We hear that life expectancy is increasing in India and the time is not far away when retirement age may be fixed at 70 years. However, that should not make you think that you have enough time in your hands to plan your retirement. When it comes to retirement planning, it’s never too early to begin.
Even if you don’t know what you want post-retirement, here are the 6 steps that you can take to enjoy peaceful and blissful retirement life.
#1 STEP – Let your employee provident fund (EPF) do its job
If you are a salaried employee, a part of your salary must be going to the employee provident fund. At the growth of 8.65% per annum and the additional contribution from the employer’s side, EPFs are the right instruments to provide you financial security after retirement.
You also enjoy tax benefits as both the contribution and proceeds are tax-free. If you refrain from withdrawing money from EPF every time you change a job, you can accumulate a substantial corpus after retirement.
For instance, if you start contributing to EPF at the age of 30 years with basic salary + DA of Rs. 15,000 with a current interest rate of 8.65%, you will have a corpus of Rs. 24,65,259 at the age of 55.
#2 STEP – Invest in a pension plan.
A pension is the best thing that you can plan for post-retirement. A regular income that comes like a salary to your account even after retirement is really a boon. Invest in a guaranteed income plan that gives you a steady income after retirement.
Future Generali Pension Guarantee is one such pension plan that offers a minimum 101% of all premiums paid as guarantee on maturity plus additional bonuses, if declared. It also comes with death benefit and option to add accidental death and permanent disability riders.
#3 STEP – Invest in Public Provident Funds (PPFs)
Rather than investing in fixed deposits, invest in PPF because it provides tax-free returns and is eligible for deductions under section 80C. These tax deductions and savings may not look that significant at a cursory look but it becomes quite significant once the corpus grows larger.
PPFs also gives you decent returns at 8.7% and the fact that it has a longer lock-in period helps you maintain long-term investment discipline, which is vital for retirement planning.
#4 STEP – Get critical illness cover
With healthcare costs spiraling out of control and the increasing risks of lifestyle diseases such as high blood pressure, diabetes and heart disorders, it’s critical to get critical illness cover even if you have just hit 30. In fact, 30 is the perfect time to buy critical illness cover because you are less likely to have pre-existing diseases.
Critical illness cover or health insurance is vital to protecting your finances and shielding your retirement corpus. Go for the ones that provide coverage for the maximum number of critical illnesses such as the Future Generali Heart and Health insurance plan that covers 59 critical illnesses.
#5 STEP – Buy at least 1 crore term insurance
You shouldn’t cross the age of 30 before buying a term insurance plan with at least Rs. 1 crore term insurance. As you start planning for your retirement even without any post-retirement goal, you need to protect your family with a term life insurance plan.
Given the high cost of living and inflation, a Rs. 1 crore term insurance is just an adequate amount to take care of your family in your absence.
#6 STEP – Don’t assume that expenses will come down post-retirement
Many people assume that their expenses will come down post-retirement. If you account for inflation and increasing cost of living, no matter how low-profile you may want to live, your living costs are going to be increasing rather than decreasing.
You may not have to pay for your child’s education loan, home loan, etc., but your medical expenses and other expenses will increase as you have to rely more on paid services to get by. Factor in all these facts as you plan for retirement.
Lastly, you must have adequate life and health insurance coverage for you and your family. It is just as important as saving and investing money for retirement.
As you plan for retirement, don’t ignore equity-linked investment instruments such as ULIPs and mutual funds. Understand that retirement planning is a long-term process and you must have patience and discipline, and you must carry out proper research when making investment decisions.
