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All You Need To Know About The Importance Of Retirement Planning In India

Personal Finance

Your life will never be the same after you retire. There is no need to go to the office and work long hours. No need to worry about targets and meetings. But what about money? Yes, once you retire, your regular source of income will no longer be there. You still need to take care of your living costs and other expenses. This is where the need for retirement planning comes to the fore. It is vital to plan for your retired life while you are still active at work. This will allow you to learn how much you are earning and how much you can save for your life after you retire. There are many factors that you need to consider during retirement planning. Read on to learn all about the importance of this exercise and its impact on your future.

Start Backwards

You need to learn how much money you will need to lead a comfortable life after you retire. There are several factors that you need to take into account here, including

  • Age.
  • Income.
  • EMIs.
  • Life Goals.
  • Cost of Living in Your City.
  • Money Needs Every Month.
  • Insurance Plans.

You can make an informed decision when you factor in these aspects in your retirement planning. You don’t want to be in a situation where you didn’t consider these factors. Otherwise, you will struggle to make ends meet after you retire from active work.

Retirement Pension Plan

You must invest in a pension plan. If you are not covered under a pension plan by your employer, whether in the public or private sector, then you are on your own. With inflation, the cost of living will increase in the future. Moreover, your need for medical care will also increase as you get older. Hence, you need a regular source of income that can help you lead a comfortable life. This is where having a retirement pension plan becomes vital.

You can choose to invest in the National Pension Scheme, or NPS. You invest a given amount in the NPS every month until 60. In many cases, your employer can also invest in NPS as a part of your pay package. When you turn 60, you will get 60% of the amount as a lump sum, and the remaining 40% will be used to purchase an annuity. This annuity plan will give you a fixed pension every month. You can also subscribe to the Atal Pension Yojana, which will offer you a regular pension after you turn 60.

Else, you can get a retirement pension plan from different insurance companies or NBFCs. These companies offer you the benefit of a regular pension after you retire and several other benefits. The best part about a retirement pension plan is that you can also get income tax benefits from it.

Invest in Mutual Funds

Mutual funds also offer you many benefits and make a good investment option for your retirement. Most experts agree that you can earn excellent returns when you invest in mutual funds with a long-term horizon. Then, you also get the benefit of compounding, wherein your interest income is re-invested, helping you earn even more interest on the money. You can choose from many types of mutual funds, such as equity, hybrid, or debt funds. The best mutual funds for retirement planning are debt or hybrid funds, as they have less risk than equity.

You may also keep your money in equity or hybrid funds when you are young. As you cross 50, then you can move that money to debt funds to reduce the risk. After you retire, you may sell your best mutual funds for retirement and invest in a pension plan. Otherwise, you can opt for an SWP, wherein you get a fixed amount every month while the remaining money still earns profits.

Risk-Free Options

One vital part of retirement planning is reducing future risks. One thing that the pandemic has taught everyone is that life is uncertain, and the need for money can arise at any point in time. Hence, it is vital to have a balanced investment profile. You must have a mix of risk-free and risky investments here. On the one hand, you can invest in shares and mutual funds. On the other hand, you can also explore risk-free options.

These options include fixed deposits, PPF, NSC, and other saving schemes. While these schemes offer less return than investing in equity, they do not carry any risk. So, you must also invest a certain monthly sum in these options. Another benefit of these long-term, risk-free options is that they offer tax benefits as well. Not only is the money you invest subject to tax rebates, but the corpus you get after their maturity is also tax-free.

To keep your medical costs under control, you also need to have a comprehensive mediclaim policy. This will ensure access to quality care without needing to use your savings.

If you have a long time horizon, these risk-free options can also give you a lot of freedom after you retire.

Retirement planning is a vital part of your life. You need to start planning for it as soon as possible to have a decent corpus by the time you retire. There are many options to choose from. Hence, you need to compare their pros and cons before you make a decision. If you want to learn more about the best mutual funds for retirement or a retirement pension plan, visit Piramal Finance. They have many blogs and articles that cover this topic in detail. Hence, you can make sound financial decisions after you retire.