Most of us are so busy in this current digital era that we forget about a topic that needs attention. The questions we should be asking ourselves: ‘What will I do at retirement?’ ‘How will I manage my lifestyle post retirement?’ ‘How will I achieve my dreams and goals?’ are often neglected. We are here to help you make a retirement plan.
One can start planning at any stage of his/her life but an early start will give an extra boost. The longer you invest, more corpus will be generated at the time of retirement because of the magic of compounding.
What Is A Retirement plan?
A retirement plan is a process that aims at your dreams and goals, calculates the savings one will need to achieve them and ways to invest that money to multiply your savings.
One needs to start from the basics: estimating the discretionary income. Firstly, what is the income source? Income can be in the form of salary or revenue from the business. Estimate your current fixed and variable expenses and deduct the same from your income. Don’t forget income tax, after all this can’t be a part of your disposable income, no pun intended.
Once we have the discretionary income, look for various investment options available such as Public Provident Fund (PPF), Unit Linked Insurance Plan (ULIPs), National Pension Scheme (NPS) and many others. Different investment options offer different returns as per the risks associated. Early start gives flexibility to try higher return options with the ability to absorb higher risks.
Why Plan Your Retirement?
Fulfill your dreams and goals: We call life after retirement a fresh journey into the unknown, this may include taking up your hobbies, traveling around the globe or setting up a new business. Don’t forget that your life obligations may continue even after retirement such as sending your child to study in a top college or arranging for their marriage, hence a retirement plan is a must.
Emergencies: An emergency fund can help you combat sudden emergencies such as medical expenses. Not to forget the challenge of rising healthcare costs.
Live longer peacefully: The best medical facilities have improved life expectancy, this would mean one will require more money to keep enjoying life peacefully.
Inflation: A plan that combats inflation will make your life easier at the time of retirement. There are different types of retirement plans available, they offer an increasing sum assured option where the sum assured increases every year by a fixed amount. One can take help from financial planners to generate higher returns in the long term that will keep you ahead of inflation.
Investment Options For Retirement Plan
Public Provident Fund (PPF)
Risk: Low
Return: Low
This option is ideal for individuals with least risk appetite. The returns are around 7% p.a. There is a lock-in of 15 years before the money can be withdrawn. You can also continue for 5 more years post 15 years lockin. It helps as a tax saving medium under section 80C.
Unit Linked Insurance Plan (ULIPs)
Risk: Medium to High
Return: Medium to High
An insurance plan that offers the benefit of investment to fulfill your long-term goals and a life cover to protect your family financially in case of an emergency. The premium that is paid is divided into two parts: first is contributed to your life cover and the other is invested in the chosen fund.You can choose to invest in equity, debt, or a combination of both the funds as per your risk appetite and goals. It also helps as a tax saving medium under section 80C.
National Pension Scheme (NPS)
Risk: Low to High
Return: Low to High
NPS is a government pension scheme. Employees working in the government, private, public, and unorganized sectors can subscribe to NPS. You can invest a nominal sum at regular intervals over your course of employment.You may choose to withdraw a certain percentage of the corpus once you retire, and the remaining amount will be paid out as a monthly pension. You can choose the proportion to invest in equity, government debt, corporate debt, and alternative assets. It also helps as a tax saving medium under section 80C.
Peer-to-peer lending (P2P lending)
Risk: Medium
Return: Medium
An RBI regulated domain where you can lend to individuals/businesses looking for a loan. You can sign up on RBI registered NBFC – P2P lending platforms and start investing as low as Rs. 10,000. The returns offered here can go as high as 12% p.a. You can continue re-investmenting without withdrawing the money at maturity, In a 7 year tenure you can even double the money. The returns are taxable as per IT act.
Fixed Deposits (FDs)
Risk: Low
Return: Low
You can deposit a sum in the bank/NBFC for a fixed tenure. At maturity, you will receive a sum invested along with the interest fixed at the beginning . Returns range between 6-8% p.a. depending upon the bank/NBFC. The option is suitable for individuals with a very low risk appetite.
An early start towards retirement planning will give you more opportunity to take care of new goals and objectives you add during your lifetime. What are you waiting for? Start thinking today.
Disclaimer: This blog only guides on a concept level, as investing involves risks, it is suggested that professional advice before investing would be solicited.
Bhavya Kaushik
Bhavya, an engineer turned MBA by profession has over 9 years of total experience in the e-commerce and FinTech domain. His career started as an e-commerce category manager and now he handles ‘Partnerships’ for LenDenClub. He spends his weekends watching football matches and playing PS4.