The importance of retirement planning for Indians is only coming to the forefront now. People have started realising the importance of building a sufficient retirement corpus that enables them to live a life of financial freedom. No longer do they have to just rely on the generosity of their family members to get them through their retirement years. If planned properly from the early days, one can continue to maintain the same standard of living once they stop working.
In this blog post, we’ll explore some of the most important factors to consider when planning for retirement in India and what are the available options today for Indians to save/invest for it.
Why Retirement Planning is Important for Indians
Retirement planning is essential for Indians for several reasons.
First, the traditional joint family system that was once common in India is now less prevalent, and an increasing number of elderly individuals are living alone or with only their spouses. This means that they need to have a robust and strong retirement plan in place to support themselves.
Second, the Indian government’s social security system is not as developed as those in many other countries. While the government does provide some social security benefits, they are often insufficient to meet the needs of retired individuals. Hence, retirees often look for other avenues to supplement their pension income.
Finally, with increasing life expectancy and healthcare costs, it’s becoming more important to plan for retirement so that one can maintain a good quality of life during your golden years.
Factors to consider when planning for retirement
Before you think about where you would like to save/invest your retirement money, it is important to consider some factors like your current age, risk tolerance level, no. of dependents, tax slab, etc. before deciding upon an appropriate option. All these factors play a crucial role in determining your ideal retirement plan. Hence, do not just start doing things randomly – instead, plan for it in a systematic and methodical way to ensure you are able to reach your retirement goals.
Investment strategies to consider for retirement planning for Indians
There are several retirement savings plans available in India, each with its own benefits and drawbacks. The most common plans include the National Pension System (NPS), the Employee Provident Fund (EPF), and the Public Provident Fund (PPF), Mutual Funds (MFs).
-
- National Pension System: The National Pension System (NPS) is a government-sponsored retirement savings program in India. It was launched in 2004 to provide retirement income to all citizens of India. The NPS is a defined contribution pension plan, which means that the amount of money you receive during retirement depends on how much you contribute and how well your investments perform.
- Employee Provident Fund: The Employee Provident Fund (EPF) is a government-mandated retirement savings program that is available to all employees in India. Under the EPF, both the employee and employer contributions to the fund and the employee can withdraw the amount upon retirement.
- Public Provident Fund: The Public Provident Fund (PPF) is one of the most popular investment programs. It is a long-term, voluntary investment scheme offered by the government of India. It’s a safe investment that offers a tax-free return and can be an excellent addition to your retirement planning strategy. You can claim deductions of Rs. 1.5 lakhs under section 80C of the Income Tax act every year. It is intended for a period of 15 years and can be extended twice with a block of 5 years each. The invested amount and the returns generated are fully tax-free.
- SIPs in Mutual Funds: Mutual Funds continue to remain the most efficient way of accumulating wealth for your retirement. The ease of investing via SIPs coupled with the potential to generate the highest returns over the long term makes it a highly favoured option for retirement goal planning. The flexibility of mutual funds also allows you to withdraw regular and passive income from your investments in a manner that can help you with your post-retirement monthly expenses.
Retirement may look like something that is a long way to go. However, if you can start early then you will not have to worry about saving huge sums of money later in your life. The key is to take the first step.
Author bio: Varun Fatehpuria is the Founder & CEO of Daulat (https://daulat.co.in)
