post retirement.
Need for retirement planning
Let’s say if you are in your 20s , you have 40years of work life assuming your retirement age is 60 years. If life expectancy is 80years then you have to save money for 20years post retirement. Thus you need to plan for retirement to sustain those years. So retirement planning is not about money accumulation but living a life of your own’s choice, doing things you like to do post retirement. This can only happen when retirement planning starts in early stage.
People generally wait too long before they think about retirement, therefore they fall short of time to sufficient fund calculation. At younger age too many responsibility like house marriage kids along with other expenses keep the idea of retirement planning at the back. But there responsibility are the exact reason one should plan for retirement. Inflation, taxes, pension, are the factors that affect retirement. Definition of retirement is also changing from time to time. People want no work in retirement time. Everyone wants to enjoy their retirement time with travel, leisure, social activities, pursuing hobbies, spending time with children. People now look more at relaxation.
Planning stage
Retirement planning like other life processes has various phases or stages 1.preparation stage 2.Pre retirement stage 3.Final retirement. Various other factors involve around these phases. You need to think about all the expenses in preparation phase. Expenses can range from child education, buying house for living, essential costs, adequate life and health insurance. Add any other expenses which will be a problem according to you. During pre retirement stage one should know about retirement regulations and procedure. The final stage is where one should have completed all necessary arrangements and are in good position to decide about their life.
However things are not as easy as it seems. The Society is getting more complex in terms of both it’s structure and operational challenges. Various issues are longer life expectancy, decreasing retirement benefits, multiple job changes, low salary, rising healthcare costs. So all these factors made retirement planning one of most important and critical element of financial planning. All these demands careful planning regardless of which stage of life you are in.
There’s difference in planning for children education, buying a house or car and retirement. You can reach many goals using loans, if one doesn’t have enough assets at his disposal. That is not the case with retirement, the company doesn’t provide loans to meet retirement goals. Delay in planning of retirement can be catastrophic if one misses early benefits. The process of determining the retirement goals is about defining the income needed to meet living expenses in period when there is no income being earned from employment.
Once this is done then planning process deals with how to generate the corpus. Determine the expenses.calculate your annual expenses. Add the number of years of post retirement. Let’s say if you are going to retire in 55years of age, average life expectancy is 90years(approx), so you are going to live 35years using your fund. Add different categories of expenses like renting costs, maintainace costs, utilities, food and personal upkeep, insurance(health, life, disability) and taxes.
Longer the period greater will be the compounding effect. If you underestimate the years, or longevity it will mean there may not be enough money to last the retirement years
Impact of inflation
Inflation is general rise in prices of goods and services over period of time. Over time as cost of goods and services increase, the value of unit of money will go down and the same amount will not be able to as much as it could have earlier. Inflation eats away the purchasing power of money over time. Inflation impacts retirement planning in two ways
1.at the time of calculating the income required the value of expenses has to be adjusted for inflation to arrive at the cost of expenses at the time of retirement. If consumer goods prices rise 6% a year over the next 30years , items that costs rs 100 today would cost rs 179 in 10years , 321 in 20years, rs 574 in 30years.
2.this figure is true for beginning of retirement period. Over retirement years, income required to meet the same level of expenses would not be constant but would go up due to inflation. While standard rate of inflation may be appropriate to calculate the future cost of living expenses, other expenses, such as health care cost travel generally increase at higher rate
Explore investments products
There are Employee provident fund(EPF) account, national pension scheme, Public provident fund (PPF),mutual fund, equity options.
Employees provident fund
The Employees’ Provident Fund (EPF) is a statutory benefit scheme in India that provides financial security to employees post-retirement or in case of death. Established in 1952, the EPF is managed by the Central Board of Trustees, consisting of representatives from the government, employers, and employees
The EPF scheme is applicable to all establishments with 20 or more employees, and both employers and employees contribute to the fund. The employer’s contribution is 12% of the employee’s basic wages, dearness allowance, and retaining allowance, while the employee’s contribution is also 12%. The accumulated amount earns an interest rate of 8.65% per annum, making it a tax-free investment.
The EPF scheme offers several benefits, including:
Retirement Benefits:
Employees can withdraw the accumulated amount after attaining 58 years of age or at the time of retirement.
Death Benefits:
In case of an employee’s death, the nominee or legal heir can claim the accumulated amount.Partial Withdrawals: Employees can withdraw a portion of the accumulated amount for specific expenses, such as marriage, education, or medical treatment.
Pension Benefits:
The Employees’ Pension Scheme (EPS) provides a monthly pension to employees who have contributed to the scheme.
The EPF scheme is administered by the Employees’ Provident Fund Organisation (EPFO), which has offices across India. The EPFO also provides online facilities for employers and employees to manage their accounts and claims.
The National Pension Scheme (NPS) is a voluntary retirement savings scheme launched by the Government of India in 2004. The NPS aims to provide a pension to citizens of India, thereby ensuring a financially secure retirement.
The NPS is a defined contribution-based pension scheme, where the subscriber contributes a portion of their income to the scheme, and the employer may also contribute. The accumulated amount is invested in various assets, such as stocks, bonds, and government securities, to generate returns.
Key Features of NPS:
1. Voluntary: NPS is a voluntary scheme, open to all citizens of India between the ages of 18 and 65.2. Portable: The NPS account is portable, allowing subscribers to continue their account even if they change jobs or move locations.3. Flexible: Subscribers can choose their investment options and asset allocation.4. Low Cost: The NPS has a low cost structure, making it an attractive option for retirement savings.
Benefits of NPS:
1. Retirement Income:
NPS provides a regular income stream after retirement.
2. Tax Benefits:
Contributions to NPS are eligible for tax deductions under Section 80C and Section 80D of the Income Tax Act.
3. Compounding:
The accumulated amount grows over time, providing a substantial corpus for retirement.
4. Regulated:
The Pension Fund Regulatory and Development Authority (PFRDA) regulates NPS ensuring transparency and accountability.
Public pprovident fund(PPF)
The Public Provident Fund (PPF) is a government-backed savings scheme in India, introduced in 1968. It is a popular long-term investment option, designed to encourage individuals to save for their retirement or other long-term goals.
The PPF offers several benefits, including a fixed interest rate, tax benefits, and low risk. The interest rate is currently set at 7.1% per annum, compounded annually. Contributions to the PPF are eligible for tax deductions under Section 80C of the Income Tax Act, up to a maximum of ₹1.5 lakh per annum.
One of the key features of the PPF is its long-term nature. The scheme has a lock-in period of 15 years, during which time withdrawals are not allowed. This encourages individuals to save for the long term, rather than seeking short-term gains
The PPF is also a low-risk investment option. As a government-backed scheme, it is guaranteed by the government, making it a secure and stable investment. Additionally, the PPF is not subject to market fluctuations, unlike other investment options such as stocks or mutual funds.
In terms of eligibility, the PPF is open to Indian residents, including minors. The minimum investment required is ₹500, and the maximum investment is ₹1.5 lakh per annum.
Equity is high risk high reward option. Only invest in equity when you fully understand its business. I will later upload blogs on equity. So visit my website often. Invest in insurance retirement plans, senior citizen savings schemes.
The Senior Citizens’ Savings Scheme (SCSS) is a government-backed savings scheme in India, designed specifically for senior citizens. Introduced in 2004, the scheme aims to provide a safe and secure investment option for individuals aged 60 and above.
The SCSS offers a range of benefits, including a fixed interest rate, tax benefits, and liquidity. The interest rate is currently set at 7.4% per annum, payable quarterly. The scheme also provides tax benefits under Section 80C of the Income Tax Act, up to a maximum of ₹1.5 lakh per annum.
One of the key features of the SCSS is its flexibility. The scheme allows senior citizens to invest a maximum of ₹15 lakh, with a minimum investment of ₹1,000. You can make the investment in multiples of ₹1,000, making it accessible to a wide range of investors.
The SCSS also provides liquidity, allowing investors to withdraw their investment after a minimum period of 5 years. In case of emergency, investors can also withdraw up to 75% of the deposit after 1 year, subject to certain conditions.
In terms of eligibility, the SCSS is open to Indian residents aged 60 and above. Individuals who have retired under the Voluntary Retirement Scheme (VRS) or the Special Voluntary Retirement Scheme (SVRS) are also eligible to invest in the scheme.
Review half yearly or annually:
Note down all your investments. Make necessary revision. Readjust your goal accordingly. If you fall short of money then make some necessary adjustment in payments of other expenses. Your retirement corpus is dependent on your current decision. If you have any pending loans, make all higher interest payments at earliest. Get rid of all liabilities that don’t generate money and take the money out of your pocket. If you can’t do it alone or face problems in calculations, feel free to take help of investment adviser. Good investment adviser should ask you a lot of questions. It can range from what are your expectations post retirement to what is your current capacity to investment
Conclusion
Retirement planning is the most crucial investment stage which can a headache at start. But if you don’t start early your regrets won’t help you. You will get the small amounts that will be another headache. So invest wisely. Beware of those scheme that give you huge returns. Those are ponzi schemes. Thanks for reading.
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