Retirement

September 23, 2024

Retirement

What is Pension Payment Order (PPO) – All You Need To Know

Introduction:

Adequate financial planning can make ensuring a comfortable post-retirement life difficult. To address this, the Government of India introduced the Employee Pension Scheme (EPS) in 1995 as part of the broader Employee Provident Fund (EPF) initiative.

The EPS provides employees with monthly financial support to help them enjoy a secure and stress-free retirement. If you are an EPF member, it’s essential to understand the significance of the Pension Payment Order (PPO). This article covers what a PPO is, how to check its status, and other essential details. It outlines the pension distribution process and benefits.

Meaning of Pension Payment Order

A Pension Payment Order (PPO) is an official document for retired employees and military personnel.

This document confirms your eligibility for pension benefits, whether due to retirement, disability or as a beneficiary. It contains essential information such as your details, the retirement date, a unique PPO number, the monthly pension amount, and other important specifics.

The PPO serves as legal proof of your entitlement to pension payments and outlines how you will receive them, whether via direct bank transfer or mailed cheques, along with any applicable tax deductions. Safeguarding this document is crucial for addressing any pension-related concerns in the future.

PPO Number in Pension

The Pension Payment Order (PPO) is a unique 12-digit identification number assigned to every pensioner under the Employees’ Pension Scheme (EPS) via the Employee Provident Fund (EPF). It plays a crucial role in all pension-related transactions and correspondence.

The PPO number ensures easy management and tracking of your pension activities.

Here’s how the PPO number is structured:

The first 5 digits denote the issuing authority’s code
The next 2 digits indicate the year of issue
The following 4 digits represent the sequential PPO number
The last digit is a check digit

Importance of Pension Payment Order

Understanding the importance of a Pension Payment Order (PPO) is crucial for retirees and pensioners. Here are a few reasons why it holds such value:

Pension Management: The PPO number acts as a unique identifier that allows pensioners to easily track and manage their pension payments, reducing the chances of errors during disbursement.
Grievance Resolution: If there are any discrepancies or issues with pension payments, the PPO number is essential for raising complaints with the Employee Provident Fund Organization (EPFO). This helps ensure a clear and organized resolution process.
Life Certificate Requirement: Pensioners must submit an annual life certificate to keep receiving pension payments, and the PPO number is key in this procedure. Without it, pension payments may be paused.
Bank Account Updates: When pensioners need to update their bank details due to changes or closures, the PPO number helps facilitate the transition smoothly, ensuring uninterrupted pension disbursement.

Key Features of PPO:

Unique Identification: Each PPO is unique to an individual pensioner, preventing any confusion or errors in payment.
Payment Authorization: It is an official authorization to disburse monthly pension payments.
Transferability: PPOs are often transferable between banks, ensuring convenience for pensioners who wish to change their banking institutions.

How to Check Your Pension Payment Order (PPO)?

Retirees under the Employee Provident Scheme can easily find their PPO number. If the PPO number is misplaced or forgotten, the EPFO website offers a simple way to retrieve it. Follow these steps:

Visit the EPFO Website: Start at the official Employee Provident Fund Organization website.
Go to ‘Services’: Select the ‘Services’ tab and click ‘For Employees’.
Enter the Pensioners’ Portal: Look for the Pensioners’ Portal under the online services section and click on it.
Retrieve Your PPO Number: Select the ‘Know your PPO number’ option and enter your bank or EPF account numbers.

Once you submit the required details, your PPO number will appear, allowing easy access to this essential information.

How to Check Pension Payment Order Status?

Here’s how you can check your PPO status:

Visit the Central Pension Accounting Office’s official website.
Select the ‘Pensioner’ option.
Navigate to the ‘For Pensioners’ section and click ‘PPO Status’.
Enter your 12-digit PPO number and the captcha in the designated fields.
Press ‘Submit’ to view the current status of your PPO.

How to Download Pension Payment Orders Online?

To access your Pension Payment Orders online, follow these simple steps:

Visit the official DigiLocker website.
Log into your account using your mobile number, Aadhaar number, or username.
Enter the OTP sent to your mobile number linked with Aadhaar.
Once logged in, go to the ‘Issued Documents’ section and select ‘Get More Issued Documents.’
Under the ‘Central Government’ category, choose ‘Employees’ Provident Fund Organisation.’
On the new page, select UAN and input your UAN number when prompted.
Click ‘Get Document’ to retrieve your PPO, which will be saved under ‘Saved Documents.’
Your PPO is now available for download.

Understanding How EPS Functions

Now that you know what a Pension Payment Order (PPO) number is and how to retrieve it if lost, you must grasp how your pension from the Employees’ Provident Fund (EPF) is determined. This involves understanding the Employee Pension Scheme (EPS).

Launched in 1995, the EPS aims to provide financial security to salaried individuals after retirement. It offers a regular monthly pension to employees who contribute to the EPF. Both new and existing EPF members can benefit from this monthly pension scheme.

In conclusion, a Pension Payment Order (PPO) is a vital document that facilitates the smooth disbursement of pensions to retirees. Understanding how to get a PPO number is essential for timely payments and maintaining proper records. By following the outlined steps, pensioners can easily navigate the process and enjoy their retirement without financial worries.

*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

FAQ

What is the importance of a Pension Payment Order (PPO)?
A PPO is important as it is an official authorization for pension disbursement, ensuring timely and accurate payments to pensioners.
How long does it take to receive a PPO number after application submission?
The time frame for receiving a PPO number can vary, but it generally takes a few weeks, depending on administrative processes.
Can I transfer my PPO number to a different bank?
Yes, PPO numbers are transferable. However, to ensure a smooth transfer, you must inform your pension disbursing authority and complete the necessary formalities.

August 28, 2024

Personal Finance, Retirement

Voluntary Provident Fund (VPF): Interest Rate, Enrollment, Eligibility, Withdrawal

Are you wondering if public provident and voluntary provident funds are the same?

They are both a part of the EPFO but differ in interest rates, contributions, allowances, and more. Planning your retirement can be overwhelming. However, it is necessary to save enough money to secure your future. If you want to invest in retirement schemes, many options are available. Investing in these schemes can be less intimidating if you have clear financial goals for the future and understand your current financial standing.

The Voluntary Provident Fund (VPF) presents an excellent opportunity for employees aiming to enhance their retirement savings. It stands out due to its attractive returns, tax advantages, and contribution flexibility, making it a dependable method for building a significant retirement fund.

Understanding the eligibility requirements, benefits, and other pertinent details of the VPF can help individuals make well-informed decisions and effectively utilize this beneficial savings scheme.

What is the Public Provident Fund?

The Public Provident Fund (PPF) is a highly favored tax-saving option under Section 80C. It is accessible to all resident Indians, including those in the informal sector, self-employed individuals, students, and retirees.

The Central Government of India is responsible for managing PPF operations and providing interest rates. PPF matures after 15 years. However, you can extend it for 5 more years with or without extra contributions.

Taxpayers can claim tax deductions of up to Rs 1,50,000 a year by investing in PPF. A minimum of Rs 500 should be invested in a year, and you cannot invest more than Rs 1,50,000 a year. The returns offered by PPF accounts are fixed and are backed by sovereign guarantees.

What is the Voluntary Provident Fund?

The Voluntary Provident Fund (VPF) allows employees to make additional contributions to their Provident Fund accounts beyond the mandatory Employee Provident Fund (EPF) contributions. Although not obligatory, many individuals invest in VPF to enhance their retirement savings. Employees can contribute up to 100% of their basic salary and dearness allowance to their VPF. The interest rate for VPF contributions is identical to that of EPF contributions.

It operates in addition to the EPF program, managed by India’s Employees’ Provident Fund Organization (EPFO). The EPF scheme is mainly designed to help employees accumulate funds for their retirement, assisting them in creating a financial reserve for their years after employment. For the financial year 2023-2024, the VPF interest rate is set at 8.5%.

How to Open a Voluntary Provident Fund Account?

Request from Employer: Submit a written request to your employer or HR department, asking them to set up a VPF account and deduct a specified amount from your salary for this purpose.
Provide Details: Share your personal information and specify the monthly contribution amount you wish to allocate from your basic salary to the VPF.
Timing and Conditions: You can initiate a VPF account at any point during the financial year. However, it’s important to note that you cannot stop your VPF contributions until the end of the financial year. If you choose to withdraw the VPF balance within five years of opening the account, the amount will be subject to taxation.

What are the Advantages and Disadvantages of Voluntary Provident Fund?

Here’s a comparison table outlining the advantages and disadvantages of the Voluntary Provident Fund (VPF):

Aspect	Advantages	Disadvantages
Interest Rates	High interest rates, often comparable to EPF (Employee Provident Fund), with rates set by the government.	There is less flexibility in withdrawal compared to other investment options.
Tax Benefits	Contributions qualify for tax deductions under Section 80C of the Income Tax Act.	The interest earned is also tax-free, but the maturity amount is subject to tax if not within the tax-free limit.
Compounding Benefits	Benefits from compound interest, increasing savings over time.	The compounding effect may be slower compared to some other investment options.
Security	The transfer process can be cumbersome if not appropriately managed.	Mandatory EPF contributions are still required before VPF contributions are added.
Contribution Flexibility	It is safe and secure as it is a government-backed scheme.	Partial withdrawal is allowed, but no loan facility
Withdrawal	Partial withdrawals are allowed under specific conditions (e.g., for medical emergencies, education).	Premature withdrawal can lead to penalties or loss of accrued interest.
Loan Facility	Lack of employer contribution means less overall growth than schemes with employer contributions.	Lack of limited access to loans can be a disadvantage in urgent financial needs.
Employer Contribution	The transfer process can be cumbersome if not managed properly.	There is no employer contribution, only employee contributions.
Transferability	Transferable between jobs, ensuring continuity in savings.	The transfer process can be cumbersome if not appropriately managed.

What are the Key Features of the Voluntary Provident Fund (VPF)?

The key features are as follows:

Contribution Limits: Employees can allocate up to 100% of their basic salary, including dearness allowance, to their VPF account. This contribution is in addition to the mandatory 12% that applies to the EPF account.
Relationship with EPF: The VPF operates as an extension of the EPF (Employee Provident Fund), differing primarily in the contribution percentage. There is no separate VPF account; it is managed under the EPF umbrella.
Eligibility: Only salaried employees working in organizations recognized by the Employees’ Provident Fund Organization of India can participate. Self-employed individuals and workers in the unorganized sector are ineligible.
Voluntary Participation: Enrollment in the VPF is entirely voluntary. Employees are not required to contribute to this fund.
Lock-in Period: The VPF has a mandatory lock-in period of 5 years, during which withdrawals are not permitted.
Timing for Enrollment: Starting a VPF at the beginning of the financial year will aid in better tax planning and financial management.
Interest Rates: The VPF offers the same interest rate as the EPF, which is currently 8.25% for FY 2023-24.
Maturity Benefits: Upon resignation or retirement, employees receive the maturity amount, which can be transferred to a new employer, similar to EPF schemes.

What is the Maturity Period of the Voluntary Provident Fund?

A Voluntary Provident Fund (VPF) has a minimum lock-in period of 5 years. Since VPF contributions are managed through an EPF account, they can be withdrawn under specific conditions, including retirement, unemployment exceeding two months, or for particular expenses such as:

Loan repayment
Buying or constructing a residential property
Child’s education
Marriage (either for oneself or a dependent)
Medical expenses

To fully benefit from VPF tax exemptions, the account must be maintained for at least five years. Early withdrawal before this period may result in the loss of these tax benefits.

In conclusion, the Voluntary Provident Fund (VPF) is an excellent investment for employees looking to secure their future with high returns. By understanding the interest rates, enrollment process, eligibility criteria, and withdrawal rules, you can make informed decisions to maximize your VPF benefits.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & the certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

FAQs

Can I change my VPF contribution amount?
Yes, you can change your VPF contribution amount at the beginning of the financial year. Inform your employer of the desired changes in writing.
Is the VPF contribution limit capped?
No, there is no upper limit on VPF contributions. You can contribute up to 100% of your Basic Salary and Dearness Allowance.
Are VPF contributions tax-deductible?
Yes, VPF contributions qualify for tax deductions under Section 80C of the Income Tax Act, up to a limit of ₹1.5 lakh per financial year.

August 27, 2024

News, Retirement

Unified Pension Scheme – How Will It Impact Your Post-Retirement Life?

Have you been waiting for a better pension plan? The government finally answered the call. The national Unified Pension Scheme (UPS) guarantees a pension of 50% of your final salary, an improvement over the previous options.

Designed to provide financial security for all government employees, the scheme will come into effect from April 1, 2025, and will benefit around 230,000 central government employees. But that’s not all! Maharashtra is the first state to adopt UPS, and if more states follow Maharashtra’s lead, this number could soar to 900,000.

Let’s break down what this means for you.

How does the Unified Pension Scheme (UPS) work?

Think of it as a pension mix. You contribute 10% of your basic salary plus Dearness Allowance (DA), while the government contributes 18.5%. There’s also a separate pool of money, funded by an additional 8.5% from the government.

The big promise

A pension that’s 50% of your average basic salary in the last year of service. Pretty sweet, right?

In short, the UPS combines the best parts of the Old Pension Scheme (OPS) and the National Pension Scheme (NPS). You get a fixed pension, similar to OPS, plus a contribution-based part like NPS. And the best part? This is a fully funded scheme, so your retirement won’t burden future governments.

Key Features of the UPS

Service Requirement: You need at least 25 years of service to get the full pension.

Pension Guarantee: You’re assured a pension of 50% of your average salary in the last year of work. Even if you serve under 25 years, you’ll still get a pension, but it’ll be smaller.

Family Pension: If you pass away, your family will get 60% of your pension.

Minimum Pension: If you’ve worked for at least ten years, you’ll receive a monthly pension of Rs 10,000.

Inflation Protection: Your pension will increase over time to match rising prices.

Lump Sum: You’ll get a one-time payment on retirement in addition to your gratuity. This amount is calculated based on your salary and years of service.

The UPS could modernize India’s pension system, offering a more sustainable approach for the government and the employees. However, its effectiveness will largely depend on how well it is implemented.

How did the Old Pension Scheme (OPS) Function?

The OPS was a straightforward pension plan primarily designed for government employees. It operated on a defined benefit system, which means you were guaranteed a specific pension amount based on your last drawn salary. The government was solely responsible for funding the OPS, and it adjusted the pension for inflation through Dearness Allowance.

How does the National Pension Scheme (NPS) Function?

Introduced in 2004, the NPS is a defined contribution scheme open to government and private sector employees. In this scheme, your pension amount is not fixed but depends on how well your investments perform in the market. You contribute 10% of your salary, matched by the government’s 14% contribution. When you retire, you can withdraw up to 60% of your accumulated funds tax-free.

Key Differences: OPS V/s NPS

OPS	NPS
OPS offers a guaranteed pension	NPS is market-linked, making the final pension amount uncertain.
While OPS provided a guaranteed pension, it also significantly burdened the government.	NPS involves contributions from both the employee and the government.
OPS did not require employee contributions	NPS mandates a 10% contribution from the employee.
While OPS provided a guaranteed pension, it also placed a significant burden on the government.	The NPS offers flexibility and potential for higher returns but comes with the risk of market fluctuations.

Let’s understand the difference between the three Pension Schemes with the help of an example:

Roshni is a 44-year-old government employee earning Rs 8 lakh annually, with a basic pay of Rs 6.24 lakh. The amount she would get under each scheme varies:

Under OPS,
Roshni’s pension will be calculated as 50% of her last drawn basic pay.
Basic Pay: Rs 6.24 lakh
Monthly Basic Pay: Rs.624000/12 = Rs. 52000. Pension: 50% of Rs. 52000 = Rs. 26000 monthly.

So Roshni will receive a monthly pension of approximately Rs. 26,000

Under NPS,

Roshni’s pension will depend on the accumulated corpus. Let’s say she contributes 10% of her basic pay, which is Rs. 5200 per month, till she retires at 60. Assumed returns on investment: 8% per annum

So, her total pension corpus at retirement will be:
Lump sum value = Rs. 810764
Annuity value = Rs.1216147
Her monthly pension = Rs. 4054

Under UPS,
Since this scheme offers the benefits of both schemes, Roshni could expect:
Pension: 50% of the OPS benefit + Annuity from a smaller NPS-like corpus.

So hence,
OPS portion: 50% of Rs. 26000 = Rs. 13000
NPS-like annuity = Rs 4054
Adding these:
Roshni’s Monthly Pension will be
Rs. 13000 + Rs 4054 = Rs.17054

In essence, 44-year-old Roshni, who is a Government employee, draws basic pay of
Rs 6.24 lakh, the approximate amount she would receive each month after retirement, will be

Roshni’s Monthly Pension	Under OPS	Under NPS	Under UPS
Roshni’s Monthly Pension	Rs. 26,000	Rs. 4054	Rs.17054

Benefits of UPS for the Government

Financial Responsibility: The UPS is a more sustainable pension plan that helps the government manage its long-term financial obligations.
Budgetary Balance: UPS aims to ensure a more balanced pension system by limiting the government’s financial burden.
Streamlined Pension Management: The Unified Pension Scheme simplifies the administration of pensions, providing a more equitable system for all employees.
Pension Reform Milestone: According to Mishra, the introduction of UPS marks a significant step forward in modernizing India’s pension system.

Challenges of UPS for the Government

Political Hurdles: The UPS may encounter resistance from those who support the current pension schemes, leading to potential political challenges.
Operational Complexities: Implementing the UPS across a vast network of government employees and organizations will require careful planning and logistical management.

Benefits of UPS for You as an Individual

Peace of Mind: UPS offers a more predictable pension than NPS. You get a guaranteed pension plus the potential for higher returns from market investments, which gives you a sense of security in retirement.
Financial Flexibility: The UPS combines the best of both worlds: a guaranteed pension and the chance for higher returns. This flexibility can help you plan your retirement more effectively.
A Balanced Approach: The UPS is like a bridge between the old and national pension schemes. It gives you the stability of a traditional pension and the growth potential of a market-linked one. This balanced approach can provide you with a more comfortable retirement.

Challenges of UPS for You as an Individual

Market Fluctuations: The UPS includes a market-linked component, so economic downturns, similar to NPS, could impact your pension.
Guaranteed Pension: While offering more security than NPS, the UPS might not guarantee the total amount you’d receive under the OPS, primarily if the market performs poorly.
Adaptability: The UPS’s hybrid structure may require adjusting your financial planning compared to the simpler OPS. You might need to understand both guaranteed benefits and market-based pensions.

Conclusion

The Unified Pension Scheme (UPS) marks a significant milestone in the history of government pensions in India. Its hybrid nature, combining elements of both the Old Pension Scheme (OPS) and the National Pension Scheme (NPS), offers a balanced approach that addresses the concerns of various stakeholders.

While the UPS presents several advantages, it’s essential to consider the potential challenges and long-term implications. The scheme’s success will depend on factors such as adherence to contribution rates, efficient management of the pension fund, and the government’s commitment to providing adequate funding. Overall, the Unified Pension Scheme represents a positive step towards ensuring a more secure and equitable retirement for government employees.

July 29, 2024

Personal Finance, Retirement

Why Retirement Planning Should be Different for Women and Men?

Introduction:

Retirement planning is crucial, but a one-size-fits-all retirement plan is a myth. Everyone envisions their golden years differently, making personalized retirement strategies essential. For instance, married couples sharing the same retirement plan might not achieve optimal outcomes.

A retirement plan should be tailored to reflect an individual’s financial needs and long-term goals. This is particularly true for women, whose retirement planning often differs from men’s. Despite women increasingly joining the workforce, their retirement plans frequently remain a lower priority.

Research shows that women generally have longer lifespans than men, implying they need more financial resources for extended years. However, only a few women actively plan for their financial stability post-retirement.

This blog explores why retirement planning is unique for women compared to men. It also offers insights into how women can effectively save for the future and emphasizes the importance of women’s active role in securing their financial well-being.

6 Reasons Why Women Need Retirement Planning

Women are Primary Caregivers

While the number of stay-at-home dads is increasing as more women enter the workforce, many still choose to stay home to raise their children. The traditional role of women as primary caregivers persists, with women often balancing work and household duties, including caring for children and aging parents.

Due to their focus on home responsibilities, women often take on more convenient but lower-paying jobs. This can stress their retirement savings and earnings, as missing out on higher-paying jobs in their earlier years means missing out on significant financial contributions toward retirement. Neglecting to prioritize their finances can impact their pension and social security benefits.

Additionally, women may retire early to care for their families or aging parents. Pregnancy and post-childbirth responsibilities are also common reasons for women to take career breaks during their peak earning years.

Women Pay More in Healthcare than in Retirement

In addition to existing finances, women must consider healthcare-related finances when planning their retirement. This situation arises from the probability of their longer life expectancy rate, which indicates they might be at a higher risk of health problems in their old age.

In events wherein the female outlives her spouse, her investment in a proper retirement plan will aid her financial expenses. Long-term medical expenses are to be considered for females; as a result, there are differently curated life insurance plans for men and women.

Longer Life Expectancy

Women tend to live longer than men, with an average life expectancy that is several years greater. This means women need more savings to cover a more extended retirement period. The World Health Organization says women live approximately 5 years longer than men globally. This longer life span necessitates a more substantial retirement fund to ensure financial security in the later years.

Career Interruptions

Women are more likely to take career breaks to care for children or elderly family members. These interruptions can lead to fewer years of employment, lower lifetime earnings, and reduced contributions to retirement accounts. Women need to plan for these potential interruptions and find ways to mitigate their impact on retirement savings.

Risk Tolerance and Investment Strategies:

Here’s a list of the factors affecting men and women:

Factor	Women	Men
Average Earnings	Lower	Higher
Career Interruptions	More frequent	Less frequent
Life Expectancy	Longer	Shorter
Health Care Costs	Higher	Lower
Risk Tolerance	Generally lower	Generally higher
Pension/Social Security	Generally lower benefits	Generally higher benefits

Men and women often have different risk tolerances when it comes to investing. Women may be more conservative, preferring lower-risk investments, while men might lean towards higher-risk options. Understanding these differences is crucial for tailoring investments and retirement strategies that align with each gender’s preferences and goals.

Financial Literacy and Confidence:

Studies show that women often lack confidence in their financial knowledge compared to men. This can impact their retirement planning decisions. Financial education and advice tailored to women can help bridge this gap.

Strategies for Women’s Financial Planning

Strategy	Description	Key Actions
Start Early and Save Aggressively	To utilize compound growth and employer-sponsored retirement plans, begin saving as early as possible.	Contribute 15-20% of income to retirement accounts.
Invest Wisely	Manage investments to achieve growth and stability through diversification and professional advice.	Diversify across stocks, bonds, and real estate. Consult a financial advisor for tailored advice.
Plan for Career Breaks	Prepare for potential career interruptions by building an emergency fund and maintaining skills.	Build an emergency fund. Explore flexible work options.
Secure Health Insurance and Long-Term Care	Ensure you have adequate health insurance and consider long-term care insurance to protect against high medical expenses.	Obtain comprehensive health insurance. Consider long-term care insurance.

In conclusion, retirement planning for women requires careful consideration of unique challenges such as income disparities, longevity, and health care costs. By understanding and addressing these differences, women can develop more effective retirement strategies that ensure financial security. Men also benefit from recognizing these distinctions, leading to more tailored and effective retirement plans for both genders.

FAQs

Why is retirement planning different for women and men?
Retirement planning differs due to income disparities, career interruptions, longevity, and healthcare costs. Women often earn less, live longer, and have higher healthcare expenses, necessitating tailored strategies.
How can women address lower pension and social security benefits?
Women can address lower benefits by increasing personal savings, investing in annuities, and seeking financial advice to optimize their retirement plans.
What role does risk tolerance play in retirement planning?
Risk tolerance influences investment choices. Women tend to be more conservative, preferring lower-risk investments, while men might opt for higher-risk options. Tailoring investment strategies to individual risk preferences is essential.

June 24, 2024

Personal Finance, Retirement

Understanding the 4% Rule for Retirement Withdrawals: A Comprehensive Guide

Retirement planning is crucial to financial security, particularly in India, where the social security net is limited. The World Bank’s data, which reveals that only about 12% of the Indian workforce is covered under formal pension schemes, underscores the necessity of individual retirement planning.

In this context, the 4% rule, a straightforward yet powerful guideline, becomes even more significant. It can help you navigate the intricacies of retirement withdrawals and ensure that your savings sustain you throughout your retirement in the Indian economic landscape.

Understanding the 4% Rule Of Retirement Withdrawals

The 4% rule is a retirement withdrawal strategy that suggests you can withdraw 4% of your retirement savings annually without running out of money for at least 30 years. Financial planner William Bengen first introduced this rule in the 1990s.

Bengen’s research indicated that retirees could safely withdraw 4% of their initial retirement portfolio, adjusted for inflation, each year. The 4% rule is based on historical stock and bond returns data and assumes a balanced portfolio. It has become a cornerstone of retirement planning because of its simplicity and empirical foundation.

How the 4% Retirement Withdrawals Rule Works

The retirement landscape in India differs from that in Western countries, where the 4% rule was developed. Indian retirees may need to adjust the rule to fit local conditions, such as higher inflation rates and healthcare costs. To apply the 4% rule, calculate your total retirement savings.

Example 1: Imagine you have saved ₹1 crore. According to the 4% rule, you would withdraw ₹4 lakh in the first year of retirement. Each subsequent year, you adjust this amount for inflation. If the inflation rate is 3%, in the second year, you would withdraw ₹4,12,000. This adjustment ensures that your purchasing power remains consistent, allowing you to maintain your standard of living despite rising prices.

Example 2: Let’s say you have a retirement portfolio of ₹50 lakhs. Applying the 4% rule, you would withdraw ₹ two lakhs in the first year. If inflation is 4%, your second-year withdrawal would be ₹2,08,000. Over time, these adjustments are crucial to ensure that your withdrawals keep pace with the cost of living, providing financial stability throughout your retirement.

Benefits of the 4% Retirement Withdrawals Rule

Simplicity and Ease of Use: The 4% rule is effective and remarkably simple to understand and implement. You don’t need to be a financial expert or perform complex calculations to use it effectively. This accessibility makes it a valuable tool for anyone, regardless of their financial knowledge, providing a straightforward method for planning retirement withdrawals.

Financial Security and Predictability: The rule provides a predictable income stream, offers security, and helps retirees confidently budget their expenses. Knowing that you have a structured plan can reduce anxiety about running out of money and allow you to focus on enjoying your retirement.

Flexibility in Retirement Planning: The 4% rule is not a rigid formula but a flexible strategy that can be adjusted based on changes in your financial situation or market conditions. This adaptability allows you to respond to market fluctuations and make informed decisions about your withdrawals, maximizing your retirement savings.

Limitations of the 4% Retirement Withdrawals Rule

Market Volatility: Market downturns can significantly reduce the value of your retirement portfolio, potentially affecting your withdrawals. If your investments lose value, continuing to withdraw at the same rate could deplete your savings faster than anticipated.

Changes in Life Expectancy: With increasing life expectancy, your retirement savings might need to last longer than initially planned. The 4% rule is based on a 30-year retirement horizon, but if you live longer, you may need to adjust your strategy to ensure your savings last.

Inflation and Lifestyle Changes: Inflation can erode your purchasing power over time, and changes in lifestyle or unexpected expenses can require higher withdrawals. For example, rising healthcare costs or a desire to travel more in retirement could increase your spending needs beyond what the 4% rule accounts for.

Applying the 4% Rule in India

Example:

For an Indian retiree with a ₹50 lakh portfolio, starting with a 3.5% withdrawal rate instead of 4% might be more prudent to account for these factors. This would mean an initial annual withdrawal of ₹1.75 lakhs. Adjusting the rule to your circumstances ensures you don’t outlive your savings while considering the local economic environment.

Alternatives to the 4% Rule

Dynamic Withdrawal Strategies: Adjust your withdrawal rate based on market performance. For instance, you might withdraw more during a bull market, while you could reduce your withdrawals in a bear market. This approach allows for greater flexibility and responsiveness to market conditions.

The Bucket Strategy: Divide your retirement savings into “buckets” for short-term, medium-term, and long-term needs. This approach can provide stability and reduce the impact of market volatility. For example, keeping several years’ worth of living expenses in cash or low-risk investments can protect against having to sell stocks during a market downturn.

Annuities and Pensions: These can provide a guaranteed income stream, reducing the risk of outliving your savings. Annuities, for example, convert a portion of your retirement savings into a steady income for life, offering peace of mind and reducing the complexity of managing withdrawals.

Factors Influencing Retirement Withdrawals

Healthcare Costs: Healthcare expenses can be a significant part of retirement spending. Consider potential medical expenses and insurance premiums in your planning. Unexpected medical costs can quickly deplete your savings if not adequately planned for.
Family Support and Responsibilities: Supporting adult children or aging parents can impact your retirement savings—factor in these potential expenses when planning your withdrawals. These responsibilities can add a significant financial burden in cultures where family support is expected.
Investment Returns: Your investments’ performance will affect the longevity of your retirement savings. Diversify your portfolio to balance risk and return. A well-diversified portfolio can better withstand market volatility, ensuring a steady income throughout retirement.

Maximizing Retirement Savings

Starting Early and the Power of Compounding: The earlier you start saving, the more time your investments have to grow. Compounding can significantly increase your retirement savings over time. Even small, regular contributions can grow substantially over decades.
Diversifying Investments: Spread your investments across different asset classes to reduce risk and enhance returns. A diversified portfolio can protect against market downturns and exploit growth in other sectors.
Reducing Unnecessary Expenses: Reducing non-essential expenses can help you save more for retirement. Budget wisely to ensure you have sufficient funds for the future. Simple lifestyle changes and mindful spending can free up significant resources for your retirement savings.

Common Mistakes to Avoid in Retirement Withdrawals

Ignoring Inflation: Inflation can erode your purchasing power. Ensure your retirement withdrawals are adjusted for inflation to maintain your standard of living. Neglecting inflation can result in a significant shortfall in your later years.
Overestimating Investment Returns: Be realistic about your investment returns. Overly optimistic assumptions can lead to a shortfall in your retirement savings. Base your planning on conservative estimates to ensure your savings last.
Underestimating Life Expectancy: Plan for a longer retirement to avoid running out of money. Consider the possibility of living longer than average life expectancy. Longevity risk is accurate, and underestimating it can lead to financial insecurity in your later years.

Tools and Resources

Retirement Calculators: Use online calculators to estimate how much you need to save for retirement and how much you can withdraw annually. These tools can provide a starting point for your planning and help you visualize different scenarios.
Financial Advisors: Seek professional advice to create a personalized retirement plan based on your needs and circumstances. Financial advisors can provide tailored strategies and insights you might not have considered.
Online Resources and Apps: Use financial planning apps and websites for budgeting, investment tracking, and retirement planning. Many of these tools offer features for tracking your progress and adjusting as needed.

Learn from individuals who have successfully implemented the 4% rule. For example, a retiree who started saving early and consistently invested in a diversified portfolio may find that the 4% rule works well, providing a stable income throughout retirement. These stories highlight the benefits of disciplined saving and planning.

Lessons from Failed Plans: Conversely, retirees who failed to account for inflation or overestimated their investment returns might struggle financially. These examples highlight the importance of realistic planning and adaptability. Learning from these mistakes can help you avoid similar pitfalls.

Future of Retirement Planning

Trends in Retirement Planning: Increased life expectancy and evolving financial products will shape the future of retirement planning. Stay informed about new strategies and tools to enhance your retirement plan.
Impact of Technology: Advances in technology can provide better tools for managing your retirement savings. Use technology to track and optimize your investments. Robo-advisors, for example, offer automated, low-cost investment management.
Changing Economic Conditions: Economic fluctuations will continue to affect retirement planning. Be prepared to adjust your strategy based on changing conditions. Review your plan regularly and make necessary adjustments to stay on track.

June 20, 2024

Personal Finance, Retirement

Managing Finances After 80 in India: A Comprehensive Post-Retirement Guide

Managing finances is crucial at any stage of life, but it becomes even more important post-retirement after age 80. In India, this period often comes with unique challenges and opportunities. With increased life expectancy and changing family dynamics, financial planning for the elderly must adapt to ensure security and comfort in the golden years.

Everyone says that reaching your eighties is a time to relax, reflect on life, and cherish the company of friends and family. While this is one of the joys of retirement, it can also bring significant financial challenges, including potential long-term care costs and the need for assistance in managing finances. To help you enjoy this stage of life without financial worries, here are our top financial tips for those over 80.

Understanding the Financial Landscape: Octogenarians’ financial needs and priorities differ significantly from younger individuals. The focus typically shifts from wealth accumulation to wealth preservation and ensuring a steady income stream to cover daily expenses, healthcare, and other necessities.

Sources of Income: For senior citizens in India, the following are common sources of income:

Pension: Many retirees receive a pension from the government or their previous employers. It is essential to keep track of pension disbursements and ensure they are received on time.

Savings and Fixed Deposits: Senior citizens often rely on their savings and fixed deposits (FDs) for regular income. Opting for senior citizen savings schemes (SCSS) can provide higher interest rates compared to regular FDs. Check at your nearest post office.

Investments: Government bonds, mutual funds, and post office schemes can offer stable returns. Diversifying the investment portfolio helps minimize risks.

Rental Income: Renting out property can be a reliable source of income. However, having a legal agreement and choosing trustworthy tenants is vital.

Healthcare Planning: Healthcare is a significant concern for those over 80. Medical expenses can be substantial, and having a robust healthcare plan is crucial.

Health Insurance: Ensure that you have adequate health insurance coverage. Many insurance companies offer specialized plans for senior citizens. It’s important to check the policy details, including coverage for pre-existing conditions and hospitalization benefits. The Insurance Regulatory and Development Authority of India (IRDAI) recently removed the age cap for buying health insurance. Now, you can buy health insurance at any age.

Assets Planning: This involves making arrangements for the management and disposal of your assets in case of incapacity or death.

Will: Drafting a will is essential to ensure your assets are distributed according to your wishes. Consult a legal expert to make sure the will is legally valid.

Power of Attorney: Granting a trusted family member or friend power of attorney ensures that your financial matters are managed effectively if you cannot do so yourself.

Nomination: Ensure that all your financial accounts, insurance policies, and investments have appropriate nominations to avoid complications for your heirs.

Tax Planning: It is crucial for senior citizens to maximize their post-tax income.

Tax Benefits: In India, senior citizens are entitled to various tax benefits, including higher exemption limits and deductions for medical expenses. Stay informed about these benefits to minimize your tax liability.

Filing Returns: Ensure timely filing of income tax returns to avoid penalties and legal issues. It might be beneficial to seek assistance from a tax consultant.

Financial Safety: With the increasing financial fraud, adopting measures to protect your finances is crucial. In old age, being aware of all the technology is difficult, yet it is important to remember:

Avoiding Scams: Be cautious of unsolicited calls or emails offering financial products. Always verify the credentials of the person or institution before sharing personal information.

Digital Literacy: If you use online banking, ensure you are familiar with basic cybersecurity practices, such as not sharing passwords and using two-factor authentication.

Trusted Advisors: Consult trusted financial advisors for managing investments and financial planning. It’s important to have someone reliable to guide you through financial decisions.

Some Other Basic Tips to Consider are

Strategy	Description
Review Your Income and Expenses	Compare your income from various sources (Social Security, pensions, retirement accounts) with your expenses. Adjust spending or consider downsizing if needed.
Automate Deposits and Bill Paying	Automate Deposits and bill-paying
Simplify Your Investments	Consolidate your investment accounts to ease management and ensure you are not taking unnecessary risks. Consider professional advice for diversification.

Conclusion: Managing finances post-retirement requires careful planning and proactive strategies to ensure financial stability and peace of mind. By following these essential tips, individuals can confidently navigate the complexities of financial management and enjoy a comfortable and secure future.

FAQs

How can I ensure my retirement savings last throughout my 80s and beyond?
To ensure your retirement savings last, consider revisiting your retirement plan, diversifying your investments, staying informed about tax strategies, and planning for healthcare expenses.
Why is asset planning important at 80?
Asset planning is crucial at 80 for ensuring your assets are distributed according to your wishes, minimizing estate taxes, and protecting your legacy for future generations.
What steps can I take to monitor my spending effectively at 80?
To monitor your spending effectively, consider using budgeting tools, working with a financial advisor, and regularly reviewing your financial statements and expenses to identify areas for improvement.

March 2, 2024

Retirement

Pension Planning: All You Need to Know to Prepare for Your Financial Future

No one wants to spend their entire life working or relying on social security programs for survival. We’re all aware of how vital pension planning is. However, we still struggle with questions such as when I should start, how much I should invest, and what age is best to say adieu to a hectic life and enjoy the peace of retirement.

So, to help you navigate this maze, we’ve created a comprehensive guide to pension planning. By the end of this article, you will have the answers to all of your retirement planning questions.

So, let us get on the wheels.

What is Pension Planning?

We’ll start our beautiful exploration journey by defining precisely what pension planning is. Pension planning is the process of preparing for a comfortable and secure life in retirement.

Pension planning begins with clearly defining your financial goals and then saving and investing money based on your needs and preferences. There are numerous factors to consider when planning your pension, which we will address later in this article.

To figure out a specific nest egg, consider your current income, expenses, assets, liabilities, life expectancy, inflation, tax benefits, and risk tolerance. Decide when you want to retire, how much income you will need, and what vehicles you will use to achieve the corpus required to live the life you want.

Why is pension planning important?

Now that you understand what pension planning is all about let us look into why it is such a trendy topic. Here are five reasons why pension planning is an inescapable part of your life:

Helps you achieve your life goals

Whether you want to travel the world, pursue a hobby, or spend time with your loved ones, retirement planning can help you fund your dreams.

Have a steady source of income

By saving and investing your money wisely, you can create a retirement corpus that can generate regular returns and meet your expenses even when you are not working.

Gear up for unexpected emergencies

You never know what life may throw at you, such as health issues, natural disasters, or family crises. Pensions can help you cope with these situations without compromising your financial security.

Reduce your tax liability

Effective pension planning reduces your tax liability and increases your net worth. You can grow your wealth by investing in multiple assets that can appreciate over time and help you save taxes.

Gives you peace of mind and happiness

By using the right pension planning, you can avoid financial stress, maintain your lifestyle, and contribute to the economy and social welfare.

Factors to Consider While Planning for Retirement

Your retirement age and life expectancy

Start by asking yourself two questions: When do you want to retire? How long do you expect to live? The age at which you retire is entirely up to you. Some people want to stay active and work into their later years. Some want to retire early and enjoy the aspects of life that they skipped out on due to their busy work lives.
You can estimate your life expectancy based on your health, family history, and lifestyle and then save accordingly.

2. Effect of Inflation on Your Pension

Inflation is the rise in the average cost of goods and services over time. When inflation rises, it reduces the purchasing power of your money. So, to prevent inflation from eating up your retirement corpus, invest in assets that can generate returns higher than the inflation rate to preserve the value of your portfolio.

3. Don’t lose sight of tax liabilities

Remember this: Taxes will take a toll on your retirement corpus and pension. So, while retirement planning, keep an eye on your tax bracket, deductions, and exemptions. You should look for tax breaks and tax-efficient investments to lower your tax liability and increase your net worth.

4. Returns on Investment (ROI)

We invest to generate profits from our savings and investments. Furthermore, returns are determined by the risk you take and the time horizon of the asset classes you choose. To achieve your retirement goals, diversify your portfolio and devote yourself to long-term investments that balance risk and return. This will help you develop immunity to market fluctuations.

How to start pension planning?

Follow the steps below to start your pension planning right away-

Step 1: Select your retirement age

Your financial goals and responsibilities will influence the retirement age you set. You should consider your current health, life expectancy, lifestyle, and career goals. For instance, if you are career-oriented or have financial responsibilities, your retirement age will be higher than that of someone financially secure or satisfied with their career achievements.

Step 2: Set financial goals and form a budget.

You should calculate how much income you will require in retirement based on your estimated expenses, inflation, and tax rates. Keep your budget realistic, allowing you to save and invest a portion of your income regularly.

Step 3: Invest early for a peaceful retirement

Start as early as possible is the secret mantra to effective retirement planning. Compounding can help you boost your returns as time goes by. You should choose a retirement plan that suits your risk tolerance, time horizon, and financial goals.

Step 4: Compute your retirement corpus

Calculate how much money you’ll need to save by retiring to maintain your desired lifestyle. To calculate the future value of your savings, you can use a retirement calculator or consult a financial advisor. Because it is critical to consider your expected rate of return, inflation, and withdrawal frequency.

Step 6: Avoid avoidable expenses

You should reduce your debt, spend less, and avoid making unnecessary or impulsive purchases. To pay off your debts, use the descending order of interest. To put it another way, start repaying the loan with the highest interest rate first and work your way down to lower interest rates.

Step 7: Regularly review and track your plan

You should periodically review your retirement plan and make changes as needed. Don’t miss out on reviewing your insurance policies to ensure adequate health, life, and property coverage. You should also review your goals, budget, investments, and expenses to ensure they align with your changing needs and circumstances.

Best Investment Options For Retirement Planning

If you are covered by an old pension scheme and are eligible for a pension, you should still consider these investment options due to their high returns and tax-free status. If not, this list is exactly what you need.

Public Provident Fund (PPF)

PPF is a government-backed savings scheme that offers a fixed and guaranteed return, currently at 7.1% p.a.

Your money is locked in PPF for 15 years, and you can continue for 5-year blocks.

Partial withdrawals and loans are allowed only after certain conditions are met.

It is a safe and tax-free option but may not beat inflation in the long run.

National Pension Scheme (NPS)

NPS is a market-linked pension scheme that allows you to invest in different asset classes, such as equity, debt, and government securities, through various pension fund managers.

NPS offers two account options: Tier I and Tier II. Tier I account is mandatory and has a lock-in period till age 60, while Tier II account is optional and has no lock-in period.
You can choose between active and auto choices for your asset allocation.

You can also claim an additional tax deduction of Rs. 50,000 under Section 80CCD(1B) for your NPS contributions over and above the Rs. 1.5 lakh limit under Section 80C.

Returns in NPS are based on market performance. But if you start early with a long-term investing vision, you can beat inflation and generate good returns.

Mutual Funds

Mutual funds are pooled investment vehicles that invest in various securities, such as stocks, bonds, gold, etc., depending on the fund’s objective and strategy.

Contrary to stocks, where you manage your risk, Mutual funds are managed by professional fund managers and regulated by SEBI.

Mutual Funds have various options to suit different risk profiles, time horizons, and goals. Depending on your investing tastes, you can choose different plans, such as growth, dividend, and systematic investment plans.

You can invest in mutual funds through lump sum or SIP mode.

You can also invest in ELSS (Equity Linked Savings Scheme) funds, which are tax-saving mutual funds with a lock-in period of 3 years and qualify for deduction under Section 80C.

Mutual funds can offer higher returns than fixed-income options but are also subject to market fluctuations and taxation.

Equities or Shares

Equity or shares are units of ownership in a company that entitle you to a proportionate share of its profits and assets.

They are traded on stock exchanges and their prices are determined by the demand and supply forces.
Shares can give you capital appreciation and dividends but are risky and volatile.

Shares can yield attractive returns only when you research the company, avoid short-term gains, study its financial and technical ratios, competitive advantage, etc., before investing.

You must also pay brokerage fees, transaction charges, and taxes on your share transactions.

Key Takeaways

Pension planning is a pressing topic that we must address. Systematic planning can help you meet your retirement objectives and secure your financial future.
Starting early, saving regularly, investing sensibly, and selecting the right pension plan will allow you to enjoy your golden years without financial worries.
However, pension planning is an ongoing process that must be reviewed and tweaked regularly in response to changing economic conditions. You cannot afford to ignore other factors that influence retirement planning, such as taxes, inflation, and healthcare costs.

To summarise, if you are unsure about pension planning, never hesitate to seek professional advice. Remember, it is never too late to begin pension planning, but the sooner you do it, the better.

FAQs

How to cope with your health care bills after you stop working?
One of the most difficult aspects of retirement is dealing with rising healthcare costs as we age.
To deal with these expenses, you can try these: maintain a healthy lifestyle, choose the right health insurance plan, save for medical emergencies, and look into other options such as government schemes, health savings accounts, and long-term care insurance.
How to deal with inflation in retirement?
To deal with inflation in retirement, you should adjust your budget, increase your income, and invest in inflation-hedging assets. Equity, real estate, commodities, inflation-linked bonds, and annuities are inflation-protective assets.
How much do you need to put aside for your retirement?
So, this is not a one-size-fits-all situation. The amount you need to save for retirement depends on factors like your current income, desired retirement income, life expectancy, expected rate of return, inflation rate, etc. Aim to save at least 10% to 15% of your annual income. Also, aim to retire with at least 25 times your annual expenses.

January 23, 2024

Retirement

What is the Retirement Age in India?

Retirement is one of the biggest milestones in an individual’s life. But unlike other things, we never talk about the age at which one should retire. Most of us don’t know the ideal retirement age in India.

But first, we must understand what retirement exactly means. It is the age when a person stops working and becomes eligible for a pension or other benefits without working for money or, in other words, retirement benefits. Retirement age varies depending on the type of employment, sector, and country. In this blog, we will explore the retirement age in India for different categories of workers and the factors that influence it.

Retirement Age In India

Unlike some countries with a uniform retirement age for all citizens, India has different retirement ages for different types of workers. The retirement age in India depends on the type of employment, sector, and state. Generally, the legal retirement age in India ranges from 55 to 65 years, with some exceptions.

New Retirement Age In India

In recent years, the retirement age in India has been changed for certain categories of employed professionals. The central government has increased the retirement age of some of its employees to address the shortage of skilled manpower and to retain experienced professionals. For example, in 2019, the retirement age of doctors working under the central health services was increased from 62 to 65 years. Similarly, in 2020, the retirement age of central armed police forces personnel was increased from 60 to 65 years.

High Court Judge Retirement Age in India

The retirement age of high court judges in India is determined by the Constitution of India. According to Article 217 of the Constitution, the retirement age of high court judges is 62 years. However, a high court judge can be appointed as a Supreme Court judge, in which case the retirement age is 65 years, per Article 124 of the Constitution.

Retirement age in India for Central Government employees

The Central Civil Services (Pension) Rules, 1972, fixed the retirement age in India for central government employees. According to these rules, the retirement age of central government employees is 60 years unless otherwise specified. However, there are some exceptions to this rule, such as:

The retirement age for professors, principals, and directors of academic institutions under the central government is 65 years, per the University Grants Commission Regulations, 2018.
The retirement age for scientists and technical officers of the Defence Research and Development Organisation (DRDO) is 60 years, with an option to extend up to 64 years, as per the DRDO Recruitment Rules for Scientist B (Direct Recruitment).
The retirement age for chairpersons and members of statutory and regulatory bodies under the central government is 70 years, per the Department of Personnel and Training Guidelines on Tenure, Terms, and Conditions of Appointment of Chairpersons/Members of Regulatory Bodies and Tribunals.

Employees’ retirement age in India for the private sector

The retirement age in India for private sector employees is not fixed by law. Still, it depends on the contract of employment, the policies of the employer, and the mutual agreement between the employer and the employee. Generally, private sector employees’ retirement age in India is 58 or 60 years. Still, it can vary from 55 to 65 years, depending on the industry, the nature of work, and the performance of the employee.

Army Retirement Age in India

The retirement age in India for army personnel depends on the rank, the service, and the option of the individual. The retirement age in India for army personnel ranges from 35 to 60 years, with some exceptions. For example, the retirement age for:

Sepoys, naiks, havildars, and equivalent ranks is 35 years or 17 years of service, whichever is earlier, as per the Indian Army website.
Junior commissioned officers (JCOs) and equivalent ranks are 48 years or 28 years of service, whichever is earlier, as per the Indian Army website.
Commissioned officers (COs) and equivalent ranks are 54 years or 30 years of service, whichever is earlier, per the Indian Army website.
Army Medical Corps officers’ retirement age is 60 or 31 years of service, whichever is earlier, per the Indian Army website.
Army dental corps officers’ retirement age is 60 or 30 years of service, whichever is earlier, per the Indian Army website.

Police Retirement Age in India

The retirement age in India for police personnel depends on the state, the rank, and the service. The retirement age in India for police personnel ranges from 55 to 62 years, with some exceptions. For example, the retirement age for:

Constables, head constables, assistant sub-inspectors, sub-inspectors, and inspectors are 55 or 60 years old, depending on the state, as per the Police Reforms Bill Summary by PRS Legislative Research.
Deputy superintendents of police, assistant commissioners of police, and equivalent ranks are 58 or 60 years, depending on the state, as per the Police Reforms Bill Summary by PRS Legislative Research.
Superintendents of police, deputy commissioners of police, and equivalent ranks is 60 years, as per the Police Reforms Bill Summary by PRS Legislative Research.
Additional directors general of police, directors general of police, and equivalent ranks is 62 years, per the Police Reforms Bill Summary by PRS Legislative Research.

Will the retirement age be increased to 62?

There have been some speculations and rumors that the central government may increase the retirement age of central government employees from 60 to 62 years. However, there has been no official confirmation or announcement from the government. The government has clarified that there is no proposal to change the retirement age of central government employees. Therefore, the retirement age of central government employees remains 60 years unless otherwise specified.

Conclusion

Retirement age in India is a complex and dynamic topic, as it varies depending on the type of employment, sector, and state. Retirement age in India is influenced by various factors, such as the availability of skilled manpower, the demand for experienced professionals, the financial implications, and the social and economic conditions. Retirement age in India may change in the future, as the government and employers may revise their policies and practices to suit the changing needs and expectations of the workforce and society.

Know more about: MEDI ASSIST HEALTHCARE IPO

What is the retirement age in India?
The retirement age in India varies depending on the type of employment, sector, and state. Generally, it ranges from 55 to 65 years, with some exceptions. For more information, please read our blog on Retirement Age In India.
What is the right age for retirement?
The right age for retirement depends on various factors, such as your lifestyle goals, financial capability, health condition, and personal preference. Some people may want to retire early, while others may want to work longer. However, there are some general guidelines that can help you decide the right age for retirement, such as planning based on your expected life span, considering the impact of inflation, taxes, and health care costs, assessing your current and future sources of income and expenses, and evaluating your personal and professional satisfaction and goals. For more tips, please read our blog on How to Choose the Right Age for Retirement.
Can I retire at 62 if I am 58?
Yes, you can retire at 62 if you are 58, provided that you have enough savings and income to support yourself and your dependents after retirement. However, there are some pros and cons of retiring at 62 that you should be aware of. Some of the pros are that you can enjoy more free time and flexibility, avoid the stress and pressure of work, and take advantage of the early retirement benefits offered by some employers. Some of the cons are that you may receive lower Social Security benefits, face higher health care costs, and outlive your savings. Therefore, before you decide to retire at 62, you should weigh the pros and cons carefully and consult a financial planner or advisor. For more details, please read our blog on The Pros and Cons of Retiring at 62.

December 22, 2023

Retirement

Want to Retire at 45? Here are 7 Steps to Make it Happen

Dreaming of long vacations, relaxed mornings, and doing all those things you always wanted to do? Early retirement might sound like a distant dream, but guess what? It’s closer than you think. There’s no magic involved. All it takes is smart planning, disciplined savings, investments, and healthy living.

Can India Bridge the Retirement Investment Gap?

The retirement-age population in India is expected to rise by 41% by 2031; however, only 32% have opted for retirement-catered solutions. According to a study by ICICI Prudential Life Insurance study titled ‘Is India prepared for retirement:

65% want annuity products, but only 11% actively saving.
Maintaining a current lifestyle in retirement is a top priority for 83%.
Bright spot: A new generation starts planning early at 40, saving 17% of income.
Retirement goals include travel, staying connected, and financial security.

What does retiring early mean?

It doesn’t mean you stop working. It means your savings have reached such a stage that you can live through the returns you generate. That is true financial independence. It means your investments generate enough returns to live your life and meet your wants and needs, so you do not have to work for money.

1. Figure Out Your Retirement Number

Before diving into investment strategies, figure out the amount you need to live comfortably post-retirement. Consider your current expenses, inflation, healthcare costs, and desired lifestyle. A simple rule of thumb suggests 70-80% of your pre-retirement income.

If you plan to retire at 45 and are currently 30, you have 15 years to build up a fund that will cover your living expenses for 30-35 years after your early retirement. To make this possible, you’ll need to save an amount that is 30 times your annual expenditure. The question is, how can you achieve this?

Once you reach 30, you should aim to save almost 70 percent of your total earnings every year. It means you must save more than twice the amount you spend annually. By following this approach, you can save for two years with every passing year while keeping a 10 percent margin for inflation, contingencies, and other uncertainties.

So, if your annual expense is ₹10 lakh. Then you must be earning ₹32 lakh (after tax) so that you can 70 percent of it to be able to save ₹22 lakh, which is nearly 10 percent more than the two-year expenses:

(10X2) + (10% X 20) = 20 + 2 = ₹22 lakh.

The remaining 30 percent of 32 lakh is ₹9.6 lakh or nearly ₹10 lakh — which you can spend.

If you maintain the current saving rate over the next 15 years, you can create a portfolio that will last more than double the number of years you saved, which is 30 years. As you progress in your career, your income will likely increase, and you can save faster than before. This additional income can be used to cover unexpected expenses.

Retirement at 45 may sound a little surprising, but it is possible to do so. Remember, it is a slow process that can’t be achieved overnight. It needs planning.

2. Start Saving Early, Watch it Grow

The earlier you start, the easier it gets. Compound interest works wonders over time. Save at least 15-20% of your income monthly. Diversify your savings across multiple instruments like PPF, EPF, NPS, mutual funds, and stocks. Utilize platforms like SIPs (Systematic Investment Plans) for disciplined investing. You can also use our SIP calculator for more details.

Now, saving Rs. 10,000 per month through SIPs in diversified equity funds with an 8% average return could potentially reach Rs. 2.4 crore in 30 years. If you intend to live a retired life for 30 years, saving 70% of your income for at least 15 years is recommended. This will ensure you have sufficient funds to cover your expenses in the long run. The remaining 30% of your income can cover your current expenses. Remember, this is just an estimate, and actual returns may vary.

3. Debt Free = Stress Free

High-interest loans can eat up your retirement savings. So, focus on clearing debts before putting too much into investments. Try to explore ways to combine loans or get lower interest rates. Remember, a stress-free mind is vital to a happy retirement.

4. Add To Your Skills and Look for a Side Income

Multiple income sources are like a safety net and can boost your retirement savings. Explore your skills and find a side business you enjoy – freelancing, online businesses, consulting, or even teaching. Every bit adds up and provides financial security. Remember, a side hustle is not your chief source of income.

5. Create a Realistic Budget and Stick to it

Track where your money goes, spot extra expenses, and cut back on unnecessary, fancy stuff. Every rupee saved today brings you closer to your retirement goals. Remember, a budget can help you reach your goals faster.

6. Seek Professional Guidance

A qualified financial advisor can help you build a personalized retirement plan based on your risk appetite and goals. Their expertise can save you time and money in the long run.

7. Don’t Forget Healthcare

Healthcare costs in India are rising faster than inflation. Studies show they’ve increased by around 15% annually in recent years. That means a treatment costing Rs. 10,000 today could cost Rs. 26,533 in just 10 years! According to a Max Bupa Health Insurance survey, 75% of senior citizens in India spend over Rs. 15,000 annually on Healthcare. Remember, investing in a good health insurance plan early on is a wise thing to do.

Think of retirement planning as a lifelong journey. Stay healthy and active—it’s good for you and saves money on Healthcare later. Enjoy the process, adjust plans as needed, and get advice from financial experts. That way, you can retire confidently and enjoy the freedom it brings.

After creating a substantial fortune in 15 years, you can start withdrawing 3 percent of it each year, while the remaining portion of the fund can be kept invested. It will allow the fund to grow exponentially over the next 30 years, ensuring that the fund never runs out of money during its lifetime.

August 25, 2023

Retirement

14 Best Places To Live After Retirement In India

Retirement marks a significant transition in life. Starting from working hard to build a life and choosing to leave work life behind permanently, It is time to reap the rewards of hardship and dedication. While some retired people set sail on voyages worldwide, others look forward to spending their time in relaxation and comfort.

While retirement in India offers the option of a shift of pace and opportunities in terms of infrastructure, healthcare facilities, and good connectivity, you must be practical and thoughtful about the shifting times. Around the world, rising inflation, economic instability, and the loss of money value increase the cost of living.

List of the Best Places to Live After Retirement in India

Goa

Known for its stunning beaches, vibrant culture, and laid-back lifestyle, Goa has become a magnet for retirees seeking a peaceful existence. The demand for real estate is increasing rapidly, and investing at the right time can help you plan your future. The attractive destination offers clean air, facilities of all kinds, transportation, and a network. The weather also does not turn cold, and many activities can be explored.

Cost of Living: Moderate to high
Monthly Rent: Approximately 20K for a 3BHK
Air Quality: Good
Climate: Tropical and sunny as it is close to water bodies
Public Transport System: Transportation in South & North Goa is mostly via taxis, which can be expensive. However, scooters on rent are easily available
Medical Facilities: Goa has good hospitals with modern facilities, internationally qualified doctors, and trained staff.

Pune

Another place for retirement in India is Pune, where traditions meet modernity. Known as the “Oxford of the East,” Pune balances traditional charm and modern amenities. The city is known for its affordability, amenities, and robust educational and healthcare facilities. Pune holds a historic charm of its own. Easy travel and pleasant weather are add-ons.

Cost of Living: Moderate to high (for a family)
Monthly Rent: Approximately 20-40K for a 3BHK
Air Quality: Moderate
Climate: Summers can be extremely hot. Winters are pleasant
Public Transport System: Buses and autos are available for moving in and around Pune
Medical Facilities: More than 550 medical centers. Pune is emerging as a top city in the healthcare sector

Coimbatore

Nestled in Tamil Nadu, Coimbatore is gaining popularity as a retirement destination. The city offers a peaceful atmosphere and a comfortable lifestyle. The cost of living is also not too high compared to other major cities. Coimbatore is growing at an unprecedented pace and already has a pleasant climate, access to quality healthcare, and well-developed infrastructure, making it an excellent choice for retirees seeking a peaceful yet dynamic setting.

Cost of Living: Low to moderate
Monthly Rent: Approximately 20K for a 3BHK
Air Quality: Good
Climate: Summers are dry and humid. Usually hot all year round.
Public Transport System: Buses are available at a good frequency, for in and around Coimbatore and even out-station
Medical Facilities: Coimbatore is known for good healthcare facilities and experienced doctors

Dehradun

Dehradun is next on our list of places to live after Retirement in India. Stepping into the foothills of the Himalayas, Dehradun offers a tranquil environment and pleasant weather. The city provides good healthcare facilities, a low crime rate, and a range of outdoor activities, making it ideal for retirees who enjoy a slower pace of life. It is a well-connected transportation network that ensures easy access to essential services. There are many other places that you can also consider.

Cost of Living: Moderate
Monthly Rent: Approximately 25-30K for a 3BHK
Air Quality: Good
Climate: Summers are pleasant, and winters get colder towards December-January
Public Transport System: Buses and auto rickshaws are available for traveling within Dehradun
Medical Facilities: Dehradun has many reputed hospitals and a good healthcare set-up

Chandigarh

Located in the heart of north India, the small towns of Punjab and the upcoming cities like Panchkula, Mohali, and Chandigarh are growing rapidly. A green city with lush houses and spacious buildings has been the ideal target for many retirement homes. Not to forget the proximity of the Himalayan range. Also known as the first planned city of India, it is growing rapidly. According to reports, Chandigarh has, in recent years, opened its doors to many investors and buyers. The city is easily accessible by public transport, train, air, or private vehicles.

Cost of Living: Moderate to high (for a family)
Monthly Rent: Approximately 25-30K for a 2BHK
Air Quality: Good
Climate: Summers are pleasant, and winters get colder towards December-January
Public Transport System: All places are easily accessible via auto-rickshaws
Medical Facilities: Good medical facilities

Pondicherry

Pondicherry, also known as Puducherry, is a charming coastal city known for its French colonial architecture, serene beaches, and spiritual atmosphere. Retirees can enjoy a laid-back lifestyle amidst tranquil surroundings, with opportunities for leisurely walks along the promenade and yoga and meditation retreats. The city’s vibrant cultural scene, with its blend of Indian and French influences, offers retirees ample opportunities to engage in cultural activities, art exhibitions, and culinary experiences.

Monthly Rent: Approximately INR 15,000 for a 2BHK apartment

Cost of Living: Moderate

Air Quality: Good
Climate: Tropical climate with moderate temperatures year-round
Public Transport System: Well-connected by buses and auto-rickshaws
Medical Facilities: Good healthcare facilities with hospitals and clinics offering modern services.

Kasauli

Nestled in the Himalayan foothills, Kasauli is a picturesque hill station known for its lush greenery, colonial charm, and panoramic views of the surrounding mountains. Retirees can enjoy a peaceful and tranquil environment, with opportunities for nature walks, birdwatching, and exploring the town’s quaint cafes and markets. The city’s serene ambiance and clean air make it an ideal retreat for retirees looking to escape the hustle and bustle of city life and reconnect with nature.

Cost of Living: Moderate
Monthly Rent: Approximately INR 20,000 for a 2BHK cottage
Air Quality: Excellent
Climate: Pleasant climate with cool summers and mild winters
Public Transport System: Limited public transport, but easily accessible by private vehicles
Medical Facilities: Basic medical facilities are available, with larger hospitals in nearby towns

Delhi

Delhi, the capital city of India, offers retirees a mix of culture, history, and modern amenities. With its vibrant markets, historical landmarks, and diverse culinary scene, retirees can immerse themselves in the rich tapestry of Delhi’s heritage while enjoying the comforts of urban living. The city’s well-connected transport system and world-class healthcare facilities ensure that retirees can access all necessary amenities and services. This makes it a popular choice for those seeking a dynamic and cosmopolitan lifestyle in their retirement years.

Cost of Living: Moderate to high
Monthly Rent: Approximately INR 25,000 for a 2BHK apartment
Air Quality: Varied, with pollution levels higher in certain areas
Climate: Hot summers and cold winters
Public Transport System: Well-developed metro rail network, buses, and auto-rickshaws
Medical Facilities: Excellent healthcare facilities with top hospitals offering advanced treatments.

Bengaluru

Bengaluru, often called the Silicon Valley of India, is a vibrant metropolis known for its pleasant climate, green spaces, and cosmopolitan culture. Retirees can enjoy a blend of modern amenities and cultural experiences, with opportunities for leisure activities, cultural events, and wellness retreats. The city’s thriving tech industry and bustling startup scene create a dynamic and vibrant atmosphere, attracting retirees looking to stay intellectually engaged and socially active in their retirement years.

Cost of Living: Moderate to high
Monthly Rent: Approximately INR 22,000 for a 2BHK apartment
Air Quality: Moderate
Climate: Pleasant climate with mild temperatures year-round
Public Transport System: Well-connected by buses, metro rail, and auto-rickshaws
Medical Facilities: Excellent healthcare facilities with renowned hospitals and medical institutions

Ahmedabad

Ahmedabad, the largest city in Gujarat, offers retirees a mix of cultural heritage, culinary delights, and modern infrastructure. With its rich history, vibrant markets, and friendly locals, retirees can immerse themselves in the colorful tapestry of Gujarati culture while enjoying a comfortable and affordable lifestyle. The city’s well-preserved historical landmarks, such as the Sabarmati Ashram and Sidi Sayyed Mosque, offer retirees opportunities to explore and appreciate the city’s cultural heritage.

Cost of Living: Moderate
Monthly Rent: Approximately INR 18,000 for a 2BHK apartment
Air Quality: Moderate
Climate: Hot summers and mild winters
Public Transport System: Well-connected by buses and auto-rickshaws
Medical Facilities: Good healthcare facilities with hospitals offering quality medical services

Bhubaneshwar

Bhubaneshwar, the capital city of Odisha, is known for its ancient temples, serene lakes, and green spaces. Retirees can enjoy a peaceful and relaxed lifestyle amidst the city’s cultural heritage, with opportunities for leisurely walks in parks, visits to temples, and cultural festivals. The city’s well-maintained parks and gardens, such as the Ekamra Kanan and Biju Patnaik Park, offer retirees serene spots to unwind and connect with nature.

Cost of Living: Moderate
Monthly Rent: Approximately INR 16,000 for a 2BHK apartment
Air Quality: Good
Climate: Tropical climate with hot summers and mild winters
Public Transport System: Well-connected by buses and auto-rickshaws
Medical Facilities: Good healthcare facilities with hospitals offering modern services.

Dharamshala

Dharamshala, nestled in the lap of the Dhauladhar mountains, is a peaceful hill station known for its Tibetan culture, monasteries, and scenic beauty. Retirees can enjoy a tranquil environment, with opportunities for meditation, yoga, and trekking amidst nature’s splendor. The city’s vibrant Tibetan community and bustling markets offer retirees a unique cultural experience, with opportunities to learn about Tibetan art, cuisine, and traditions.

Cost of Living: Moderate
Monthly Rent: Approximately INR 20,000 for a 2BHK apartment
Air Quality: Good
Climate: Pleasant climate with cool summers and cold winters
Public Transport System: Limited public transport, but easily accessible by private vehicles
Medical Facilities: Basic medical facilities are available, with larger hospitals in nearby towns

Jaipur

Jaipur, the Pink City of India, is a vibrant and colorful city known for its majestic forts, palaces, and rich cultural heritage. Retirees can immerse themselves in the city’s royal charm, with opportunities for heritage walks, shopping in bustling markets, and indulging in traditional Rajasthani cuisine. The city’s well-preserved historical landmarks, such as the Amber Fort and City Palace, offer retirees opportunities to explore and appreciate the city’s rich history and architectural heritage.

Cost of Living: Moderate
Monthly Rent: Approximately INR 20,000 for a 2BHK apartment
Air Quality: Moderate
Climate: Hot summers and mild winters
Public Transport System: Well-connected by buses, auto-rickshaws, and cycle rickshaws
Medical Facilities: Good healthcare facilities with hospitals offering quality medical services

Mysore

Mysore, the cultural capital of Karnataka, is known for its grand palaces, vibrant festivals, and rich cultural heritage. Retirees can enjoy a peaceful and relaxed lifestyle amidst the city’s serene surroundings, with opportunities for yoga, meditation, and cultural performances. The city’s well-maintained parks and gardens, such as the Brindavan Gardens and Karanji Lake, offer retirees tranquil spots to unwind and connect with nature.

Cost of Living: Moderate
Monthly Rent: Approximately INR 18,000 for a 2BHK apartment
Air Quality: Good
Climate: Pleasant climate with moderate temperatures year-round
Public Transport System: Well-connected by buses and auto-rickshaws
Medical Facilities: Good healthcare facilities with hospitals offering modern services.

Rishikesh

Rishikesh, nestled on the banks of the Ganges River, is a spiritual hub known for its yoga ashrams, meditation centres, and adventure sports. Retirees can enjoy a serene and spiritual lifestyle amidst the city’s tranquil surroundings, with opportunities for yoga, meditation, and exploring the Himalayan foothills. The city’s vibrant spiritual community and serene natural beauty offer retirees a peaceful and enriching environment in which to spend their golden years.

Cost of Living: Moderate
Monthly Rent: Approximately INR 15,000 for a 2BHK apartment
Air Quality: Good
Climate: Pleasant climate with cool summers and mild winters
Public Transport System: Limited public transport, but easily accessible by private vehicles
Medical Facilities: Basic medical facilities are available, with larger hospitals in nearby towns.

In conclusion, India offers a diverse range of cities for retirees, each with unique charm, cultural heritage, and lifestyle amenities. Whether you prefer the tranquillity of a hill station, the vibrancy of a metropolitan city, or the spiritual ambiance of a pilgrimage town, there’s a perfect city for every retiree to call home.

Some key factors to consider while evaluating retirement destinations:

Cost of Living: Choosing your place and spending habits define your expenses. The lower the cost of living, the more you save on your retirement savings. Expenses in this category include groceries, housing, healthcare, entertainment, and transportation. Based on your monthly expenses, this needs to be factored in.
Healthcare Facilities: Easy access to healthcare facilities should be one of your top factors. Having healthcare facilities nearby is essential. Retirement can also bring unforeseen health changes, and there should be no compromise on healthcare systems and doctors.
Air Quality and Climate: Would you choose to live in a bustling and fast-paced metropolis or a quiet, cold place? Consider a climate that suits your preferences and helps maintain peace of mind.
Infrastructure: Most of the cities in India are now growing as smart cities. But keep in mind the basic amenities like water, electricity, modes of transportation, and much more. Access to these basic requirements gives you less stress and a more leisurely lifestyle. Always remember that this can also burn a hole in your pocket. Public transportation and connectivity are also needed.
Safety: There has been an increase in crime rates, as cited in reports. Consider the average crime rate and opt for a place with effective police. This experience helps ensure a stress-free and secure retirement.
Social Life and Recreational Activities: After retirement, everyone has a way of keeping themselves occupied. Some would be interested in cultural beliefs, while others might enjoy an active community. This decision helps you decide your lifestyle.

If you plan your retirement in India, you can look forward to relaxing, traveling, pursuing hobbies, experiencing new adventures, and much more. But to strike a healthy balance between affordability and quality of life, it is important to weigh factors related to finances and your requirements.

FAQ

What factors should someone consider when choosing the best place to live after retirement in India based on finances?
When considering places to live after retirement in India, you should factor in the cost of living, healthcare facilities, proximity to amenities, safety, climate, and access to social activities.
Are there any states in India that provide specific benefits for retirees?
Yes, states like Kerala and Goa are known for their retiree-friendly environments. Kerala offers quality healthcare services, a pleasant climate, and a relaxed lifestyle. Goa is known for its beautiful beaches and vibrant expat community.
How do I assess the cost of living in different cities for retirement?
Research the average housing, groceries, transportation, healthcare, and entertainment costs in your chosen cities. Online cost-of-living calculators can also help you make informed comparisons.

June 28, 2023

Retirement

4 Best Ways To Use Your Retirement Accounts For Long-Term Investing

Introduction

You deserve to enjoy your retirement when you work hard all your life. But how can you ensure you have enough money to live comfortably and pursue your passions? The answer lies in the use of retirement accounts for long-term investing.

Long-term investing is putting your money into assets that can grow in value over time and provide you with income and security in the future. Long-term investing can help you achieve your retirement goals, whether you want to travel the world, start a new hobby, or leave a legacy for your loved ones.

In this article, you will learn how to make use of retirement accounts for long-term investing and how to apply it to your retirement planning. You will also discover some of the best long-term investment options for your retirement account and how to avoid common risks and challenges. By the end of this article, you will have a solid foundation of knowledge and skills to start your long-term investment journey for retirement.

Why is Retirement Planning so important?

Retirement planning entails more than just putting money aside for the future. It is also about imagining what your life will be like after you stop working. Retirement planning is essential because it allows you to align your actions with your goals. If you don’t choose suitable investment vehicles to withstand the impact of rising inflation, you’ll be left with nothing after inflation devours the majority of your corpus.

Knowing how to use retirement accounts for long-term investing empowers you set realistic and achievable goals that will make you happy and fulfilled. What makes it indispensable is that it helps you secure your future and live your dreams.

But the fact remains that only a small percentage of Indians know how to use retirement accounts for long-term investing. According to a survey conducted by PGIM India Mutual Fund and Nielsen, more than 51% of Indians polled had made no retirement plans at all.

Another Statista survey found that only 28% of Indian workers have a written retirement savings strategy. According to these statistics, while Indians are willing to fund their retirement accounts with extra money, they are less likely to do so by sacrificing current expenses. This may cause financial stress and anxiety later in life.

Learn the Use of Retirement Accounts for Long-Term Investing for your best retirement planning.

Retirement accounts are specialized investment accounts that allow you to save money for retirement. You can save taxes, preserve capital, and increase your returns over time if you know the use of retirement accounts for long-term investing.

Considering the use of retirement accounts for long-term investing discourages you from withdrawing your money too soon, either by imposing penalties for early withdrawals, restrictions, or a lock-in period. As a result, you will be more disciplined and focused on your long-term goals.

4 Best Long-Term Investment Options for Your Retirement Account

Now that we’ve established why retirement planning is so important, let’s dig deeper into the four long-term investment options to consider-

Equity-Linked Saving Scheme (ELSS)

ELSS is one of the trending use of retirement accounts for long-term investing. This is a type of mutual fund in which at least 80% of the assets are invested in equity and equity-related instruments. ELSS funds can provide higher returns than other fixed-income investments, but they also carry an additional degree of risk and volatility.

Key Information: ELSS
Interest Rate/Returns	Returns are not fixed but depend on market conditions.
Tenure	Min. 3 years
Min. and Max. investment	Min: Rs.500/- Max: No upper cap
Risk	High risk (as returns are market linked)
Premature Withdrawal	Allowed only after 3 years (much lower than other tax-saving long-term schemes)
Tax Benefits	-Upto Rs. 1.5 lacs of the investment under Sec 80C -Dividends and Capital Gains are tax-exempted.

Public Provident Fund (PPF)

One of the most tax-efficient options for the use of retirement accounts for long-term investing is PPF. This is a government-backed fixed-income scheme that provides tax-free returns.

Key Information: PPF
Interest Rate	7.1% p.a (for Q1 FY 23-24)
Tenure	15 years (can be extended for an additional 5 years with or without additional contributions)
Min. and Max. investment	Min: Rs. 500/- p.a Max: Rs. 1.50 Lacs
Risk	Guaranteed, risk-free returns
Tax Benefits	Under Sec 80 C: Upto Rs. 1.50 lacs p.a Under Exempt-Exempt-Exempt category: Maturity Tax-free
Partial Withdrawal	From the 7th year onwards
Interest Rate	7.1% p.a (for Q1 FY 23-24)

National Pension Scheme (NPS)

NPS is another catching on use of retirement accounts for long-term investing. This voluntary pension plan allows you to invest in a blend of equity and debt funds. Although NPS can help you widen your portfolio and generate market-linked returns, it has a more extended lock-in period and lower liquidity than other options.

Key Information: NPS	Tier-I		Tier-I
Interest Rate/Returns	Asset	Returns (5 yr)	Asset	Returns (5 Yr)
	Equity	10.45%- 10.86%	Equity	10.35%- 10.58%
	Corporate Bonds	10.05%- 10.64%	Corporate Bonds	9.86% - 10.60%
	Govt. Bonds	9.57%- 10.05%	Govt. Bonds	9.59% - 10.07%
Tenure	NPS does not have a fixed tenure, but you can continue or defer your NPS account up to the age of 75 years.
Min. and Max. investment	Min: Rs. 500- Rs. 1000 p.a Max: No upper limit		Min. and Max. investment
Premature Withdrawal	Withdrawals are restricted (only partial withdrawals are allowed before 60 yrs age)		Premature Withdrawal
Risk	High Risk (returns are market linked)
Tax Benefits	Under section 80 C- Upto 1.5 Lacs Under Sec 80CCD (1B)- Additional tax benefit up to Rs. 50,000/-		Tax Benefits

National Savings Certificate (NSC)

NSC is the next most frequently mentioned use of retirement accounts for long-term investing. This is a government-backed fixed-income scheme that offers guaranteed returns.

Key Information: NSC
Interest Rate	7.7% p.a (compounded annually)
Tenure	5 years
Risk	No risk, guaranteed returns
Min. and Max. investment	Min: Rs. 1000/- (thereafter in multiples of Rs.100/-) Max: No upper limit
PPrematureWithdrawal	Not Permitted
Tax Benefits	Upto Rs. 1.5 lacs under Sec 80 C

Avoiding Common Risks and Challenges of Long-Term Investing for Retirement

Long-term investing for retirement can be rewarding but also risky. You need to balance your potential returns with the possibility of losing money due to market volatility, inflation, taxes, and other factors. To avoid common risks and challenges of long-term investing for retirement, you should follow some basic principles:

Portfolio Diversification

Diversify your portfolio across different asset classes, such as stocks, bonds, cash, and real estate. This way, you can reduce the impact of a single market downturn on your overall wealth.

Focus on Asset Conservation

Invest in low-risk and less volatile investments that provide steady returns, such as fixed-interest Bonds, ETFs, Index Funds, liquid mutual funds, Post-Office Monthly Interest Schemes (POMIS), and annuities. These can help you preserve your capital and generate recurring income for your living expenses.

Invest in Tax-Advantaged Schemes

Take advantage of tax-saving retirement accounts, such as Public Provident Fund, tax-saving mutual funds, and National Savings Certificate (NSC). These can help you save more for retirement and defer taxes on your earnings until you withdraw them.

Portfolio Re-balancing

Keep an eye on your portfolio and adjust it whenever necessary. Adjust your asset allocation according to your age and risk tolerance. As you get closer to retirement, you may want to shift more of your portfolio to less risky investments that can protect your principal and provide a reliable income stream.

Control Your Emotional Impulses

Long-term investing requires patience, discipline, and a clear vision of your financial goals. But sometimes, emotions can cloud your judgment and make you do things that hurt your returns, such as panic selling, impulse buying, following fads, or overreacting to some market news.

Key Takeaways

Long-term investing is an innovative and effective way to use your retirement account to grow wealth and achieve financial goals. By investing for the long term, you can benefit from compound interest, diversification, tax advantages, and more. You can also choose from various investment options that suit your risk tolerance, time horizon, and preferences.

However, long-term investing also comes with its own sweet and sour challenges and risks that you must be aware of and avoid. You must have a clear plan, a realistic budget, and a disciplined mindset.

You also need to monitor and adjust your strategy as your situation changes. By following the tips and advice on how to use retirement accounts for long-term investing, you can turn your retirement account into a powerful tool o reach your financial dreams. Don’t wait any longer. Start your long-term investment journey for retirement today.

FAQs

How much do I need to save for my retirement planning?

This question has no one-size-fits-all answer because it depends on various factors, such as your current income, expenses, lifestyle, life expectancy, inflation, and expected returns. However, some general guidelines to make the best use of Retirement Accounts for Long-Term Investing-

● Save at least 10% to 15% of your annual income for retirement
● Use the 4% rule to calculate how much money you can withdraw from your savings each year without running out. According to the 4% rule, you can withdraw 4% of your invested value in the first year of retirement and then adjust the amount for inflation in the next years.

When should I start thinking about retirement planning?

Retirement planning has no age limit. Start anytime you want. However, the earlier you begin, the better. Starting early allows you to benefit from the power of compounding, which means earning interest on your interest. It can also encourage you to save more and invest more aggressively because you will have more time to recover from market slumps.

March 22, 2023

Retirement

Best 4 Ways To Inflation-Proof Investing For Retirement

Lingering cross-border tensions, high oil and commodity prices, sustained supply chain disruptions, heightened market volatility, and fears of a COVID-19-like pandemic pose an upside risk to inflation and a downside risk to your retirement nest egg. However, for people with a fixed income post-retirement, making inflation-proof investing for retirement looks inevitable.

If you, like millions of others, are working hard to build a retirement portfolio to ensure that money is available when you need it, this article is for you. Unfortunately, most of us make the same mistake regarding retirement planning: we underestimate inflation. We ignore that sober-looking monster slowly devouring your savings before you can use them.

This article will walk you through four ways of inflation-proof investing for retirement. Before we jump on to the ideas to offset the effect of inflation, let us discuss in brief what are the essentials of effective retirement planning.

Plan For Retirement Effectively

Every job has an end date, whether by law, personal choice, or medical necessity, and your regular pay cheques will stop one day. However, just because you’ve retired doesn’t mean you must abandon the lifestyle or habits you’ve developed. With proper retirement planning, you can create an action plan that includes the right mix of investments to ensure a lifetime of happiness.

Before you start crunching numbers on your retirement goals, start planning for inflation-proof investing for retirement by determining your financial goals and the time horizons you have to achieve them, assessing risk tolerance, etc. Saving is not enough in this case; you must also choose the suitable investment vehicles and take advantage of the power of compounding to boost your money to be future-ready.

You can make inflation-proof investing for retirement by following the well-established 4% rule. This rule allows you to withdraw 4% of your accumulated retirement corpus in the first year. Further annual withdrawals could be inflation-adjusted to provide a consistent and secure income stream. Let’s look at an example to see how this works.

Say you have saved Rs. 1 Crore as your retirement corpus. Then in the first year, you may withdraw Rs. 4 lacs. Let us assume the inflation rate is 6%, and subsequent withdrawals from the second year onwards would be Rs. 4,24,000/- (Rs. 400000 * 1.06). If the inflation has decreased by 6%, then you can withdraw less than the previous year i.e. Rs. 3,84,000/-(Rs. 400000*0.94).

So, the tried-and-true strategy for building inflation-proof investing for retirement is to diversify your portfolio across asset classes, from equity to debt. Continue to rebalance your portfolio in response to rising age and inflation trends to make it more resilient to market volatility. As you get older and your risk tolerance decreases, shift your investment focus from capital appreciation to capital conservation, i.e. from equity to safe havens like bonds.

4 Ways of Inflation-proof Investing For Retirement

According to the Ministry of Statistics and Programme Implementation, the average inflation rate has remained between 5 and 6% over the last nine years; it peaked at 12.2% in 2013 and fell to 1.5% in 2017. So, when it comes to retirement savings, you suddenly find that all that you save over the years through financial discipline starts to get eroded with inflation. How do you invest in things that will appreciate at a rate that matches inflation?

Let us explore some simple yet effective ways to inflation-proof investing for retirement-

1. Start Investing in Equity Market

When inflation unexpectedly rises, your equity portfolio may frequently move up or down in the short term. However, investments in fundamentally sound companies with strong cash flows have outperformed inflation over long periods. If you consider the long-term equity market returns and try to juxtapose this with inflation considering a long-term horizon, you will find your wealth compound.

For inflation-proof investing for retirement, you can invest in mutual funds/stocks in which the fund allocation is in sectors such as Gold, Commodities, Oil and gas, healthcare, consumer staples, etc, that are largely resistant to inflation or are beneficiaries of inflation.

2. Invest in Indexed Inflation Bonds

Inflation Indexed Bonds (IIB) were introduced by the Reserve Bank of India in 2013-14 to hedge the Indian retail investors against market volatility causing fluctuations in inflation. IIBs were based on wholesale Price Index (WPI) movements. Consider the table below to understand how these inflation-indexed bonds designed to keep pace with inflation outperform regular coupon bonds during inflationary periods-

3. Avoid hoarding too much cash

Having an emergency fund of three to six months’ expenses is life-saving. Still, it can injure your retirement plans if inflationary pressures are high, as inflation and savings do not work well together. Your cash holding starts losing its purchasing power and intrinsic value as inflation rises.

So, in inflation-proof investing for retirement, avoid holding excess cash. Instead, consider it an investment opportunity to start putting the cash to use. Take advantage of the market touching correction territories and accumulate harder assets and fundamentally strong companies that tend to outperform inflationary periods.

4. Rethink Your Expenses

Finally, one of the most common pieces of retirement planning advice is to optimize your savings and cut unnecessary expenses. This may be the easiest to follow, but it frequently requires the most coaching. Dig through your expenses to find the most valuable and fulfilling ones while cutting the rest.

For inflation-proof investing for retirement, invest time in budgeting and curtail avoidable expenses that do not align with your core values. Begin living a minimalist lifestyle that you can comfortably maintain even after retirement. Reducing your expenses is the best way to combat inflation. A few lifestyle changes make a huge difference, like timely paying off your debts and other liabilities to be liability-free post-retirement, travelling in the off-season, avoiding overpriced luxury products, and doing detailed market surveys before buying any product.

Key Takeaways

Since the average longevity increased by 0.33% from 2022 to 70.42 in 2023, inflation-proof investing for retirement planning has become pivotal. With inflation exceeding RBI expectations and reaching new highs, fears are growing that inflation will devastate your retirement corpus, which has been built up over years of financial hardship and discipline.

So, to realize your dreams of spending your retirement years luxuriously, you must first defeat rising inflation. Your roadmap to inflation-proof investing for retirement relies on how meaningfully you embrace the four ways we have suggested above to protect your retirement stash from inflation.

FAQs

Does inflation beat social security schemes like PPF, Senior Citizen Savings Scheme (SCSS), or Bank’s Fixed Deposit (FD)?

In the long run, social security schemes like PPF or other long-term schemes like SCSS or FD may give you good guaranteed returns, but the deposit yields no or negative real returns. Such schemes are not inflation protected despite giving assured returns.

They fail to give consistent returns when inflation rises. Your corpus may grow, but the purchasing power of the money will be lower. However, if the inflation is below the guaranteed interest, these products may yield a positive real return. The National Pension Scheme (NPS), a long-term social security scheme, can be a good option if started early to build a hefty retirement corpus.

Which sectors are more resilient to rising Consumer Price Index (CPI) inflation, which significantly impacts commodity prices in India?

Some of the sectors that are historically more stubborn to CPI inflation and can potentially improve your yields during inflation include-
●  Real Estate
●  Energy
●  Financial Companies
●  Commodities
●  Health Care
●  Consumer Staples

Which companies should I invest in to beat inflation?

It is empirically proven through past phases of inflation that investing in companies with low capital needs to help you earn higher returns on capital invested. During inflation, companies with low capital needs can earn far better than those requiring more money to maintain their position.

Can investing in gold be part of inflation-proof investing for retirement?

Yes, gold is traditionally considered an inflation hedge because, unlike fiat currencies, it retains its purchasing power for longer periods of rising inflation. Alternatively, long-term investments in productive assets such as stocks, real Estate, or agricultural land, on the other hand, can generate dividends, rental income, and food for their owners.

March 15, 2023

Retirement

Senior Citizen Savings Scheme (SCSS) V/S Senior Citizens Special Fds – Which Is More Beneficial

Senior citizens have several investment options, some government-backed and others private. Senior Citizen Saving Scheme (SCSS) and Senior Citizens Special FDs are two of the most popular choices. Senior citizens want two things from their investments first, decent guaranteed returns, and second, regular income to maintain their lifestyle.

This article will look at the Senior Citizen Savings Scheme (SCSS) and Senior Citizens Special FDs to assess which is best for your investment needs.

Senior Citizen Savings Scheme (SCSS)

The Senior Citizen Savings Scheme (SCSS) is a government-supported investment scheme crafted for senior citizens who can invest a lump sum to earn a regular income to cover their expenses.

Features

Description	Features
Age (Min, Max)	Min age: In case of- General Public: 60 years Superannuation or VRS: 55-60 years Defence Pensioners(excl civilian defence personnel): 50 – 60 years Max age: No upper age limit
Tenure of deposit	5 years, with the option to extend for another 3 years. A maximum of one extension is permitted.
Amount of deposit	Min: Rs. 1000 Max: 30 Lacs (revised limit as per Budget 2023)
Interest Rate	100 basis points above 5 years over government bond yield (From 01/01/23 to 31/03/23 applicable interest – 8%)
Loan Facility	Not available
TDS	As per the applicable tax slab
Can be Availed through	Notified banks and Any Post Office
Premature withdrawal/ Closure	Premature withdrawal/ Closure

The Perks of the Senior Citizen Savings Scheme (SCSS)

Safe and secure investment vehicle
Guaranteed returns
Higher rate of interest
Good source of regular income
Tax exemption u/s 80C available

Drawbacks of the Senior Citizen Savings Scheme (SCSS)

Investor loses the benefit of compounding due to quarterly interest payout. So, this scheme may not benefit those who immediately need regular income for their living expenses.
Interest paid is taxable therefore reduces the net interest earned post taxes
A loan facility is not available under Senior Citizen Savings Scheme (SCSS)
If you don’t close SCSS post maturity, you get an interest of 4%, applicable in the Post Office savings bank account.

Senior Citizens Special FDs

1. SBI We Care FD

The largest nationalized bank launched a senior citizens special FD called “SBI We Care FD”, designed specifically for senior citizens. This product falls under the Retail TD segment and is available as a new deposit or a renewal of maturing deposits with the bank.

Features of Senior Citizens Special FDs Scheme: SBI We Care

Description	Features
Eligibility	Minimum Age: 60 years
Tenure of deposit	Min: 5 years Max: 10 years
Interest Rate	100 bps over rate offered to the public
Loan Facility	Available (Interest of 1% above the relative FD rate)
TDS	As per the applicable tax slab
Can be Availed through	Branch/Internet Banking/YONO
Valid till	31.03.2023
Interest Rate	7.50% (w.e.f 15.02.23)

2. ICICI Bank Golden Years FD

ICICI Bank introduced a special senior citizen FD scheme named “ICICI Bank Golden Years FD” on 20th May 2020 as a tool of income protection by providing additional interest of 30 basis points.

Description	Features
Eligibility	Minimum Age: 60 years Max Deposit: Rs. 2 crore
Tenure of deposit	Min: 5 years 1 day Max: 10 years
Interest Rate	60 bps over rate offered to the public
Loan Facility	Available. Bank, at its discretion, may offer a loan/OD facility at an interest rate of 2% above the contracted rate with a reduction of up to 1% as per the terms and conditions of the Bank.
TDS	As per the applicable tax slab
Can be Availed through	Branch/Internet Banking
Valid till	31.03.2023
Interest Rate	For single deposit Less than Rs. 20mn – 7.50% (w.e.f 24.02.2023) Above Rs. 20mn but less than Rs. 50mn – 6.75% (w.e.f 06.03.2023)
Premature withdrawal/ Closure	On or after 5 years 1 day – 1.10% Before 5 years, 1 day – 1%

3. HDFC Senior Citizens Care FD

The HDFC Senior Citizens Care FD is a senior citizens special FDs scheme launched on 20th April 2020. The private sector giant offers premium interest rates to its senior citizen customers (both on new deposits and renewals), helping them generate regular income to meet the rising costs.

Description	Features
Eligibility	Minimum Age: 60 years Maximum age: 80 years Max Deposit: Rs. 5 crores Minimum amount: Rs. 10,000
Tenure of deposit	Min: 1 year: 10 years
Interest Rate	75 bps over rate offered to the public The Tenor Interest Rate More than 1 year – 2 years – 7.50 % More than 2 years but less than 3 years -7.25% More than 3 years but less than 5 years – 7% 5 years – 7% Between 5 years – 7 years – 7%
Loan Facility	Available
TDS	As per the applicable tax slab
Can be Availed through	Branch/Internet Banking/Phone Banking
Valid till	31.03.2023
Interest Rate	6.50%
Premature withdrawal/ closure	Allowed. A penalty of 1.0% will be levied.

4. IDBI Naman Senior Citizen Deposit

IDBI launched this special senior citizens FDs scheme on April 20, 2022, to alleviate the growing inflation pressure on senior citizens by providing regular income sources.

Description	Features
Eligibility	Minimum Age: 60 years Max Deposit: Rs. 2 crore
Tenure of deposit	Min: 5 years 1 day Max: 10 years
Interest Rate	60 bps over rate offered to published ic
Loan Facility	Available (Interest of 1% above the relative FD rate)
TDS	As per the applicable tax slab
Can be Availed through	Branch/Internet Banking
Valid till	07.04.2023
Interest Rate	For single deposit Less than Rs. 20mn – 7.50% (w.e.f 24.02.2023) Above Rs. 20mn but less than Rs. 50mn – 6.75% (w.e.f 06.03.2023)
Premature withdrawal/ Closure	For single deposit Less thPrematuremn – 7.50% (w.e.f 24.02.2023) Above Rs. 20mn but less than Rs. 50mn – 6.75% (w.e.f 06.03.2023)

Drawbacks and Limitations of Senior Citizens Special FDs

There is no tax exemption available.
Premature withdrawals incur a penalty.
Reinvestment risk exists. As the senior citizens special FDs renew automatically, you may earn lower interest rates upon reinvestment.
Only domestic deposits are eligible.
Inflation risk as the interest rate is lower than the inflation rate.
Lack of flexibility because each scheme has specific requirements you must meet.

Comparison: Senior Citizen Saving Scheme vs Senior Citizens Special FDs

	Senior Citizen Savings Scheme (SCSS)	Senior Citizens Special FDs
Interest rates	25-50 bps higher than FDs	25-50 bps lower than SCSS
Deposit Amount (Min, Max)	Min Investment: Rs. 1000 Max Investment: Rs.30 Lacs	Min Investment: Rs. 1000 Max Investment: Rs. Up to 2 crores
Tax Benefits	Tax exemption up to Rs. 1.5 lacs allowed under Sec 80 C.	No tax benefit allowed
Tenure	5 years extendable for another 3 years	7 days to 10 years
Lock-in-period	5 years	No lock-in period
Interest Payout	Quarterly (on 1st working day of every financial quarter)	The principal plus accrued interest is paid on maturity.
Loan Facility	Not Permitted	Loan facility allowed
Liquidity	Less liquidity	High Liquidity

Key Takeaways

As you approach retirement age, you are done with your financial planning and responsibilities. Aside from capital appreciation, you require an additional source of regular income to supplement your living expenses.

You should be clearer now if you were undecided between the Senior Citizen Savings Scheme (SCSS) and the Senior Citizens Special FDs scheme. We hope that the information in this comprehensive guide has made building a healthy portfolio that generates consistent income much more straightforward.

FAQs

Can Senior citizens open both a Senior Citizen Saving Scheme (SCSS) account individually?

Yes, but the total investment per investor should not cross the upper limit of 30 lacs as proposed under Budget 2023.

What happens in the event of the death of the SCSS account holder?

If a Senior Citizen Savings Scheme account holder dies, the account is closed at the request of the nominee/legal heir, and interest is paid only until the account holder’s death.

How can I save TDS on Senior Citizens special FDs?

If your taxable income, including interest income, is less than the taxable limit, you can avoid TDS deduction by submitting form 15 H to your respective bank. If your total interest income exceeds Rs. 50,000, you are taxed at a lower rate (i.e. 10%). You can fill out Form 12 BBA and save the excess TDS deduction.

September 23, 2022

Retirement

Porting Of NPS Annuity, How It Will Benefit Investors

Porting Of NPS Annuity: National Pension Scheme (NPS) is a way you can regularly invest while building a healthy retirement corpus. It is one of the easier ways even the most skeptical investor can enjoy the benefits of stock market returns without actively investing in equity.

In the bid to improve investor experience and provide more flexibility to NPS holders, the Pension Fund and Regulatory Development Authority (PFRDA) has initiated a discussion with insurance regulator IRDA on the possible porting of annuities.

Let’s check out the details and see how the new proposed rule will simplify investing in NPS.

What’s the new proposed change in NPS (National Pension System)?

Porting the NPS policy between service providers is allowed only at the fund accumulation stage. Now, regulators want to extend it to the annuity stage.

Per the current policy, on the maturity of the NPS policy, subscribers must choose their annuity plan/ pension plan. As an NPS subscriber, you can change the annuity plan in the initial cooling-off period, which usually ranges between 15 to 20 days.

Once the cooling-off period is over, the policyholder cannot change the annuity plan again and must be satisfied with whatever is selected.

In the proposed change by PFRDA, which is at the very initial stage of discussion, the policyholder can switch their pension plan with another NPS provider on an ongoing basis.
Why is the change being proposed in NPS?

Currently, 14 life insurance companies offer to invest in NPS, and 10 life insurance companies provide annuity services. The rate of return life insurers offers is between 5.39 to 6.8%.

The general idea is that while choosing the NPS pension plan, many policyholders decide in a hurry without comparing the returns of different strategies. And, once the cooling period is over and the policyholder develops a better understanding of the product, it’s too late for them to switch.

Therefore, to give policyholders a fair chance to revisit their investment decision and get maximum yield on investment, the government proposed a change in the NPS pension policy.

How will the proposed NPS rule benefit investors?

If the proposed porting of annuities in the NPS policy gets regulatory approval, it will mark a massive step towards making NPS investor friendly.

The following are the benefits.

Better returns from investment:

With the added flexibility to switch between different annuity service providers, NPS subscribers can check which is better and compare returns of varying annuity plans before making informed decisions.

For example, a percentage point difference in return on Rs 20 lakh capital results in a variation of Rs 20,000 in actual returns annually. Furthermore, NPS porting will help subscribers not feel unequal and get the desired benefits of the NPS scheme.

Will help in better allocation of superannuation funds:

Per the NPS policy plan, subscribers must invest 40% of the accumulated N.P.S corpus/superannuation fund at maturity.

Therefore, many N.P.S subscribers tend to invest a minimum of 40% to save themselves from the uncertainty of lower returns compared to other annuity service providers in the future. With N.P.S porting facility, it will help N.P.S subscribers to increase the percentage allocation of accumulated corpus towards annuity plans and ensure guaranteed income for life.

Insurers will offer better facilities to N.P.S subscribers:

If the regulator allows the proposed NPS porting, it will increase competition among life insurers, resulting in better facilities and services for subscribers.

For instance, additional benefits like annual bonuses, access to other products at a discounted price or matching the highest return other annuity service providers may give.

Wrap-up: How Porting Of NPS Annuity Will Benefit Investors

Since the N.P.S porting proposal is at the initial stage of discussion and there is no timeline for its approval, it would not be easy to discuss the actual benefits. As a result, the final structure may differ and can also come with certain caveats.

However, the above points are the broad benefits N.P.S subscribers will get from the NPS porting facility. Investing in N.P.S will become user-friendly and attractive for investors, making the sector competitive and helping in better value discovery.

Will the policy change get the regulator’s nod? Those investing in NPS may have to wait and watch. In the meantime, if you haven’t set up your N.P.S account yet, do so today. It is never too late to start investing.

Read more: About Research and Ranking

September 6, 2022

Retirement

Retirement Plan in India – 7 Step Guide

A smooth sailing retirement is a dream we all share. You finally get to settle into this period, having retired from all your responsibilities to enjoy your golden years with much-needed peace of mind.

It is possible only if you’ve planned for your retirement and made systematic investments over the years leading up to it. Retirement planning aims to build a corpus that lets you continue living the way you always have while having enough money to pay for unforeseen expenses and even fulfil some of your post-retirement life goals. But, of course, all of this is made possible with wise investing.

The Best Approach to Retirement Planning in India

Retirement planning for many fails because they start the process too late in life. Ideally, you should start your retirement planning process from the day you receive your first paycheck.

Another reason why many Indians do not have enough savings in their sunset years is that they’ve either invested too little or not in the sound financial assets that will deliver returns in the long run. Many cannot save or invest only with an idea to safeguard their savings. Traditional assets may protect your savings but will not help your money grow.

You must clearly understand that the objective of retirement planning in India is to have an adequate corpus that will allow you to sustain the same lifestyle you have now, considering inflation in the future. Therefore, making an early start is your best bet to prepare for your sunset years.

Step by Step Guide to Planning Your Retirement

Look at our 7-step guide to your retirement planning in India.

Step 1: Decide When You Want to Retire

The most common retirement age in India is 60 years, but it may vary depending on the individual, company, and industry. Besides the legal retirement age, there is also the concept of voluntary retirement, wherein you can voluntarily retire before you reach your designated retirement age at the company where you work.

Deciding at what age you wish to retire is the first concrete step toward your retirement planning. It is crucial because the steady inflow of income will cease when you opt for retirement. Not, In addition, notryone is eligible for a pension, so you must have enough savings and investments to take care of your life post-retirement for you and your family.

Step 2: Create a Contingency Fund

Don’t let unexpected expenses derail your savings or empty your pocket! As they say, precaution is better than a cure, so planning for unplanned medical emergencies is more manageable than scrambling for money when the event occurs.

But, on the other hand, such sudden events could empty your savings and ruin your financial plans. So, it is a good idea to have funds devoted to such contingencies, which may or may not occur.

Step 3: Don’t forget, Start Retirement Planning Early

For most Indians, retirement planning is something they do when they’re almost at the end of their career. The approach should be exactly the opposite.

You must invest ample time in your retirement planning in India. It should begin the day you start generating income. The earlier you start, the greater the opportunity to compound your wealth. It will help you create the corpus of funds needed to live your life comfortably after retirement.

The following table depicts how important it is to start early Investment Amount: INR 1, 00,000 yearly estimated @ 10% p.a. return.

Starting age	25	35	45
Retirement Age	60	60	60
Years to Retire	35	25	15
Total investment	35,00, 000	25,00, 000	15,00,000
Retirement corpus	2,71,02,437	98,34,705	31,77,248

Step 4: Decide How Much Money You Need To Live Comfortably After Retirement

The rule in retirement planning is to smartly calculate the corpus you would need to ensure that your retirement years are smooth sailing. You first must set a target, keeping specific calculations and estimations in mind.

Key factors you must consider are your expected age of retirement, your probable life expectancy, an average of your monthly expenses, healthcare, and a possible inflation rate. Remember, you must also account for the rate of return on expected investment pre-and post-retirement. All these parameters are essential when you define the figure for your retirement corpus.

Step 5: Spread Your Asset Allocations Invest In Equity Too

It is common for people to invest in a single asset class when they are retirement planning in India. It could be fixed deposits, public provident funds, bonds, or equities. Investing in one asset class is a mistake when it means securing your financial future. The goal should be spreading your funds across several asset classes that offer varying returns.

The idea is to build an investment portfolio with conservative assets such as fixed deposits that build the foundation for wealth creation and minimize risk. Don’t forget to include a robust healthcare plan to insure against existing conditions. Also, consider adding a critical illness that can cover you against any terminal diseases in the future.

While doing all this, ensure you also invest in the right stocks for the long term and mutual funds that allow your funds to compound faster by offering higher returns. Invest according to your risk appetite and consider the number of years that you have to achieve your future life goals.

Step 6: Track and Review your Plan Periodically

Ideally, you should have a schedule to track your investment asset performance across the board on a half-yearly, at the most, on an annual basis. Anything over that timeline is not acceptable.

This periodic monitoring of your corpus is integral to the retirement planning process. It allows you to check what you have saved during that period and, in the future, is your plan suitable to help you meet your goals. If not, you can incorporate any changes in income, expenses, retirement age and fluctuations in the market into your retirement plan.

Step 7: Avoid Breaking Your Retirement Corpus

One of the most important things you can do is avoid using funds from the retirement corpus. For instance, if you switch jobs, do not withdraw your PF balance; instead, transfer the balance to your next employer’s PF account. Moreover, every time you withdraw your PF, you save that much less, and your retirement corpus decreases too. You will also have to pay taxes if you remove your PF amount before 5 years.

The Bottom Line

Retirement planning in India you save enough to gift yourself a stress-free and financially stable retirement. Moreover, you get peace of mind knowing that you have a solid corpus readily accessible to manage your financial expenses satisfactorily in your golden years.

August 29, 2022

Retirement

Top 7 Tips For Retirement Planning For This Year

August 29, 2022

As retirement sets in, your regular income stops, but the expenses keep rolling. When inflation skyrockets, so will everyday expenses.

An evolving demographics, a boost in life expectancy, a surge in nuclear families, and possibly a desire to retire early are other credible reasons retirement planning is a must. Working hard to generate wealth is a given. But that is not enough. You must have solid financial planning as a support system to let you reach your future goals as you start your retired life.

Here are our top 7 retirement tips for 2022 in India.

1. Estimate Your Retirement Corpus

It is essential to have a clear sight of your future goals. You must apply the same philosophy to your retirement planning. It helps to ensure that you retain your lifestyle in your sunset years.

You must estimate and calculate the corpus amount you will need to maintain your current lifestyle after you retire. Considering the factors mentioned below will help:

Your retirement age
Your life expectancy
Your average monthly expenses
An estimated rate of inflation
The rate of return on expected investment pre- and post-retirement

2. Manage Your Debt Smartly

One of the top retirement tips from retirees includes managing your debt wisely before starting your second innings in life. Prioritize expenses according to value. Therefore, home or mortgage loans come first, followed by student debt, car loans, personal loans, and credit card debt should be dealt with innovatively and efficiently.

If you plan to retire within 12 months, you must ensure that you pay off all existing debts and refrain from taking on any new debt of a significant value.

3. Prepare a Health Insurance Strategy

With inflation rising and better quality of life, healthcare will become a significant expense when you mature. Therefore, you must invest in a solid medical plan that covers your partner and you for all health-related concerns until the end of life.

If there is a history of critical conditions like cancer in the family, make sure you purchase adequate riders that will cover major critical illnesses. Mediclaims come in packages, and every package suits a specific need of the beneficiary. So, choosing the right mediclaim policy is essential.

4. Monitor Your Income Sources

You may not be able to maintain your current lifestyle because you consider retirement planning when you had the chance. Working with a financial expert can help you understand the income that you will need to generate post-retirement to keep up with the lifestyle that you are accustomed to.

It will involve carefully determining your current income sources, letting you save and invest early to achieve your retirement targets.

You can liquidate an emergency fund to meet healthcare expenses or for anything else.

5. Imbibe A Disciplined Habit to Invest

Accumulating enough wealth to tide over your post-retirement expenses demands a disciplined approach to smart investing. An intelligent investment plan ensures you have enough saved to reward yourself with a stress-free retirement with financial freedom. In addition, a systematic approach allows your fund to grow over time, making it possible to achieve your life goals.

With the power of compounding, you can counter the effects of inflation, tackle unforeseen expenses, maintain your current lifestyle by investing in a pension plan from an early age, and build a significant corpus.

6. Diversify Your Asset Allocation

Never make the mistake of building your nest egg with a single asset allocation. Instead, it should be a mix of high, medium, and low-risk financial instruments, be it stocks, bonds, mutual funds, gold, or other asset classes.

The perfect retirement plan enables you to start investing early and roll it over 30 and 40 years. You can also explore pension schemes that usually give investors a wide range of options on how you want to build your investment portfolio by selecting the asset class that will provide you with maximum exposure and comes with a guaranteed income in the future.

You must carefully assess your risk appetite and the years remaining for your goal realization.

7. Take Inflation into Consideration

In the long-term scenario, inflation can negatively impact the accumulated value of your investments geared towards your retirement corpus. Hence, the focus should consider a competitive inflation rate and invest in channels that can deliver returns.

Several insurance providers offer pension and retirement plans that provide value to your investment more significantly than the rate of inflation, along with sufficient coverage with a sum assured post-retirement.

The best of retirement tips and tricks says that you should aim to build a corpus that should be sufficient to cater to your financial and lifestyle needs after your retirement, not just for you but for your dependents as well.

Final Takeaways

You get absolute peace of mind when you know that you have a solid corpus readily accessible in the form of a retirement plan that can manage your financial expenses satisfactorily in your golden years.,,,

March 11, 2022

Retirement

Investing in National Pension System (NPS) for Tax-Saving After Appraisal? Know More About It Before You Do

Recently a friend called to know my opinion about investing in National Pension System (NPS) for tax savings. He told me that as he had exhausted all other options under 80C and 80D and still had some tax liability due he was exploring investing in National Pension System (NPS) for the first time.

“So, you are planning to invest 50k in N.P.S to save 15k in tax?” I asked him.

He replied “Yes, as my income is falling under the 30% tax bracket. Well, not just for saving tax, but for retirement planning too. What do you think?”

So we thought of taking an in-depth look at N.P.S, and its pros and cons.

What is NPS (National Pension System)?

National Pension System or N.P.S is a market-linked social security initiative backed by the Government of India. This pension scheme is voluntary and open to employees from the public, private, and unorganized sectors except for the armed forces. The NPS Scheme (National Pension System Scheme) is regulated by Pension Fund Regulatory and Development Authority (PFRDA and all assets under this scheme are owned by the National Pension System Trust (NPST).

Both resident and non-resident Indians (NRIs) between 18 to 65 years are eligible to join N.P.S. NRI contributions to the NPS Scheme are subject to RBI and FEMA regulatory requirements as prescribed from time to time.

Overseas Citizens of India (OCI), Persons of Indian Origin (PIO), and HUFs are not eligible for opening the N.P.S account.

N.P.S (National Pension System) is mandatory for all government employees who joined service after 1^st January 2004. It is not mandatory for employees in the private sector. But, it is one way you can build a substantial corpus for retirement when there is a lack of adequate social security measures or post-retirement benefits in our country.

There are two types of N.P.S accounts – Tier 1 and Tier 2. While the Tier 1 type of National Pension System (NPS) account’s objective is to create a corpus for retirement corpus, Tier 2 account is like an investment account with more flexibility in terms of deposits and withdrawals similar to mutual fund investment.

Who Should Invest in National Pension System (NPS)?

National Pension System (NPS) is a good scheme for those who want to build a retirement corpus but have a low-risk appetite. Having a regular income (pension) after retiring is the best, especially for employees of the private and unorganized sectors. Starting early and investing systematically can make a large difference to your life once you retire. In fact, the salaried employees can set up an N.P.S account to make the most of the 80C and 80CCD deductions.

How To Set Up Your NPS account?

While registering for the National Pension System Scheme (NPS scheme), you must choose a Pension Fund Manager (PFM) and your scheme preference. Choose your preferred PFM from eight PFMs such as ICICI Prudential Pension Fund, LIC Pension Fund, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, SBI Pension Fund, UTI Retirement Solutions Pension Fund, HDFC Pension Management Company, and Birla Pension Fund to manage their investments in National Pension System (N.P.S).

National Pension System (N.P.S) offers four different types of funds for different investors depending on their risk profile, such as Ultra-safe, Conservative, Balanced and Aggressive.

The asset mix of Ultra safe fund includes 60% in Gilt funds and 40% in Corporate bond funds
Conservative fund investments are distributed among Gilt funds, Corporate bond funds,s and Equity in the ratio of 50%, 30%, and 20% respectively.
In the Balanced fund, the investments are divided in a ratio of 33.3% each in Gilt funds, Corporate bond funds, and Equity.
in the Aggressive fund, investments are divided among Gilt funds, Corporate bond funds, and Equity in the ratio of 20%, 30%, and 50% respectively.

You can get an additional deduction of Rs. 50,000 under Section 80CCD(1B) of income tax if you invest in National Pension System (N.P.S).

Pros of National Pension System (NPS)

The National Pension System Scheme (NPS Scheme) is portable across jobs and locations with benefits available under Sec 80 and Sec 80CCD of income tax.
The returns from N.P.S are much-higher compared to other fixed-income assets. Moreover, a part of your contribution is invested in equity. It has delivered 8-10% annualized returns for over a decade.
Your risk appetite is based on your age. For example, if you are starting at age 20, then your equity exposure may be higher close to 60% of your contribution. The equity percentage will reduce by 2.5% every year starting at age 50. Such changes help to balance the risk-return equation.
You can claim an NPS deduction of up to Rs. 1.5lakh for both your contribution and your employers under Sec 80CCD(1) and 80CCD(2) respectively.
60% of your retirement corpus can be withdrawn when you retire. This income is tax-free under the EEE (exempt, exempt, exempt) section.
You can withdraw up to 25% of the amount early for higher studies, marriage, buying or building a house, or medical treatments if you have contributed regularly for 3 years after setting up the account. You can withdraw money thrice during the tenure but with a gap of five years from the last withdrawal.

Drawbacks of NPS

Highest lock-in period among all tax-saving instruments

Compared to all other tax-saving instruments, the NPS has a high lock-in period. You cannot withdraw your full corpus from NPS till age 60. On the other hand, tax-saving instruments like PPF, ELSS, EPF, NSC, etc., have a relatively lower lock-in period. ELSS has a 3-year lock-in period, EPF can be withdrawn after two months of being unemployed while PPF has a 15-year lock-in period for complete withdrawal. Partial withdrawals up to 50% of the balance are permitted in PPF after the completion of 5 years from account opening. Premature closure based on specific medical and educational grounds is also permitted in PPF after five financial years.

Taxation on Annuity

At age 60, i.e., on retirement, you can withdraw a lump sum of up to 60% of the fund available in his NPS account and invest the balance in an annuity plan. Annuities are insurance contracts that promise the buyer regular income either immediately or after a stipulated period.

Currently, there are 11 annuity service providers approved by PFRDA such as Life Insurance Corporation of India (LIC), HDFC Life Insurance Co. Ltd., ICICI Prudential Life Insurance Co. Ltd., SBI Life Insurance, Star Union Dai-ichi Life Insurance Co. Ltd., Bajaj Allianz Life Insurance Company Limited, Edelweiss Tokio Life Insurance Co. Ltd., India First Life Insurance Co. Ltd., Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd., Kotak Mahindra Life Insurance Co. Ltd., and Max Life Insurance Co. Ltd.

An annuity in India is taxable. The balance of 40% invested in the annuity plan will not generate a tax-free pension for the investor. It does not make sense for a retired person to receive income that is taxable as it will reduce his/her overall income after retirement.

Low returns offered by annuity plans

Annuity rates currently offered by insurance companies in India are very low in the range of 5.5-6.5%. These annuity rates are even lower than interest rates banks offer to senior citizens. Interest rates in India are linked to RBI’s repo rate and are generally1-2% higher than the repo rate.

In the future, as India grows and transforms into a developed country from a developing country, the interest rates are likely to fall further. Interest rates in developed countries like the USA, UK, Canada, Japan, and Switzerland are currently meager in the range of 0.5 to 1.5%. So, it is quite natural that in India, as interest rates fall in the future, annuity rates will also take a further dip.

At current annuity rates of 5.5-6.5%, an investment of 1 crore rupees will generate a yearly annuity of just 5.5 to 6.5 lacs. Can you imagine what will happen after 20-25 years amid falling interest rates and rising inflation?

Yes, there is an annuity option called ‘Annuity for Life’ where the investor can choose a higher rate of annuity, but in that case, the investor’s nominee will not get anything on the investor’s death.

Let’s understand this with a real example of an immediate annuity product named LIC Jeevan Akshay Vll.

An investor will get a yearly annuity of Rs. 3,99,750 for an investment of Rs. 50,00,000 on choosing the annuity option -Annuity for Life. On the other hand, if the investor chooses the Annuity for Life with Return of Purchase Price, he or she would get a lower annuity amount of Rs. 2,72,250 for the same investment amount.

In the second case, as the name suggests, the investor’s nominee would get the amount invested back, i.e., Rs. 50,00,000 but must remain content with a lower annuity (difference of Rs. 1,27,500) during his lifetime.

Bottom line: Is it worth investing in National Pension System (NPS)?

Investing in National Pension System (NPS) is not a bad move when you consider that starting early with a small investment can help you build a large corpus for retirement. Moreover, you can also claim tax deductions in your IT returns. However, if you are looking to build wealth NPS should not be the only option you choose to invest in.

As per data available on Moneycontrol the five-year returns of various funds managed by different PFMs in NPS range between 5 to 11.80%. If you invest directly in equity, you can generate a much higher corpus for retirement because of the longer investment duration.

Historical data proves that stock markets are generally stable over the long term and have beaten all other asset classes in terms of returns. Investing in good-quality stocks, you can generate a return of 25-35% or even higher on your equity investments over ten years or more. Click here to invest in a portfolio of multibagger stocks with the potential to generate 4-5x returns in 5-6 years.

What’s the new proposed change in NPS (National Pension System)?

Read more: About Research and Ranking

December 27, 2021

Retirement

7 New Ways To Manage Your Stock Portfolio During Retirement in India

Equity investors on the verge of retirement in India or have retired often wonder how to manage their stock portfolios. They would have fulfilled most of their family responsibilities, have less or zero debt and might be enjoying a regular income from multiple sources. They would also have significantly more time on their hands to research buying opportunities. However, their risk-taking appetite may have been reduced.

Here are 7 ways to manage your stock portfolio during your retirement in India

1. Set an investing budget

Most individuals might assume that expenses would drastically reduce after retirement. Although it may be proper for daily necessities, there could be other expenses related to healthcare. You might also have to account for the effect of inflation. Therefore, you could set an investing budget.

You will likely earn a fixed income monthly during your retirement in India. This could be through rental earnings, interest on deposits, pension, or a combination. You could allocate a portion of this amount towards retirement investing. You may begin with as low as 10%-15% of your income and then increase it over time.

2. Avoiding risky bets or speculative trades

Sometimes, the temptation of making a high-risk trade gets too alluring. Especially if you feel that it is a calculated bet. In such cases, you may not want to invest more than 2% of your portfolio in a highly volatile stock with great promise. In such a case, your overall retirement investment portfolio wouldn’t be impacted even if the stock doesn’t perform well or its price drops massively.

3. Suitable allocation of capital across stocks

Although experienced and successful investors would recommend creating a highly concentrated portfolio to create substantial wealth. It may be risky if you haven’t selected the right stocks. Therefore, you may not wish to allocate more than 5% of your entire holding to a single stock. Thus your overall retirement portfolio will not be impacted by the underperformance of a few stocks. However, you could take concentrated bets if you rely on high-quality research to create a robust retirement investment portfolio of stocks.

4. Sticking to blue chips

Bluechip companies are credible firms that have delivered consistent profits throughout good and bad times. In addition, they have tremendous goodwill, are incredibly stable, highly renowned, and offer steady gains. In India, stocks like HUL, Asian paints, TCS, Infosys, Reliance, Pidilite, and P&G have delivered favorable returns for their investors over multiple decades, making them good bets to have in your retirement portfolio.

5. Dividend aristocrats

You wouldn’t mind earning additional passive income during your retirement in India. This is possible by investing in shares of companies that pay attractive dividends regularly. Allocating a more significant percentage towards high dividend-yielding stocks will provide you with a regular flow of income that would increase over time.

Most experts recommend that you worry very little about the overall return on your assets. Instead, you should focus more on converting your retirement assets into reliable and sustainable retirement income sources in India.

6. Index investing

Only 7 stocks of the original index basket are still featured in today’s Sensex. However, the index has consistently delivered ~15% CAGR for the last 40 years.

It implies that the bad companies in the index are automatically removed from the list of companies, and new companies are added. This allows the overall index to grow as only those companies that sustain over time remain. Therefore an investor can leverage this strategy by incurring low risk and minimal cost. In addition, you can mirror the index for your retirement portfolio without changing weight or constituents.

7. Leaving a legacy

It is important to remember that equities should be held for the long term. Therefore, you may wish to create a basket of fundamentally strong companies that will likely last for a long time and compound your wealth. Doing so will let you leave a fortune for your descendants post-retirement. Moreover, define the nominees for your Demat account. You may not want your legal heirs to deal with tedious paperwork after passing.

Finally, remember to arrange for emergency funds, health insurance, and savings in deposits for regular income before investing in equities for your retirement in India. Buy good stocks and hold despite the daily ups and downs of the markets.

Frequently asked questions

Get answers to the most pertinent questions on your mind now.

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What is an Investment Advisory Firm?

An investment advisory firm is a company that helps investors make decisions about buying and selling securities (like stocks) in exchange for a fee. They can advise clients directly or provide advisory reports and other publications about specific securities, such as high growth stock recommendations. Some firms use both methods, like Research & Ranking, India’s leading stock advisory company, specializing in smart investments and long-term stocks since 2015.

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Retirement

Introduction:

Meaning of Pension Payment Order

PPO Number in Pension

Importance of Pension Payment Order

How to Check Your Pension Payment Order (PPO)?

How to Check Pension Payment Order Status?

Here’s how you can check your PPO status:

How to Download Pension Payment Orders Online?

To access your Pension Payment Orders online, follow these simple steps:

Understanding How EPS Functions

FAQ

What is the importance of a Pension Payment Order (PPO)?

How long does it take to receive a PPO number after application submission?

Can I transfer my PPO number to a different bank?

Are you wondering if public provident and voluntary provident funds are the same?

What is the Public Provident Fund?

What is the Voluntary Provident Fund?

How to Open a Voluntary Provident Fund Account?

What are the Advantages and Disadvantages of Voluntary Provident Fund?

What are the Key Features of the Voluntary Provident Fund (VPF)?

What is the Maturity Period of the Voluntary Provident Fund?

FAQs

Can I change my VPF contribution amount?

Is the VPF contribution limit capped?

Are VPF contributions tax-deductible?

How does the Unified Pension Scheme (UPS) work?

The big promise

Key Features of the UPS

How did the Old Pension Scheme (OPS) Function?

How does the National Pension Scheme (NPS) Function?

Key Differences: OPS V/s NPS

Let’s understand the difference between the three Pension Schemes with the help of an example:

Benefits of UPS for the Government

Challenges of UPS for the Government

Benefits of UPS for You as an Individual

Challenges of UPS for You as an Individual

Introduction:

6 Reasons Why Women Need Retirement Planning

Women are Primary Caregivers

Women Pay More in Healthcare than in Retirement

Longer Life Expectancy

Career Interruptions

Risk Tolerance and Investment Strategies:

Financial Literacy and Confidence:

Strategies for Women’s Financial Planning

FAQs

Why is retirement planning different for women and men?

How can women address lower pension and social security benefits?

What role does risk tolerance play in retirement planning?

Understanding the 4% Rule Of Retirement Withdrawals

How the 4% Retirement Withdrawals Rule Works

Benefits of the 4% Retirement Withdrawals Rule

Limitations of the 4% Retirement Withdrawals Rule

Applying the 4% Rule in India

Alternatives to the 4% Rule

Factors Influencing Retirement Withdrawals

Maximizing Retirement Savings

Common Mistakes to Avoid in Retirement Withdrawals

Tools and Resources

Future of Retirement Planning

Some Other Basic Tips to Consider are

FAQs

How can I ensure my retirement savings last throughout my 80s and beyond?

Why is asset planning important at 80?

What steps can I take to monitor my spending effectively at 80?

What is Pension Planning?

Why is pension planning important?

Factors to Consider While Planning for Retirement

How to start pension planning?

Best Investment Options For Retirement Planning

Mutual Funds

Equities or Shares

Key Takeaways

FAQs

How to cope with your health care bills after you stop working?

How to deal with inflation in retirement?

How much do you need to put aside for your retirement?

Retirement Age In India