Retirement

When thinking about retirement planning, many individuals focus on setting specific financial goals, such as saving a certain amount for their retirement or purchasing a home. While goal-based financial planning offers direction and purpose, it often falls short in delivering the comprehensive strategy needed for long-term financial security. How do you ensure that your savings last throughout retirement? Can setting a retirement goal alone guarantee financial peace of mind in your golden years?

In this article, we explore the reasons why goal-based financial planning, though effective in some areas, may not be enough for a secure and fulfilling retirement. It’s crucial to look beyond simple goal-setting and develop a broader financial strategy tailored to the unique challenges of retirement.

What is Goal-Based Financial Planning?

Goal-based financial planning is an approach that aligns your financial strategies with specific objectives. It focuses on determining the amount of money you need to invest and the timeline to reach your desired financial goals. By evaluating the time left for each goal, this method helps you plan regular investments in suitable financial instruments to meet those targets.

Everyone has different financial aspirations, but common goals include buying a car, planning for a child’s wedding, and saving for early retirement. Each of these goals requires careful consideration of how much risk you’re willing to take and the right investment products to use. For example, long-term goals like retirement could involve riskier options such as equity funds, while shorter-term goals might demand safer investments like bonds or fixed deposits.

Retirement Is Not Just Setting a Financial Goal

Goal-based financial planning focuses primarily on tangible objectives, like saving a specific amount for retirement. However, retirement isn’t just about reaching a financial target; it’s about ensuring that the funds last throughout your retirement years, often lasting 20–30 years or more. Without a plan for managing withdrawals, dealing with inflation, or handling unexpected costs, a person may find themselves outliving their savings.

Example: Suppose you set a goal to save Rs. 1 crore by 60. While this is an admirable goal, it doesn’t account for inflation, healthcare costs, or potential market downturns that can deplete your savings faster than expected. Focusing on the target alone can lead to financial strain once retirement begins.

Lack of Consideration for Inflation’s Impact on Retirement

One of the most significant limitations of goal-based financial planning is the failure to fully account for inflation, which erodes purchasing power over time. For retirement savings, this means the value of your funds decreases, and what may seem like a substantial amount today could be insufficient in the future.

Example: Imagine you have planned for Rs. 50,000 a month in retirement. If inflation runs at 6% annually, that amount would need to increase yearly to maintain the same lifestyle. Over 20 years, Rs. 50,000 might need to grow to over Rs. 160,000 monthly to cover the same expenses. A goal-based approach might not adjust for this increase, leaving you with an underfunded retirement.

Failure to Account for Unforeseen Expenses

Unforeseen expenses are a common reality in retirement. Whether it’s an emergency medical expense, a home repair, or unplanned travel, life often throws curveballs that disrupt even the best-laid financial plans. Goal-based planning doesn’t always account for such unpredictability, which can result in underfunded savings when these needs arise.

Example: Consider someone who has planned for retirement, assuming their healthcare costs will be minimal. Medical expenses could significantly impact their savings if a major health issue arises during retirement. Without a strategy for handling such costs, retirees might face the difficult decision of cutting back on other important areas of life.

Longevity Risk: Outliving Your Savings

As medical advancements continue and life expectancy rises, longevity risk — the risk of outliving your savings — becomes more of a reality. Many people fail to consider how long they may live in retirement and plan only for a specific time frame. Goal-based financial planning doesn’t necessarily address the possibility of living into your 90s or beyond, which can put you at risk of running out of money.

Example: If you save for a 20-year retirement but live for 30 years, you may exhaust your savings. Many people mistakenly assume that retirement funds are only required for 20 or 25 years, which doesn’t consider the increasing life expectancy.

Tax Implications and Retirement Income Planning

In addition to the challenges of inflation and longevity, the tax implications of withdrawing funds during retirement are often overlooked in goal-based planning. Different retirement accounts are taxed differently, and a lack of tax planning can erode your income and savings.

Example: Consider someone who plans to withdraw Rs. 10 lakh per year from their retirement account without considering the tax consequences. Depending on the type of account, this could result in a significant tax liability, reducing the amount available for living expenses. Understanding tax brackets and strategic withdrawals is crucial for long-term financial health.

A Balanced Approach: Integrating Investment Strategy

A major shortcoming of goal-based planning is the failure to integrate a sound investment strategy that balances growth and risk. Setting goals for a specific amount without considering how to invest those funds for long-term growth may lead to missing out on key opportunities or, worse, incurring losses due to poor investment choices.

Example: A person may set a goal to save Rs. 1 crore by age 60 but neglect to invest their savings in a diversified portfolio. A conservative approach with little exposure to growth assets like equities can leave them with insufficient growth to reach their target. Balancing risk with growth is essential for achieving financial goals, especially for retirement planning.

Designing a Retirement Lifestyle

Retirement isn’t just about a one-time savings goal; it’s a lifelong financial strategy that requires ongoing management. Achieving the kind of lifestyle you’ve always dreamed of demands a holistic, multi-faceted approach that includes:

• Emergency Fund Planning: Building a cushion to cover unexpected costs, such as medical emergencies or sudden home repairs.
• Cash Flow Management: Ensuring that your passive income streams are sufficient to cover your living expenses and grow with inflation.
• Tax Optimisation: Strategising to minimize taxes on income and capital gains, ensuring that you don’t lose more than necessary to the government.
• Investment Strategy: Maintaining a diversified portfolio that focuses on stable returns and growth to safeguard against market volatility and provide long-term security.

By considering these aspects, you can create a retirement plan that ensures you enjoy the lifestyle you have worked hard for without worrying about financial shortfalls.

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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 & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

FAQ

Planning for retirement is one of an individual’s most important financial goals. With increasing life expectancy and rising inflation, ensuring you have a large enough corpus to sustain a comfortable life post-retirement is critical. If your goal is to build a retirement fund of Rs 10 crores, it is achievable with the right retirement strategy, financial discipline, and early retirement planning.

In this article, we will guide you through key strategies for making Rs 10 crores before you retire, using efficient investment methods and considering factors like the retirement age in India and the best places to live after retirement.

1. Start with a Solid Retirement Plan

The key to accumulating a significant retirement corpus is to start early and stick to a solid plan. Early retirement planning gives you the advantage of compounding returns, where your investments grow exponentially. With this advantage, even modest monthly contributions can balloon substantially.

Step-Up SIPs

You must carefully strategize your investments to build a retirement corpus of ₹10 crore by age 60, starting with a monthly SIP of ₹10,000 at age 30. Below is an example that uses systematic calculations based on compounding principles. 

Key Parameters:

1. SIP Amount: ₹10,000 per month
2. Investment Tenure: 30 years (from age 30 to 60)
3. Expected Rate of Return: 12% per annum (based on historical returns from equity mutual funds)
4. Monthly Compounding: Since you are investing through a SIP, monthly compounding will be applied.

How Compounding Works:

Compounding refers to earning returns not only on the principal but also on the accumulated interest. The longer your investment horizon, the greater the impact of compounding. In this case, with a 30-year investment period, compounding can significantly boost your retirement corpus.

To calculate the future value of a Systematic Investment Plan (SIP) with monthly contributions, we can use the following formula for SIP with compounding interest:

SIP Future Value Formula:

FV=P×r(1+r)n−1​×(1+r)

where:

• FV= Future Value of the SIP
• P= Monthly SIP amount (₹10,000)
• r = Monthly rate of return (annual rate of 12% divided by 12 months)
• n = Total number of SIP installments (30 years ×\times× 12 months = 360 installments)

Given Values:

• SIP Amount (P): ₹10,000 per month
• Investment Tenure: 30 years (360 months)
• Expected Rate of Return: 12% per annum (0.12/12 = 0.01 monthly)
• Monthly Compounding: Applied as part of the SIP formula.

Calculation:

1. Monthly Rate (r): 0.12/12=0.010.12/12 = 0.010.12/12=0.01
2. Number of Installments (n): 30×12=36030 \times 12 = 36030×12=360

Using these values, we can plug them into the formula to find the future value of the SIP investment at the end of 30 years.

The future value of the SIP investment, with a monthly contribution of ₹10,000 over 30 years at an expected annual return of 12%, will be approximately ₹3,52,99,138. ​​

A. How to Achieve ₹10 Crore?

While ₹3.53 crore is a significant amount, it’s short of the ₹10 crore goal. To achieve ₹10 crore, you can apply one of the following strategies:

1. Increase SIP Contribution Over Time:

One approach to achieve ₹10 crore is to increase your SIP amount by 10% each year. This method accounts for inflation and income increases, allowing investment contributions to grow.

Here’s how the math would work if you increase your SIP annually:

• Year 1 SIP: ₹10,000 per month
• Year 2 SIP: ₹11,000 per month
• Year 3 SIP: ₹12,100 per month, and so on.

Your monthly SIP will have grown substantially by the end of 30 years, and the combined effect of higher contributions and compounding returns will help you reach ₹10 crore.

2. Target Higher Returns:

If you’re aiming for ₹10 crore with the same ₹10,000 SIP, you can aim for investments that yield a higher average return, such as 15%. While higher returns come with increased risk, some equity mutual funds or high-growth stocks have delivered returns of 14-15% over the long term.

Calculating Corpus with a 15% Return:

Using the SIP formula again but with a 15% return:

FV=P×r(1+r)n−1​×(1+r)

where:

• FV = Future Value of the SIP
• P = Monthly SIP amount (₹10,000)
• r = Monthly rate of return (15% annually divided by 12 months)
• n = Total number of SIP installments (30 years ×\times× 12 months = 360 installments)

Updated Given Values:

• SIP Amount (P): ₹10,000 per month
• Investment Tenure: 30 years (360 months)
• Expected Rate of Return: 15% per annum (0.15/12 = 0.0125 monthly)

Updated Calculation:

1. Monthly Rate (r): 0.15/12=0.01250.15/12 = 0.01250.15/12=0.0125
2. Number of Installments (n): 30×12=36030 \times 12 = 36030×12=360

With a 15% annual return, the future value of the SIP investment, with a monthly contribution of ₹10,000 over 30 years, will be approximately ₹7,00,98,206.

This higher future value compared to the 12% return scenario is due to the compounding effect over the long term. By increasing the return rate to 15%, the investment grows significantly more, demonstrating the impact of even a slight change in the annual return rate over 30 years. ​​

Power of Compounding

If you start investing Rs 30,000 monthly at an 11% annual return from age 25, you can accumulate around Rs 10 crores by turning 60. On the other hand, if you start at 35, the monthly investment requirement increases significantly. This highlights the importance of starting your retirement strategy early.

2. Leverage the Stock Market for Higher Returns

The stock market is one of the best places to generate high returns, especially if you have a long investment horizon. A diversified portfolio of stocks can deliver inflation-beating returns over time, helping you build your retirement corpus faster. Consulting a stock market advisor can help you pick the right stocks and sectors.

Example: Equity Mutual Funds

Investing in equity mutual funds through systematic investment plans (SIPs) can provide returns between 10% to 15% annually. If you are planning for early retirement, starting a SIP in your 20s or early 30s can help you reach your Rs 10 crore target.

3. Use a Retirement Calculator to Set Realistic Goals

Using a retirement calculator is essential in setting realistic goals. A retirement calculator takes into account your current savings, future expenses, inflation rate, and expected returns, allowing you to determine how much you need to invest to reach your desired retirement corpus.

Example: Retirement Calculator Projection

Suppose your retirement goal is Rs 10 crores, and you have 30 years until your retirement age in India (typically 60). To reach that goal, a retirement calculator will tell you how much you need to invest monthly, factoring in inflation and expected returns.

4. Asset Allocation: Diversify for Security

A proper asset allocation strategy is essential for achieving your financial goals. Diversifying across asset classes like equities, debt, real estate, and gold ensures you can mitigate risks while maximizing returns. As you approach retirement, your investment strategy should shift towards less risky assets to preserve your capital.

Example: Equity and Debt Mix

For someone in their 20s, a higher allocation towards equities (around 70%-80%) can generate higher returns, while the remaining 20%-30% can be in safer debt instruments. As you near retirement, this allocation can shift to 50% equities and 50% debt to reduce exposure to market volatility.

5. Consider Real Estate as Part of Your Portfolio

Real estate can be an attractive addition to your retirement strategy. Property values generally appreciate over the long term, and rental income can be a steady source of income post-retirement. Moreover, owning property in one of the best places to live after retirement can add value to your overall financial security.

Example: Real Estate Investments

Investing in property in metro cities like Bengaluru, Hyderabad, or Tier-2 cities where property prices are expected to rise significantly over the next decade can help increase your wealth. Choosing the best places to live after retirement with good infrastructure, healthcare, and affordability is key.

6. Take Advantage of Tax-Saving Instruments

Tax-saving instruments such as the Public Provident Fund (PPF), National Pension System (NPS), and tax-saving mutual funds (ELSS) not only provide tax benefits but also help build retirement funds. The NPS is beneficial as it is designed for retirement planning and offers a combination of equity and debt investments with tax benefits.

Example: National Pension System (NPS)

Contributing to NPS allows you to enjoy tax deductions under Section 80C and 80CCD of the Income Tax Act. Over time, the NPS’s combination of equities and debt can help you achieve your Rs 10 crore goal.

7. Keep Inflation in Mind

Inflation is one of the most critical factors to consider when planning for early retirement. The cost of living will continue to rise, and your retirement corpus should account for that. Investing in assets that provide inflation-beating returns is crucial.

Example: Adjusting for Inflation

If you are targeting Rs 10 crores for your retirement, you need to adjust this amount for inflation. For instance, at a 6% inflation rate, Rs 10 crores today will be equivalent to Rs 28 crores in 30 years. This means you may need to aim for a higher target to maintain your standard of living.

8. Opt for Health Insurance

Healthcare costs in retirement can be substantial, especially as medical expenses tend to rise with age. Having adequate health insurance coverage will protect your retirement savings from being wiped out by unforeseen medical emergencies.

Example: Senior Citizen Health Plans

Purchasing a comprehensive health insurance plan in your early years and then transitioning to a senior citizen health plan post-retirement is a prudent move to safeguard your retirement corpus.

9. Plan for Contingencies

Life is unpredictable, and retirement planning should include contingencies. These could include setting up an emergency fund, adjusting for unexpected family needs, or preparing for an early retirement. Planning for contingencies ensures that your retirement strategy remains on track.

Example: Emergency Fund

An emergency fund equivalent to 6-12 months of living expenses can cushion you against unexpected events like a job loss or a health crisis, allowing you to continue focusing on your long-term goal of reaching Rs 10 crores.

10. Review and Adjust Your Retirement Plan Regularly

Retirement planning is not a one-time task. Regularly reviewing and adjusting your retirement strategy is necessary to account for changes in income, lifestyle, inflation, and investment performance. Consulting a stock market advisor can be extremely helpful in ensuring that your investments are aligned with your goals.

Example: Annual Portfolio Review

Conducting an annual review of your retirement portfolio can help you track your progress. If your returns fall short, you can make necessary adjustments, such as increasing your monthly investments or shifting asset allocation.

11. Choose the Best Places to Live After Retirement

Where you live after retirement can significantly impact your expenses. Choosing the best places to live is essential based on factors like healthcare facilities, cost of living, and lifestyle preferences. 

Cities like Mysuru, Coimbatore, and Chandigarh are popular among retirees for their affordable housing, pleasant weather, and excellent healthcare facilities. Living in such places can help you maintain a comfortable lifestyle without stretching your retirement corpus.

Conclusion

With the right approach to retirement planning, Achieving Rs 10 crores before retirement is possible. Starting early, leveraging the stock market, using a retirement calculator, diversifying your investments, and factoring in inflation are crucial steps in your retirement strategy. Additionally, tax-saving instruments, real estate, and regular portfolio reviews can accelerate your wealth-building process.

Whether you aim for early retirement or plan for the typical retirement age in India, a clear and disciplined approach will help you achieve your financial goals and enjoy a secure and comfortable retirement.

By following these strategies, staying disciplined, and keeping a long-term perspective, you can turn your dream of having Rs 10 crores into a reality and enjoy your post-retirement years in peace.

FAQs

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 & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

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

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:

1. 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

1. 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

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

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.

 

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.

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.

Read more:
How To Retire Early By Choosing The Best Long-Term Investment Plans?