Why is retirement planning necessary? How may it lead to a stress-free retirement? These are common questions that arise while considering one’s post-retirement life. Retirement planning is critical because it ensures financial stability once your regular income stops. It gives you the means to maintain your lifestyle, deal with crises, and pursue your aspirations during your senior years.
What is retirement planning?
Retirement planning involves identifying the retirement income you want and what you need to do to get there. It is a long-term process that involves inflation, life expectancy, and fluctuations in the stock market. For instance, if you want to travel after you retire, let’s say at the age of 60, you must forecast the possible expenditures and then save a certain amount periodically from your present income.
Steps for retirement planning
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Assess your financial needs
The initial step in retirement planning is the estimation of the probable expenses after retirement. This comprises your food, shelter, clothing, utilities, medical bills, entertainment, and any other incidental expenses. You must consider inflation as the prices of goods and services are bound to rise in the future. Your future plans, like travelling around the globe or starting your own business, should also be taken into consideration in this evaluation.
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Start early
If you plan for retirement during your early working years, your money is likely to have more time to compound. The principle of compounding is more effective in the long run, which implies that small amounts invested consistently can accumulate to a significant fund. For instance, if you begin investing at the age of 25 instead of 35, your investment gets a head start of ten years.
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Choose the right investment plan
It is important to note that there is no one-size-fits-all solution when it comes to investment plans. It is advisable to invest across various channels to reduce risk exposure. PPF (public provident fund) and EPF (employee provident fund) are safe long-term investment instruments which offer assured returns in the long run. On the other hand, mutual funds can be more rewarding but involve risks associated with the stock market. Retirement plans, like the HDFC Life Click 2 Retire, offer specific benefits for post-retirement life.
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Regularly review your plan
Retirement planning is not a one-time process. It needs to be updated frequently as your earnings, spending, and other aspects of your life evolve. For instance, if you received a pay increment, you may wish to invest more in the plan. In the same way, if you have a new dependent such as a child, you will need to incorporate those expenses in your retirement planning.
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Insure yourself
Health is uncertain and the cost of health care can be very expensive, especially when one is aging. Investing in a comprehensive health insurance plan when you are still young and healthy will ensure you are covered for potential medical expenses in your old age. This way you will not be forced to use your retirement funds to cater for medical expenses, hence having a perfect retirement.
Investment options for retirement planning
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PPF (public provident fund)
PPF is a long-term investment that has a maturity period of fifteen years and can be further rolled over in blocks of five years. It is a safe investment as it is backed by the government of India, and it offers competitive rates of interest. The interest earned as well as the returns are tax-free under Section 80C of the Income Tax Act. Thus, investment in PPF not only assists in creating a good post-retirement wealth fund but also in saving taxes, making it a favourite among Indian investors.
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EPF (employee provident fund)
EPF is a retirement benefit scheme where both the employee and the employer contribute 12% of the salary towards the fund. EPF together with accrued interest is refundable to the employee on retirement or two months after termination of service. It offers a large sum of money which is a good source of income post-retirement. EPF is a secure investment option since it is managed by the government.
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Retirement plans
Retirement plans like HDFC Life Click 2 Retire offer a systematic way of saving for the post-retirement years. With no entry charges, policy administration charges, or exit charges, the plan is cost-effective. You can start your retirement plan with as low as Rs 2000 per month. It offers a secured retirement with an Assured Vesting Benefit and also gains from upside in the market. The plan provides death benefits to the nominee, ensuring financial security for your loved ones.
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Mutual funds
Mutual funds collect money from investors to invest in a group of stocks, bonds, or other securities. According to the risk tolerance, one can invest in different categories of mutual funds such as equity funds, debt funds, and balanced funds. Equity mutual funds provide higher returns but involve more risk while debt funds are comparatively safer but offer modest returns. This is because mutual funds are managed by fund managers whose main aim is to generate the highest possible returns for the investors. They are ideal for accumulating a corpus for retirement in the long run.
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Senior citizen savings scheme (SCSS)
SCSS is a savings scheme for individuals who are above the age of sixty years and is backed by the government. It offers a fixed income with the highest security and tax advantage. The minimum amount that can be invested in an SCSS account is Rs. 1000 and the maximum is Rs. 15 lakhs. It provides a good rate of interest and is therefore ideal for elderly individuals seeking a safe and fixed source of income after retirement. The scheme also enjoys tax exemption under Section 80C of the Income Tax Act.
Why should you start planning for your retirement?
∙ It provides you with financial freedom in your retirement.
∙ It assists you in sustaining the lifestyle that you were accustomed to pre-retirement.
∙ It offers financial reimbursement for medical expenses.
∙ It assists you in achieving your goals and objectives after retirement.
∙ It helps you provide for your dependents even if you are no longer alive to do so.
Conclusion
Retirement planning is not only about financial planning, but it is also about creating a roadmap to a worry-free and self-sufficient retirement. This way, by evaluating your financial requirements, beginning as soon as possible, selecting the correct investment plan in India, reconsidering your plan regularly, and insuring yourself, you can ensure that your golden years are truly golden. Thus, start planning today and ensure the future is taken care of.
