Old age can be a burden in many ways. You need a financial cushion to ensure that you remain young at heart even when age is not on your side. Therefore, it becomes imperative for you to undertake retirement planning with great precision to have it smooth later on.
Those in their 20s and 30s often sideline retirement planning as an absurd idea. They do not realise that the earlier they start, the more secure their old age would be. Another stark realisation that you need is that the constant flow of money is never an issue when you are earning. The same cannot be said for your retired days unless you plan things well.
This article covers:
What is retirement planning?
When you are employed, you have a regular stream of income coming in. With retirement planning, the aim is to emulate that once you retire. It requires you to create a long-term investment plan that constitutes multiple retirement vehicles. You must remember time is money, and you will have to plan when the time is right. You can read more about retirement planning and the need for it in the article here.
Where can you invest?
Here are some viable investment options for securing your future as follows:
1. Fixed deposits
Keeping your entire savings in a bank account is not a feasible option, given the low rates on offer. On the other hand, a fixed deposit is not market-dependent as you get a fixed return on maturity, and the same is higher than the returns from a savings account. It also offers compounding benefits and provides a flurry of options, such as recurring, tax-saving, flexi, and more. FDs also allow premature withdrawal, making it one of the most viable options for retirement planning.
2. Provident Fund
There are 3 well-known variants of a provident fund: EPF, PPF, and VPF.
a. Employee Provident Fund (EPF)
The EPF is a mandatory requirement for salaried employees, where both the employee and employer contribute 12% of the former’s salary. You can also contribute a higher percentage, but your employer is under no obligation to do the same.
b. Voluntary Provident Funds (VPF)
The VPF is an extension of EPF. If you wish to contribute more than the mandatory percentage of your salary to your EPF, you can do so via the VPF. The Voluntary Provident Fund has no restrictions regarding the amount you want to contribute. Also, it earns interest at the same rate as an EPF.
c. Public Provident Funds (PPF)
Whereas, PPF is a variant that accepts voluntary contribution by employees or self-employed individuals as one of the primary retirement planning vehicles. You can have a PPF account in addition to an EPF. The best part about PPF is that it enjoys an EEE tax status
3. National Pension Scheme (NPS)
Initially launched for public-sector employees only, the government has now extended the National Pension Scheme to all Indians. It is a low-cost, government-regulated pension scheme that accepts investment via SIP (systematic investment plan), enabling you to invest a specific sum regularly. It lets you choose 3 asset classes – equity, debt, and government bonds. Post-retirement, you are eligible to receive a portion of your accumulated funds in a lump sum, whereas the rest comes as a pension.
4. Mutual funds
A mutual fund pools money from the public and invests in a mix of vehicles depending on your risk propensity. It comes in different variants, such as equity-based, debt-based, and hybrid, enabling you to invest in the ones that suit you best. When you invest in a mutual fund, you get units in return, but there are no voting rights like in equity shares. If you are looking for tax savings, you can invest in funds that let you grab some tax benefits too.
The trick? You need to invest in equity funds for the initial years and shift to a mix of debt and equity in the later stage of life. The former would let you get the most from your investments, whereas the latter would ensure imbibing the security factor, enabling you to better plan your savings and retirement.
5. Atal Pension Yojana (APY)
Launched in May 2015, the Atal Pension Yojana is a part of the Social Security Schemes. It is available for all Indian citizens between 18 – 40 yrs of age. You can contribute a sum of up to Rs 5,000 to the fund. It is excellent for retirement planning, as you can secure a fixed pension post 60 yrs of age. You also get additional benefits for the spouse after your death.
Retirement planning is crucial. So is having the right resources, given the flurry of investment vehicles available around you. You can access the assortment of tools that would help you gauge all your options with ease at Tickertape app or website.