Retirement planning should be a part of every individual’s financial plan. It is essential to save enough to look after yourself and your dependents after you retire.
Why Is Retirement Planning Important?
Once you retire, your income stops. If you don’t have any savings or investments to fall back on, you will find it difficult to sustain. Also, if you are accumulating a retirement corpus in a savings bank account, then inflation will reduce its worth by the time you need it. Hence, you must identify the right retirement plan and start investing in it to tackle inflation.
What Happens If You Don’t Plan Your Retirement?
If you have not planned your retirement with the right schemes, then you may find it challenging to manage your life with the amount you have in hand. This may result in needing to depend on others to cover your expenses. Hence, to avoid this scenario, it is essential to plan your retirement with the right schemes. Several retirement plans help in accumulating a considerable sum for your retired life.
Best Investment Plans for Retirement
National Pension System
National Pension System (NPS) is a government scheme that intends to provide social security to the working class. Employees working in the public, government, and private sectors can invest in this scheme. Moreover, even those employed in the unorganized sector can also invest in NPS. Under this scheme, the employees will invest in a pension account at regular intervals.
Once they retire, they can withdraw a certain amount of the corpus while the remaining sum will be paid out as a monthly pension. NPS contributions are covered under Section 80C of the Income Tax Act, 1961, and provide tax benefits.
Public Provident Fund
Public Provident Fund (PPF) is a government savings scheme covered under Section 80C of the Income Tax Act, 1961. You can save up to Rs 46,800 a year in taxes by investing in PPF. You can invest up to Rs 1,50,000 a year, and these accounts come with a lock-in period of 15 years. Investing in PPF is an excellent way of planning your retirement as it offers an attractive rate of return.
Mutual funds are one of the best private schemes to plan your retirement. These are capable of offering returns in the range of 12% to 15% a year. Also, when you invest with a long-term horizon, you will unleash the power of compounding. Since retirement planning is done with a long-term horizon, you can initially invest aggressively in equity funds and then switch your investments to debt funds as you near your retirement. Doing this will ensure that you have accumulated a considerable sum on which you can fall back in your retired life.
Bank deposits are one of the traditional options to park savings and surplus funds. You can invest in recurring deposits (RDs). These accounts allow you to invest a fixed sum at regular intervals and offer a much higher rate of returns than a regular savings bank account. If you have a lump sum and would like to set aside the same for your retirement, then you can invest in fixed deposits (FDs). The rate of returns offered by FDs is very attractive, and you would accumulate a significant sum by the time you retire.
Retirement planning should be considered seriously by every earning individual as they can stay financially independent in their retired life. When there are several plans available for the same, it is only wise to make use of them.
Direct plans help you to save money on commissions and marketing-related expenses. This small saving is invested in the scheme and it may help you to make extra returns over a long period.
Investment in real estate is one of the most lucrative and beneficial in India, as the potential for development is huge and the market is growing.
Traditionally considered to be among the best options, gold investment schemes offer you the chance to convert a blocked asset into high-value liquidity.
Senior Citizens Savings Scheme
Schemes like the Senior Citizen Savings Scheme (SCSS) are suitable for those looking for a high fixed rate of return that beats inflation (currently at around 6%) and promises a regular stream of income. With the current SCSS interest rate set at 7.4%, it stands higher than what bank FDs have to offer. Also, while the interest so received is taxable, the amount deposited under this scheme is deductible under Section 80C. If you are over 60 years of age, you can open a single or joint account with your partner. The minimum amount cap is also set very low at Rs 1,000, with an initial tenure of five years and one-time extension of three years. However, your total amount invested should not exceed Rs 15 lakhs.
If you are looking for a free-hand in terms of age and investible amounts, RBI floating rate savings bonds are a good option. With a seven-year tenure, post which the bonds are redeemed at face value, the interest rate keeps varying bi-annually. The coupon rate for the first coupon period, payable on January 1, 2021 was fixed at 7.15 percent. However, the coupon rate is linked 0.35% higher than that of NSC (National Savings Certificate), which, as of 1st April, 2021, stod at 5.9%.
At a slightly lower rate of 6.6%, you can also avail the Post Office Monthly Income Scheme, which has a tenure of 5 years and an investment cap of Rs 4.5 lakh for single account holders. However, it is important to remember that this scheme, like PMVVY, also does not offer any tax benefits.
Pradhan Mantri Vaya Vandana Yojana
Apart from this, the Pradhan Mantri Vaya Vandana Yojana (PMVVY) is also a viable option, since it offers a guaranteed pension rate of 7.4% on a monthly basis for a period of 10 years. The scheme has already been extended upto 31st March 2023, with the entry age being 60 years. You can choose your payout period, be it quarterly, half-yearly or annually. PMVVY comes with no tax benefits, however, is a better investment option from a liquidity standpoint, since 75% of the deposited amount is available as loan post three years, with any unpaid loan amounts being adjusted against the principal. Withdrawal deductions are also set at 2% before 10 years, in critical cases like medical emergencies and more.