With better disposable income and better healthcare increasing the life expectancy, the financial security retirement age is a major concern for many Indians. According to a recent Mint article, around 80% of the Indians do not plan for retirement. And when it comes to buying a pension plan, only about 4-5% of the Indian working population, mainly government employees, are covered by a pension plan (According to a survey done in late 2008 by Sun Life Financial), amounting to inadequate planning.
For the rest of the finances, a large of India population depends on their children or their savings to spend post-retirement life. The average Indian also looks for a long working life and estimates the corpus required for post-retirement life to be 100 times of their monthly household income at the time of retiring.
With newspapers and media revealing this fact, more people are awakening to the needs of retirement planning and cherish a dream of financially secure old age.
the confusion arises when you sit down to plan things. Once you start thinking about it, you will stumble on the questions like how much money would be required to live your retired life self-sufficient way. The thumb rule says that the corpus at retirement should be 100 times of your monthly household income. However, it is always better to make a calculated decision and ensure monthly pension.
While planning for your retirement, take into consideration the following expenses:
1. Fuel bills: Gas and electric bills may be higher with the increasing inflation. Also, if possible, you can start investing in an energy efficiency way like that of solar power, etc.
2. Paying your debts: Plan for any borrowing in a way that they will be paid off before you retire.
3. Lifestyle: Usually, we have to curtail on the lifestyle requirements; however, you can plan accordingly if you don’t want to curtail your lifestyle. Lifestyle expenses will include money spent on the branded clothes, accessories, holiday trips, hobbies activities, etc. Also, in case you want to start a small independent business, try to put down the monthly budget for it and include that too for you calculation.
4. Partner Expenses: If your pension is also supporting a partner or other dependents, remember to take their expenses into account as well. Here, you can also bank on their income if you have an earning partner.
5. Other income: It includes savings and investments made earlier, which are likely to give returns in future. If you do not need that extra income for any particular urgent need, you may also add those funds into your retirement planning, bringing down the required pension.
6. Inflation rate: As everything is getting more and more costly, the money required for the household expenses today will not be sufficient in future. To calculate the future expenses, you can calculate their compounded value at the rate of long-term inflation.
7. Future responsibilities: Here, you would need to calculate the family responsibilities that you will have at the time of inflation. For instance, if your daughter is unmarried, take into account the expenses of marriage. Or else, if your son has to go abroad for higher studies and you would require to plan for his studies as well. Add all you expenses and then find out your monthly expenses.
Once, you have calculated the expenses or amount of money you would be requiring, the next logical question is how to arrange for these funds. Retirement planning is not restricted to only investing in retirement plans. In fact, there are various avenues open to you to invest for your retirement.
However, each has its strengths and weaknesses and one must decide the avenues according his/ her comfort level. These investment avenues can be categorized as:
1. Mutual Funds & Shares: These are risky avenues and there is no surety of certain corpus. However, people invest in stocks and equity when they want high returns. If you are young and have at least 10 years before retirement, you may choose this investment avenue as risks averages out in long tenure. Here, it is also advisable to transfer your corpus into debt funds for more secure returns, when you are closing in to retirement age. Investment in mutual funds can be done in the form of Systematic Investment Plan (SIP) by investing a portion of your salary for after-retirement expenses.
2. ULIP Retirement Plans: These plans have in-built features of monthly income, after a certain number of years, which you can decide. The charges involved in these plans are little at the higher side, but you can go for them as they offers some good features like switching, premium redirection and monthly income enhancement.
3. Post Office MIS: Once you have built your desired corpus through any of the investment like EPF, PPF, etc., you can transfer it to post office MIS to get monthly payouts.
4. Pension Scheme of Insurance / NPS: Pension schemes of insurance companies include traditional insurance plans invest mandatorily in debt instruments on the basis of IRDA guidelines. These investments may or may not generate a real rate of return, exceeding inflation, but good for secure returns. NPS, here, is a good option to plan for retirement as it fulfills the immediate corpus needs, in case you are planning to start a business or so. It is because NPS along with taking care of the needs of monthly payouts pays a lump sum amount at retirement.
5. Property: You can invest in property as well, even if it means taking a loan if you are sure of servicing EMIs in your working-life. This investment will help you earn monthly rental income to support your after-retirement expenses.
Its time to start planning to enjoy a comfortable retirement.
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