What is Retirement Planning ?
best years of 'Life' ought to be your retirement
years. You have worked hard all your life, and you
deserve the best things in life in these golden years.
you set-aside money in your prime years when are
generating income and enjoy a healthy lump sum or a
steady income in your retirement years. It helps you
avoid a dramatic hit to your lifestyle post retirement
and provides financial protection to your dependents.
retirement plan should takes into account the following
can erode the value of money. Hence, it is
essential that your retirement investment
is planned to make your returns inflation proof
overall life expectancy increasing, you need to
plan for increased number of years post your
in age, necessitates sufficient provisions for
increased medical emergencies
determining your personal financial goals, it is
essential to take into future changes in your
are several retirement policies, under which you can
choose the age at which you wish to retire, and the
premium you invest towards your retirement. These
policies help you achieve your retirement goal by
providing you with significant tax benefits and
appreciated capital at your chosen age of retirement.
What is the importance of Retirement Plan ?
of us are living longer than our forefathers. It's
absolutely essential to have enough money for old age.
Due to increase in the cost of health care and longevity
- you need more money for long term than in short term.
When you are young you will have lesser income and
lesser savings. When you reach middle age, you will have
higher income and higher savings. As you grow older, you
will have perhaps no income and only your savings saved
throughout your earning period will come to your rescue.
insurance like pensions and provident fund locks up your
savings like in a bank vault and prevents you from
withdrawing for your short term consumption needs. A
retirement plan helps you set aside money in your prime
years when you are generating income and enjoy a healthy
lump sum or a steady income in your retirement years.
A good retirement plan takes into consideration various factors
1. No. of years to retirement and the no. of years in retirement
2. Your current risk profile
3. Your financial goals and objectives post-retirement
4. Achieves a healthy diversification across asset classes
What should you start planning for your retirement
right away ?
is no right age to start savings for your retirement.
The earlier and more consistent you are, the better will
be your saving in the long run. There is always a
substantial difference in the wealth of people who start
saving early through a systematic financial plan as
compared to those who delay.
look at an example:
Ajay and Vijay want to retire at the age of 60 years.
invests Rs. 50,000 towards his retirement corpus while
Vijay invests a total of Rs. 1,00,000 . However, inspite
of investing less, Ajay accumulates Rs. 1.49 crore,
compared to Vijay's accumulation of Rs. 1.01 crore!
What is an Annuity Plan ?
a series of payments that an insurance company promises
to pay you for a fixed period of time – usually
throughout your life. You, the person receiving the
payments, is called the 'annuitant'.
How can mutual funds help?
SAVE FOR RETIREMENT WITH EASE
- Long term capital appreciation:
- Various Schemes
- Systematic Investment Plan (SIP)
- Ability to Switch
- Income through Systematic Withdrawal Plan (SWP)
- Flexibility to Redeem lump sum amounts
1.Why saving for retirement is important
2.Investing in realty has both pros and cons
3.How to select a retirement plan
4.Mutual Funds best for building retirement kitty
5.How to choose best insurance cover for retirement
6.Reverse mortgage house for regular income
7.Tips to buy property for retirement years
8.Incentives needed for pension schemes
9.Make hobby your career in post-retirement
It's a question that has foxed
financial planners for ever - how to beat inflation and generate
the desired wealth over long periods.
Inflation, we know, can upset
calculations by eroding the value of savings. At 5% inflation,
an expense of Rs 10,000 will become Rs 40,000 in 30 years. For a
person saving for retirement, generating returns that can beat
inflation seems difficult. It's not, provided he invests wisely
in mutual funds.
The assumption is that both investments appreciate at
the rate of 10% p.a.
Ajay had in his favor was time! He began investing a
sum of Rs. 50,000 p.a., at the age of 25 years. Vijay on
the other hand, saved Rs. 1,00,00 every year from the
age of 35.
more than the amount saved it is the rhythm of savings
that helps you realize your dreams faster.
income, expense, investments and liabilities form the
four pillars of any financial plan, its success actually
depends on the ability to manage these well. This is
where Life Insurance forms a critical part of any
financial plan. Life insurance is a long term product
that provides you the benefit of compounding while
ensuring that your loved ones are taken care off.
is the rate at which the general level of prices for
goods and services rises. This erodes the purchasing
power of your money. This effectively means that with
Rs.100 today, you will be able to purchase more goods
than with Rs.100 after 10 years.
inflation rising continuously, how do we ensure that we
have sufficient money to fulfill our dreams? The answer
is clear – through regular and systematic savings.
How to select a retirement plan
For a long time, retirement planning meant investing in small
saving schemes like the Public Provident Fund (PPF), the
National Saving Certificate Scheme and the Employee Provident
Fund (EPF). Some also bought traditional insurance policies.
However, the problem was that these seldom beat inflation. Then
came mutual funds in 1964, when UTI was launched, but these were
seldom used for retirement planning. Things picked up slightly
from 1993 with the advent of private sector mutual funds. Now,
they are changing fast.
Before investing, there are some questions you need to ask
yourself. How many years are left for your retirement? How much
money will you need at retirement? What is your risk-taking
ability? What is the monthly income you will need to sustain
your current lifestyle? Once you have answered these, planning
becomes simple. No matter what your investment horizon is, no
matter what your risk-taking ability is, no matter how much your
investment is, there are mutual fund products for every need.
How to choose best insurance cover for retirement
You can invest in equity funds for capital appreciation, debt
funds for regular income or gold funds for securing your future.
In terms of risk, not only can you choose funds which are safe
(liquid funds), you can also invest in funds that are highly
risky (sectoral funds), or hybrid funds, which invest in both
equity and debt and are moderately risky. says apart from
versatility and convenience, mutual funds are the lowest cost
options for wealth creation when compared to unit-linked
insurance plans and structured products.
Time it right
Building a corpus for retirement is most likely your last goal
after others such as child's education or buying a home. This
means you have more time to plan and invest for retirement.
This, experts say, is why equity schemes are the best vehicles
to build a retirement corpus.large-cap and blend-cap (which
invest across market caps) funds can be used.
"In fact, over long tenures, most equity risks are ironed
out. Also, equity as an asset class tends to be adequately
hedged against inflation, the biggest risk in the long run.
Although the choice between blue-chip and mid-cap or sectoral
schemes depends on your risk profile, well-diversified equity
and index schemes to begin with.
The choice of fund depends on your objective and
risk-taking ability. Each asset offers funds that enable
you to meet specific goals. While planning, take help
from a financial advisor to decide the asset allocation.
Pick funds that have a good record, performance and
lineage. Stick to funds that are simple to understand.
Equity funds are ideal during accumulation/earning years
as equities tend to outperform most assets over long
periods. A simple way to start is to
invest in a systematic investment plan (SIP) of an
equity mutual fund. SIPs smoothen unpredictable market
movements by accumulating more units when the markets
fall. You should start moving towards debt when your
retirement is 5 years away by investing 20% corpus each
year in debt instruments. You can use a Systematic
Transfer Plan for this. The idea is to reduce risk and
build the debt portfolio, which will give consistent
income after retirement with little or no loss of
The retirement corpus
should not be rebalanced unless there is any significant
change in the expected performance of a fund due to the
fund manager leaving, change in the fund mandate,
acquisition of the asset management company, etc",
says Experts. Mutual fund portfolios can be rebalanced
without costs. Such a review is advisable as it helps
reassess performance and realign strategy if there is an
important market development or a change in asset