Until two decades ago, the importance of government jobs was very high in our society due to two reasons. One is the job security and the other is the government pension after retirement.
The government jobs created after 1st January 2004, do not offer any fixed pension benefits as provided by the government earlier. Now it becomes the onus of the individuals to create retirement fund for themselves to cater to their post retirement financial needs.
During early nineties, we have started getting good employment opportunities even in private sectors also but there is no provision for adequate pension to ensure good life after retirement.
We had a word with different salaried individuals about their retirement planning. Most of them were mystified and confused about their future retired life. They don’t have a clear action plan of why to do, how to do and when to do the retirement planning. Although they agree to the importance of retirement planning, only few actually understand the reasons of why a structured, disciplined and early retirement planning is critical.
Why sound Retirement Planning is essential now:
- Non-availability of a government supported guaranteed pension provision of a specified amount:2004 onwards, an employee, whether in private job, or in government job, will have to follow the New Pension Scheme. It is an Employer – employee contribution-based scheme and does not guarantee a fixed amount in terms of pension. Therefore, every employee needs to plan for all his post retirement income on his own. Every expense incurred on oneself, whether to meet basic needs or luxury needs, will have to be met by one’s own accumulated funds.
- Escalating costs of medical expenses with increased life expectancy: In tune of advancement in medical care, average life expectancy in India has also increased. At present it is around 75-80 years and by the time of your retirement it may be more than that. The amount spent by individuals on health care is also increasing, in direct proportion to increasing life expectancy.
- Change in family structure: Gradual abolishment of joint family system and the trend of nuclear families has increased the need of social & financial security. Financial security during the post retired life has become more essential now a days. The next generation is less likely to support their parents in their old age, primarily due to not staying together. Therefore, People who are planning for retirement need to make sufficient financial provisions without expecting financial support from anyone else from the family.
- Increasing materialistic needs: Everyone has a right to lead a quality life whether retired or working. We are living in a materialistic world and our aspirations and desires of life keep on changing with time. We all wants to get it fulfilled. A sound retirement plan is essential to make it possible.
- Gradually decreasing bank interest rates:Bank interest rates on deposits, which are preferred choice of retired persons, are falling down continuously. Around 15 years back interest offered by banks on deposits was 12% and company FDs gave more than that. Now, bank FDs offer less than 6% and company FDs around 8%. Company FDs are considered riskier. Falling interest rates may lead to reduced post retirement income.
A good retirement planning will certainly make your post retired life more stress free, joyful and happy.
Rather than wasting few more years in dilemma, Start planning financial provisions for your post retired life TODAY.
Yes, Today is the best day to Plan for Retirement
A delay in retirement planning can lead you to miss the saving, investing and earning opportunities and power of compounding of the coming years. The delay will reduce time interval in between your present time and retirement time. As a result you may get insufficient time in future to accumulate and grow the required wealth for post retired life.
Let us talk only about savings without considering the power of compounding and earnings on investments, if we save Rs 100 per year, then in a time interval of 10 years we will save Rs 1000 and if the time interval is 20 years, then we will save Rs 2000. It means, the more time we have to accumulate the fund, the more fund corpus we can generate.
Avenues you can choose for Investments for your Retirement planning
As a part of retirement investments planning many options are available in the financial market.
While taking decision on investment avenues, one should consider the time horizon available for this purpose, estimated expenses to lead a good life, tax impact on returns, risk bearing capacity and top of all the amount of corpus required at the time of retirement.
Same investment pattern for all age group of investors is not advisable for retirement planning. Young investor who has sufficient time horizon to create a retirement corpus can adopt the aggressive approach by taking more risk with their investments. The investors having short time horizon and close to their retirement should follow the conservative approach of investment.
Some of the popular investment avenues for retirement investment planning are:
- National Pension Scheme:
It is a retirement oriented investment product managed by pension fund managers under the regulations of Pension Fund Regulatory and Development Authority (PFRDA).
Employees of any sector including unorganized sector can invest in NPS. Under this scheme, the investment is made in a pension account at regular intervals and when the employee retires, they can withdraw a certain amount of the corpus while the remaining sum will be paid out as monthly pension.
Tax benefits can be availed in this scheme under Section 80C of the Income Tax Act, 1961.
- Mutual funds
Mutual fund is an investment avenue that provides opportunity to all kind of investors to access a well-diversified portfolio of equities, bonds and other securities.
It is supposed to be the best investment avenue for every category of investor/ employees because Prospects of getting good returns are high vis-à-vis the related market risks.
Many Retirement solution fund schemes are available to cater to different category of employees.
Equity mutual fund schemes predominantly invest in equity stocks and suitable for investors having long investment horizon & expecting high returns over the investment. Volatility is an in built characteristic of such investments.
Debt mutual fund schemes are suitable for investors looking for steady returns. They are less volatile and, hence, considered less risky compared to equity funds but these come with limited scope of returns.
SIP is a systematic investment plan through which investor can invest a fixed sum of rupees at regular intervals in mutual fund. This mode of investment is very popular among all classes of investors because generally it gives a reasonable return if invested for a longer period.
You can take the help of amryworld.com to analyze the best suitable mutual fund investment scheme for your Retirement investment planning. (Link)
give the link of mutual globe retirement planning section
- Bank Deposits
It is a traditional method of investment and still very popular among the investors who consider safety of money at the top. Investors may deposit their savings in a bank by maintaining different fixed deposit accounts.
Investment in Bank fixed deposit is considered comparatively safer than investments in stocks or mutual funds but gradually decreasing bank interest rates is a serious matter of concern for every depositor. Deposit in a bank is insured up to a maximum of Rs 5 lakh under the Government regulations.
- Public Provident Fund:
It is an investment avenue in which the interest earned and the principal invested is backed by sovereign guarantee. This guarantee makes it a safe investment. The interest rate is also guaranteed, tax free, generally better than FD and rate of interest is declared from year to year. Its tenure is 15 years therefore suitable only for long term investment plans. Salaried or non-salaried both categories of individuals can open a PPF account. This account can be opened by Investor on behalf of a minor or HUF also. NRIs can also open PPF account. You can accumulate a considerable sum on which you can fall back in your retired life.
- Bonds and Debentures:
A bond is a financial instrument issued by the government agencies and corporates . It is generally secured and carries a lower risk.
A debenture is a debt instrument issued by companies to raise the funds on a long term basis. It may be secured or unsecured.
Broadly both the instruments are similar except the fact that bond carries higher security. Bonds may be good investment for investors looking for a fixed income. It generally offers a higher rate of interest as compared to other similar products like Bank & Post office fixed deposits.
A comparison table is given below for your better understanding.
|Investment Avenue||Return prospects||Risk involved||Fundamental feature||Best suitable to|
|Bonds and Debentures||Moderate returns with generally fixed income||Low||offers higher interest as compared to other similar products like Bank & Post office fixed deposits||Investors looking for fixed income|
|Bank Fixed Deposits||Low returns||Considered as Safe investment||insurance coverage up to 5 lakhs||Conservative investors|
|Equity mutual Funds||High for long investment horizon||Moderate||Proven track record of good returns||Investors looking for growth and having long investment horizon|
|Debt mutual Funds||Substantially higher than bank FDs||Low||Interest risk involved with this investment||M F investors looking for relatively safe investment and steady returns or for the purpose of balancing of portfolio|
|SIP in MF (Equity)||High||LOW||Averaging of cost and returns||Good for all investors|
|National Pension Scheme||Moderate||Moderate||Specially designed for retirement||Every investor looking for consistent income after retirement|
|Public Provident Fund||Moderate||Low||Having a lock in period, cap on yearly investment and subjected to change in interest rate||Any salaried or non salaried person|
Remember, a well-timed retirement planning has the potential to gift you more relaxed and enjoyable old age life.
For a sound retirement planning you can take help of investment planner section of our website www.mutualglobe.com.