Achieve your dream retirement funds: Quick start guide

Retirement’s cool when you plan! Find out simple steps for a happy, secure future

A secure financial future depends on retirement funds planning, which guarantees a happy and independent lifestyle in old age.

It’s more important than ever to plan for retirement because of increased living expenses and longer life expectancies.

This blog will delve into effective strategies for building substantial retirement funds, providing insights into various investment options and how to manage them

Importance of retirement funds planning 

Retirement planning is essential to ensuring financial independence in your later years as well as an enjoyable retirement.

Here’s why it’s important:

Financial independence

Traditionally, older Indians depended on their children for support during retirement. However, with changing dynamics, it’s increasingly important to have personal financial independence. This guarantees that you live independently and without reliance on outside income

Rising costs and inflation

Over time, inflation has had a major effect on the value of savings. What you save today might not hold the same value years later due to rising costs, especially in healthcare. Planning helps in maintaining your standard of living and coping with inflation.

Healthcare costs

 As you age, medical expenses become a major concern. Healthcare inflation in India is soaring, making it essential to have a substantial retirement fund to cover potential medical emergencies. This aspect of retirement planning cannot be overlooked, as health is a non-negotiable aspect of life.

How to start retirement planning?

Starting retirement planning involves a few key steps:

Step 1: Determine your retirement needs

Firstly, assess how much retirement funds you’ll need monthly during. Consider your current lifestyle, expenses, and any changes you expect post-retirement. For example, if you’re 30 years old, earning ₹60,000 per month, and plan to retire at 60, it’s crucial to estimate your future living costs and the kind of life you envision post-retirement.

Step 2: Calculate the impact of inflation

Your savings will lose purchasing power due to inflation. Goods and services will become more expensive if inflation increases by 6% on average per year. For instance, your current monthly expenditure of ₹60,000 will escalate over the years, affecting the amount you need to save for retirement funds.

Step 3: Estimate annual retirement expenses

Project your annual expenses at retirement, factoring in inflation. Continuing with the previous example, if your expenses are ₹60,000 per month now, they might be around ₹3.5 lakh per month by the time you’re 60, given the inflation rate. This gives a clearer picture of your financial needs during retirement.

Step 4: Account for post-retirement returns

Consider potential returns on your investments after retirement. If you expect a 7% annual return from your investments, you need to calculate how this will contribute to your retirement funds. The aim is to ensure your investments grow and provide sufficient income during retirement.

Step 5: Determine the required total retirement funds

Finally, compute the total amount required for your entire retirement period. This includes all your estimated expenses, adjusted for inflation, minus the expected returns from your investments. For example, to maintain a monthly expense of ₹2.5 lakh from age 60 to 85, you might need a corpus significantly larger than your current savings, considering inflation and investment growth.

Popular options for retirement plans

Immediate annuity plans of insurance companies

Financial products known as annuity plans are made especially to offer a guaranteed income in retirement.

They help create a retirement funds, offering a regular income or annuity after reaching a certain age. This income can be for life or a specific period.

An important benefit of annuities is the security they provide against outliving your savings.

By guaranteeing a certain income, they alleviate worries about the longevity of your retirement funds. Furthermore, the fixed payout nature of annuities removes the need to manage re-investment risks.

Types of Annuity Plans

Immediate annuity

In essence, an immediate annuity plan is an agreement with an insurance provider. You give the insurance a lump sum payment. In exchange, the company commits to pay you a pension or regular income. Depending on what works best for your financial plans, this could happen every month, every quarter, half a year, or annually.

Deferred annuity

 They are ideal for working individuals, offering two phases: accumulation, where you contribute to the insurer periodically and grow your funds, and disbursal, where you receive payments post-retirement. These plans provide flexibility in deciding when your retirement funds income begins.

Senior Citizen Savings Scheme (SCSS)

The Senior Citizen Savings Scheme is an ideal investment for individuals over 60, offering financial security and a consistent income post-retirement. Here’s a quick breakdown:

1. Eligibility: Open to those aged 60 or above, early retirees (55-60 years) can invest within a month of retirement. Defence personnel can start at 50.
2. Investment Limits: The Minimum deposit is ₹1,000, with a maximum cap of ₹30 lakh across all SCSS accounts.
3. Interest Rate: As of now, it offers 8.2% per annum, paid out quarterly, enhancing regular income management.
4. Tenure: Initially set for five years, it can be extended by another three years upon maturity.
5. Tax implications:  Offers tax benefits under Section 80C, with interest taxable if it exceeds ₹50,000 annually. TDS applies unless exempted.
6. Premature closure: Penalties apply for early withdrawal – no interest if closed within a year and a deduction from the principal thereafter.

National pension scheme (NPS)

The National Pension Scheme is a voluntary retirement savings plan suitable for Indian citizens aged 18 to 65. It’s a smart way to build retirement funds, ensuring financial security in your golden years.

Here’s a quick overview:

1. Contribution and Withdrawal: Contributors can regularly invest during their employment. Upon retirement, 60% of the fund can be withdrawn, and the remaining 40% is used for an annuity, ensuring a steady pension.
2. Annuity providers: The scheme collaborates with several annuity service providers regulated by the PFRDA, offering diverse annuity options.
3. Tax benefits: NPS is a tax-efficient retirement planning instrument because it provides appealing tax benefits under Sections 80C and 80CCD.
4. Flexible and portable: With options to choose investment avenues and fund managers, NPS is flexible and portable across jobs and locations.
5. Asset allocation:  Investors can choose between different asset classes like equity, corporate bonds, and government securities, with a cap on equity exposure to balance risk and return.
6. Online accessibility:  NPS accounts can be easily managed online, providing convenience and transparency.

Conclusion

A vital first step in guaranteeing your financial independence and stability in your later years is retirement planning.

Whether it’s through annuity plans, the SCSS, or the NPS, there are various avenues to secure a stable income post-retirement.

Every choice has special advantages and meets the requirements of various life phases. 

By starting early, understanding your options, and regularly reviewing your plan, you can build a comfortable retirement funds.

This proactive approach will help you enjoy your retirement years with peace of mind, knowing you’re financially prepared for the future. 

DISCLAIMER: This article is not meant to be giving financial advice. Please seek a registered financial advisor for any investments.