Preparing For Retirement? Here Is A Guide To Top 6 Plans And Investment Tips To Secure Your Golden Years

Retirement Plans: To ensure financial security on superannuation, your job is to carefully chalk down current financial position and set future goals

Planning for retirement? One thing you must ensure before taking a final call is financial security. As retirement planning is one of the core financial planning, especially for the salaried class in India, financial security always takes precedence. To ensure financial security on superannuation, your job is to carefully chalk down current financial position and set future goals.

Here we will explore various retirement plans available and beneficial for the Indian salaried class.

Retirement Plans & Benefits

Employee Provident Fund (EPF): Mandatory contribution-based retirement scheme with tax-exempt contributions and interest, offering financial security and lump sum amount at retirement.

Public Provident Fund (PPF): Voluntary long-term investment scheme with tax deductions, tax-free interest, and maturity amount, providing financial stability over a 15-year lock-in period.

National Pension System (NPS): Voluntary retirement savings scheme with tax benefits, multiple investment options, and potential for higher returns, promoting a secure retirement.

Atal Pension Yojana (APY): Government-backed pension scheme for unorganised sector workers, offering a fixed monthly pension based on contribution amount and age of entry.

Gratuity: Lump sum payment from employers to employees upon retirement, tax-exempt up to a certain limit, rewarding continuous service of at least five years.

Superannuation Fund: Employer-funded retirement benefit scheme, providing accumulated amounts to employees upon retirement or reaching a specific age.

Amit Gupta, managing director at SAG Infotech, says most of the middle-class individuals in India take retirement planning very seriously to secure a financially stable future. Their planning starts by assessing their current financial situation, including income, expenses, savings, investments, and debts.

"Understanding where they stand financially will help them set realistic retirement goals. They should visualise the lifestyle they want to lead after retirement, considering factors like travel, healthcare and other activities that they would like to do during their golden years. To calculate their retirement needs, middle-class individuals should estimate the amount of money required to maintain their desired lifestyle after retirement, considering inflation and increasing healthcare costs," Gupta tells ABP Live.

Starting early is also vital, as time plays a significant role in retirement planning. The power of compounding can significantly grow their savings if they begin saving and investing early in their careers.

How does each plan offer benefits? Gupta says the plans have several advantages, and they can be tailored to suit individual financial goals and retirement aspirations.

"Understanding the tax benefits, investment options, and potential returns offered by each plan will help them make informed decisions. For those with employer-sponsored retirement plans such as EPF or NPS with employer-matching contributions, maximising their contributions can lead to additional benefits," he says.

In the absence of employer-sponsored plans, middle-class individuals can consider opening individual retirement accounts like PPF or NPS to save for retirement independently.

Gupta stresses on diversifying investments and building an emergency fund.

"Diversifying investments across various asset classes such as equity, debt and fixed deposits helps in spreading the risk and maximising returns. Controlling expenses and reducing high-interest debt such as credit cards and personal loans will free up more money available for retirement savings. Emergency funds are life savers. Having an emergency fund equal to 3-6 months' worth of living expenses is important to avoid tapping into retirement savings during unforeseen circumstances. With retirement age approaching, reviewing and adjusting their retirement plan on a regular basis is essential to ensure that they remain on track with their goals." he says.

Kranthi Bathini, director, equity strategy at WealthMills Securities Pvt Ltd, opines that on a long-term basis, more fund allocation towards equity investment can create wealth. “Asset diversification is always important. Given the buoyancy of the economy and rising per capita income in India, equities can give the highest return when compared to any other asset classes.” 

Bathini says if a person can allocate a portion of his earnings towards equity investment on a long-term basis, he will get more in return, as equities have outperformed almost all asset classes in the past 30 years. He points out that Indians typically give priority mostly in investments such as gold, real estate, and financial savings, while equity investment comes last as it is considered volatile. “Thinking in a long-term perspective and disciplined investment in equities can create wealth.”  

According to Aniruddha Bose, chief business officer at FinEdge, retirement planning is one goal in which one can truly reap benefits of compounding if they start early enough. “Even if you begin at 30, you will have three decades to build up a solid corpus for your retirement. The earlier you start, the less you will need to put away over time and the more you will have left over to spend. It’s important to work with an expert and really crunch the numbers. Factors like inflation, retirement age, life expectancy, and currently saved up retirement assets must be considered while drafting a retirement plan. Although the plan can always be revised later, it is very sensible to set up a clear target instead of relying on some arbitrary number like Rs 1 crore or Rs 5 crore.”

Retirement Corpus And Professional Help

Bose says many middle-income people get worried when they realise the actual size of their required retirement corpus. However, the good news is that you can start with what is comfortable and step up your monthly savings on auto pilot. "Over time, this can make a huge difference to your retirement corpus. The power of step ups can really be quite incredible. It is possible for a 30-year-old to begin with a SIP of Rs 5,000 per month and hit a corpus of Rs 8-10 crores by the time they hit 60, if they invest in aggressive assets and step up their SIPs by just Rs 2,000 a year."

He says one should take measured risks for retirement planning. “In case you are a naturally risk-averse person, you should work with a professional expert to understand the real impact of risk and reward, and to set up a great investing process that will absorb some of the volatility over time. Remember, the difference between 8 per cent and 13 per cent can be as much as 2-3 times if your goal is 20-30 years away. The biggest risk to your retirement plan would be to not take any risks at all."