Experts are of the opinion that retirement planning should start from the day you start earning. Although it is a sound piece of advice it is seldom followed. If you are complacent about retirement planning, it is time that you wake up from your slumber. First you need to ask yourself how much do you need after retirement to maintain the same lifestyle. Assuming that the inflation rate is 5% and your monthly expense is Rs. 30,000. After 30 years you will need a larger amount of money every month.
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With progress in medical science life expectancy is on the rise. Let’s assume that you live 25 years after retirement. In that case the value of the nest egg which you need to build will only increase.
It is not impossible to build the required corpus. The following tips will help you to achieve your financial goal easily:
It is advised that you start saving early. Do not defer retirement planning till late. For most Indians it may mean contributing to the EPF which is mandatory. By starting to save early you will have to save a lot less. An early start will also give you the freedom to take risks.
You can invest in equities which although risky give higher returns than assets like gold and property. You can also invest in stocks and mutual funds.
The next tip is to focus hard. Retirement planning should be kept separate from short and medium term goals. The corpus which you create should be touched only after you stop earning. If you do not have specific goals it will lead to complacency which in most cases will not help you to save enough. You should be saving atleast 10% of you income for retirement.
It is also a good idea to start an SIP in a mutual fund and automate the process through an ECS from the bank.
Make sure that you increase your investment as you grow. When you witness a salary hike, step up the investment accordingly. It is important to increase the savings and not fall short of the 10% mark to ensure that the nest egg meets all the requirements. When you get a raise it is a smart step to allocate half of it to your savings.
Additionally, it is important to note that every time you change your job, your retirement planning is at risk. You will have to withdraw your PF balance and transfer it to a new account. Although there is the option of withdrawing from PF in case of emergencies, it is advised that you do not touch the corpus. By withdrawing the money you will no longer gain from the power of compounding.
Lastly, it is important to know the product well before you invest. Conduct research on the product and compare it with other plans. Several products are available today which include life insurance policy, IRAs, 401(k), real estate, pension plans. Before you invest you must know how the product works and how you will gain from it.
Additional factors
In addition to the above it is important to bear in mind that a diversified portfolio will help you to churn capital gains with ease. Portfolio planning is of vital importance. You will need a portfolio which will churn out the capital gain in the long run. During retirement planning one should take into account the spending requirements. Understand your spending habits well before you start planning for retirement.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
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