All about retirement: Are you worried about life after retirement? As life expectancy is increasing in India, planning for retirement has become more crucial than ever.
Current life expectancy in India for 2024 stands at 70.62 years, up from 62.28 years in 2000, reflecting a 13.4 percent increase according to MacroTrends data.
When you decide to invest in a retirement plan, that means setting aside money every month. Depending on your current situation, that may seem like overkill.
Why do you need a retirement plan?
“It is necessary to have a retirement plan that takes into account future increases in the cost of living as inflation can erode savings over time. Moreover, proper planning helps in maintaining the standard of living as it ensures that the retirement fund replaces the regular income and keeps pace with inflation,” said Swati Saxena, Founder and CEO, 4 Thoughts Finance.
“An early investment will certainly help in creating a great fund to support family goals or leave a legacy to loved ones or a charitable cause. Last but not the least, an emergency fund within the retirement plan prepares the individual for unexpected events, such as medical emergencies, without affecting long-term financial security,” added Saxena.
Various retirement plans to consider
Immediate Annuity Plans
Immediate annuity plans provide regular monthly returns after Invest A lump sum, with the first installments due within one year. This option is perfect for those approaching retirement, as it provides a steady stream of income to help cover immediate financial needs.
Immediate annuity plans in India in 2024 allow multiple options to secure a stable income during retirement. You can start earning regular returns from next month if you are 60 years old and make a one-time investment. Other prominent plans, according to PolicyBazaar, are Max Life Smart Guaranteed Pension Plan, HDFC Life New Immediate Annuity, Tata AIA Saral Pension, Bajaj Allianz Guaranteed Pension Goal, ICICI Pru Guaranteed Pension Plan, Tata AIA Fortune Guarantee Pension, and Kotak Life Lifetime Income Plan.
These plans provide you with a guaranteed income for life, protect you from market changes and can be customized as per your needs. Some of the benefits offered by these policies are predictable payouts, no market risk and potential tax savings of up to Rs 150,000 under Section 80CCC. It is worth noting that these policies have less liquidity, which means that once purchased, it is difficult to get your money back and customization options are fixed once purchased.
Deferred Annuity Plans
In contrast, with deferred annuity plans, small, regular payments are made over time to build up a large sum for retirement. Annuity payments are made at a later date, making it flexible for long-term planning.
A deferred annuity is basically an investment where you put money in now and start receiving payments later. The money grows tax-free until you withdraw it. There are different types:
Fixed Deferred Annuity: This is an investment device that has a guaranteed, fixed return, very similar to a savings account.
Variable deferred annuity: The money is used to buy things like stocks and bonds. The returns on variable deferred annuities are variable, as it all depends on the performance of the investments made in your portfolio.
Deferred Indexed Annuity: This type of annuity is probably the most complex of the others. It combines fixed returns with the possibility of higher gains based on a market index.
Life annuity: Pays out for the rest of your life; however, it only starts at an older age. You can add more money as it grows; later, you’ll have the option to withdraw it or convert it to a fixed payment. However, you may have to pay taxes, penalties, and fees for withdrawing it before age 59.5.
Government-sponsored pension plans
The Indian government sponsors several pension schemes that help senior citizens. The SCSS offers an interest rate of 7.60 percent and has a tenure of five years, which can be extended to three years. This scheme is applicable to citizens who are over 60 years of age or those who have retired between the ages of 55 and 60.
Under the Pradhan Mantri Vaya Vandana Yojana, a fixed return of 7.4 per cent has been declared for ten years with monthly to annual payments. pension Payment options and loans of up to 75 percent of the purchase price are allowed after three years of purchase.
PFRDA NPS incorporates Tier I and Tier II accounts, which come with different tax benefits and withdrawal conditions.
Atal Pension Yojana is targeted at the unorganized sector and links pension with contribution. The spouse will be protected in case of death; furthermore, the nominee will get the benefit in case of death of the spouse or the subscriber. Varishtha Pension Bima Yojana is targeted at people above 60 years of age and offers guaranteed returns with a lot of flexibility in payment options.
Advantages of retirement planning
It is important to have a comprehensive retirement plan that covers rising medical expenses with age, supplements health insurance and saves for emergencies.
“Retirement plans also offer tax benefits like deductions up to Rs 150,000 available under Section 80C of the Income Tax Act. Proper retirement planning reduces financial stress and allows retirees to focus on enjoying retirement without worrying about money,” said Arpit Suri, CA and personal finance expert.
Steps to planning for retirement
Here are the steps outlined by HDFC Life experts for retirement planning:
Setting a retirement date
Indicate the age at which you would like to retire, thinking in terms of your financial aspirations and needs to achieve that type of lifestyle.
Setting goals after retirement
Mention what you want to do during your retirement years, travel, hobbies and any other similar plans you have in mind.
Post-retirement expenses
Write down your current situation spending patterns and take into account the inflation factor when projecting how much spending will increase.
Estimating the costs of retirement
Calculate the total amount of money needed to fund the retirement lifestyle you want to have, including regular living expenses and special goals.
Emergency planning
Manage unexpected retirement expenses by setting up another emergency fund.
Inflate the account
Pump up your retirement fund so it preserves purchasing power.
See savings so far
Check for gaps in existing savings and investments.
Calculate monthly savings
The amount to be invested each month to build the retirement fund.
Investment avenues
Choose investment avenues based on risk tolerance and retirement goals.
Sources of income
You can opt for regular payments or a lump sum distribution depending on your personal needs and preferences.
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