Where to Invest for Retirement?
- Equities – If you are the one who has started off early with your retirement planning then you can opt for equities. Investment in equities provides you with long term capital gains. If you create a diversified portfolio while you opt for equities you are bound to grow your money in the long run.
- Individual Retirement Account – These are popularly known as IRA accounts. It is advisable to put your money in these accounts as these are tax-favored retirement accounts. You get tax deferred capital gains when you put in your investment in this account. It is just like an investment account where you put in your money and from there you invest in bonds, equities, stocks etc.
- Fixed Deposits – If you are the one who wants to play very safe and are close to your retirement year then investing in fixed deposits can be a good option. You can include fixed deposits in your portfolio as they give you attractive returns especially to those who fall under lower tax bracket.
- Mutual Funds – You can always go in for mutual funds that are available with different paying options and risk factors. You can choose funds as per your requirements keeping in mind the risk that you can take, frequency of returns and the amount that you can pay.
- Insurance – There are a wide variety of insurance schemes available in the market. You do not have to become a party to all of them but yes few are surely advisable. Medical Insurances, life time covers and Pension Plans can form a part of your portfolio as in the long run they prove to be very beneficial and help you remain secured.
- Employee Provident Funds (EPF) – If you are a salaried individual then you cannot ignore the importance of EPF. If you pursue your job for long term, this forced saving can give you a good lump sum amount to be added to your capital gains. If you abide by certain prescribed conditions, EPF enjoys EEE status which says that it is tax deferred.
- Public Provident Fund (PPF) – It serves as a retirement planning tool especially to those who will not be having a regular flow of income in form of pension after their retirement. If you wish to open one PPF account for yourself you can do that through an authorized post office anywhere within the country, State Bank of India and few branches of other nationalized banks. The first private bank that was given a green signal for opening PPF accounts was ICICI. Few other private sector banks also operate PPF accounts. The minimum amount that you need to deposit in this account in one financial year is Rs 500 and the maximum that you can put in is Rs 70,000. You can create fixed deposits and earn tax free returns every year.
- New Pension Scheme (NPS) – The New Pension Scheme is another retirement planning tool that was introduced by Government of India in 2009. It is also a scheme wherein you put a definite amount of your money and then can invest in various other instruments. You have two forms available in NPS which are – i) Tier – I Account that does not allow any premature withdrawal and ii) Tier – II account that allows premature withdrawals. You get tax benefits and can choose from six investment funds that are available as per your requirement.
- 401 (k) Plans – 401 K plans can also form a part of your portfolio while you are planning your nest egg. In 401 (k) plan those employees who qualify for it enjoy tax-deferred contributions. Those employers who offer them to their employees may also make contributions matching the employee’s contribution. The earnings from contributions that employees can make on post-tax or pre-tax basis are tax deferred. If these are held for long term then delayed taxation and compounding magic will work for you.