Retirement may sound idyllic and sometimes even romantic on paper. But carrying the financial burden without a regular income can prove otherwise. It becomes imperative to start saving for retirement, though it is never too easy to decide on how much to save. We are faced with many uncertainties beginning with how long we have to live post retirement! But here are a few steps that will help you as a starter towards saving for retirement.
The best way to begin saving for retirement would be to find out the life style that you wish to lead after retirement. This can help eliminate one of the unknown factors in retirement planning. The other parameters that you must know are the inflation rate and the rate at which your current savings will appreciate.
The second factor that you need to determine is how much to save on a monthly basis. This will depend on your current income and expense. Experts plug the savings rate at 15% of your income. Try to keep your savings around this. For more help in this regard, you can find a number of online retirement calculators that will help you arrive at the approximate financial requirement post retirement.
The third step is actually investing the funds regularly in chosen instruments. Today, there are number of pension schemes available. For early beginners almost the whole salary could be saved. But the later you begin, the more difficult it gets. Some of the retirement planning options is discussed below:
Pension Funds: These are one of the most popular investment instruments available in the market. They are relatively risk free and the ones offered by the banks and post offices offer good returns too. The schemes offered by the insurance companies arrive in two different flavours: one is the deferred annuity or pension schemes and the other is the immediate annuity. For early starters the deferred annuity plan works well. It aims at building a retirement corpus through monthly investment. For the late comers the immediate annuity helps by monthly pension payment for which a one-time lump sum deposit needs to be made.
Some popular insurance houses offering pension plans are as follows:
Metlife offers two pension plans: Met Deferred Monthly Income Plan, Met Monthly Income Plan
HDFC has introduced a new immediate annuity plan for the late starters. This is a one-time investment which guarantees steady income for the rest of your life.
Life Insurance Corporation of India (LIC) has been offering the Jeevan Akshaya which can be purchased by paying a one-time lump sum amount. The salient features of this plan include incentives for high purchase price.
ICICI Prudential Life Insurance also has joined the band wagon in offering attractive plans like ICICI Pru Immediate Annuity.
Tax Implications: Deduction is allowed under section 80C of ITA, 1961 for the premium paid towards the pension. The maximum limit under this section is Rs.1,00,000/-
Apart from the pension policies there are other methods to save for retirement:
Real Estate: Remember, you cannot sell the house that you are living in after your retirement. Therefore, investing in a second property can make sense, though the two properties ideally should be in two different cities or localities. Even the rental income from one of the properties can fund your retired life.
Mutual Funds/ETFs/ULIP: Investing in the market on a short term basis can be risky. But a long term investment in a sound instrument can be a wise decision. For achieving maximum benefit through this option a disciplined approach and systematic planning is required.
Gold Schemes: Investing in physical gold is fast being replaced by gold schemes and gold bonds which are soon to be issued by Government of India. This eliminates the security risk associated with the physical gold. These bonds can be converted to cash or physical gold on maturity.
Before investing in any of the plans a thorough research and your personal need and the capacity to save should be well thought of. While investing in market related instruments, understand your own capacity for handling risk.
Aparna has worked for Stock Holding Corporation of India Ltd (SHCIL). She has hands-on experience in various financial products. She also has expertise in various mutual funds, pension policies & other financial products. She is currently a freelance writer on various domains including finance
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