Introduction to Retirement planning:
Retirement planning is a crucial part of sound financial planning. It is to be planned at the younger age. There is an advantage of planning future earlier, it gives you sufficient time to tackle any exceptional challenges and allow you to live comfortably. This is not the only reason to plan retirement in life, there are many more reasons that helps at the age of retirement. Let us understand in detail about retirement planning.
What is retirement planning?
Retirement planning is the process of setting retirement incomes and taking all the possible actions and deciding upon the best decisions that fits into retirement goals for a person. It includes evaluating source of income, estimating expenses, and setting up investment plan to achieve the retirement goals by managing the risks and assets.
Retirement planning is not an immediate concern for individual who just started earning. This concern can be drawn at the later age in lifetime. It is always profitable if you are prepared well. There are many life events that can happen but at least you can control them with financial terms. The same is true for retirement planning.
Importance of retirement planning:
When you have stable income source, most of the problems become stress-free to solve. Financial tension can lead to health issues that adds worry, depression, and harmful consequences.
While you can start investing in retirement planning in your life, it may be more convenient to do it at the early stage of life. The goals changes according to the time you start investing in retirement planning. There are many benefits of retirement planning, they are mentioned as follows:
1. Independence:
Most people concern about being a burden at the old age of their life to their family members. Being dependent on someone at the old age becomes emotionally distressing to them. Retirement planning allows you to maintain good lifestyle without depending upon family members.
2. Life expectancy:
Young people may not realize now but life after retirement becomes considerably long. For example, if a person retires at the age of 60, the average life expectancy of 70-75 years gives them many years to manage their post-retirement fund. With this reason retirement at the right age is more important.
3. Medical costs:
Medical costs now-a-days reaching at new height every day. People are becoming more aware while we talk about illness. Retirement planning proves of immense importance to meet such expenses and receive quality medical care at right moment.
4. Tax relief:
The Indian government allows certain tax benefits on several financial instruments. It is an effective way to plan for your future and save money in the present all together. Tax benefits are as prevailing tax laws subject to change.
5. Peace of mind:
Peace of mind is valuable. The stress of managing long-term and short-term money is very difficult. It is important to shield yourself from such problems at the young age.
These all are benefits of retirement planning. Retirement planning is an effective method to live happy and healthy life for long term.
Retirement planning options:
There are several options available for retirement planning in India. Let’s take a look at some of the most popular options:
1. Employee Provident Fund (EPF)
The Employee Provident Fund (EPF) is a government organized retirement savings scheme that is mandatory for most employees in India. Under this scheme, both the employee and the employer contribute some percentage of the employee’s salary towards a retirement fund. The funds are managed by the Employees’ Provident Fund Organization (EPFO) and earn interest at a fixed rate.
The EPF is a safe and reliable option for retirement planning, as it offers guaranteed returns. However, the rate of interest on EPF deposits is subject to change every year, and it may not always keep up with inflation.
2. National Pension System (NPS)
The National Pension System is a voluntary retirement savings scheme that is open to all Indian citizens between the ages of 18 and 60. Under this scheme, individuals can contribute towards their retirement fund and choose from a range of investment options, like equities, corporate bonds, and government securities.
The NPS offers several benefits, including tax deductions on contributions, flexibility in choosing investment options, and the option to withdraw a portion of the funds before retirement. However, the returns on NPS investments are not guaranteed and are subject to market fluctuations.
3. Public Provident Fund (PPF)
The Public Provident Fund is a government managed savings scheme that is open to all Indian citizens. Under this scheme, individuals can deposit maximum amount of Rs. 1.5 lakh per year and earn tax-free returns on their investment. The funds are locked in for a period of 15 years, but partial withdrawals are allowed after the fifth year of investment.
The PPF is a safe and reliable option for retirement, however, the returns on PPF deposits are not very high, and it may not be sufficient to meet all your retirement needs.
4. Mutual Funds
Mutual funds are a popular investment option for retirement planning in India. Under this scheme, investors pool their money together to invest in a range of assets, including stocks, bonds, and other securities. The returns on mutual fund investments are subject to market risks.
Mutual funds offer several benefits, including diversification of investments, professional management, and flexibility in choosing investment options. However, they also carry some risks, and investors should do their research before investing in mutual funds.
5. Real Estate
Real estate is another popular option for planning the retirement in India. Investing in property can provide a steady stream of rental income and can also appreciate in value over time. However, investing in real estate requires a significant amount of capital and may not be suitable for everyone.
There are several options available for retirement planning in India, including EPF, NPS, PPF, mutual funds, and real estate. Each option has its own benefits and drawbacks, and it’s important to do your research and choose the option that best suits your needs and financial goals.
Conclusion:
Retirement planning is the process of determining how much money you will need in retirement and taking the necessary steps to ensure that you will have enough to live comfortably. Therefore, retirement planning is important because it allows you to maintain your standard of living after you stop working.