Retiring is a significant milestone in an individual’s life. To live through the retirement phase stress-free, it is essential to have a retirement plan that can help you maintain your lifestyle, manage your future expenses, and allow you to achieve financial independence. This article aims to explore retirement plans, steps to build one, various investment plans available, strategies for systemic withdrawal of retirement funds and much more.
What are Retirement Plans?
A retirement plan is a financial product that is designed to provide income post-retirement. To build a retirement corpus, an individual must regularly contribute capital to their retirement plans throughout their working years. There are various retirement plan options available in India. Each plan has its unique features and benefits. Understanding these plans can help individuals make informed decisions about their retirement planning.
Different Retirement Plans that are Available in India
In India, there are various financial plans to help individuals plan their retirement. Some of them are mentioned below.
- Pension Plans
These plans are primarily designed to ensure financial stability and provide a steady post-retirement income. These plans can be further divided into two categories, namely immediate annuity plans and deferred annuity plans. While the immediate plans start paying out immediately after they are chosen, the deferred plans begin their payouts after a certain period.
- National Pension Scheme (NPS)
The National Pension Scheme is a government scheme that encourages individuals to build their retirement fund during their working years. While providing flexibility in investment choices between equity, corporate bonds and government securities, these plans also offer tax benefits.
- Public Provident Fund (PPF)
PPF is yet another plan that offers interest payments, and tax benefits and is backed by the Government of India. While it has a lock-in period of 15 years, it does allow individuals to withdraw their funds partially after a certain duration.
- Unit Linked Insurance Plans (ULIPs)
Individuals who want the benefit of investing in the Indian markets while having insurance coverage may choose to opt for ULIPs. While these plans offer the potential for higher returns, they are also linked with market-related risks.
Factors that Must be Considered While Choosing Retirement Plans
While selecting among various retirement plans, individuals must consider the factors mentioned below and choose a plan that suits their future financial plans.
- Risk Tolerance
It is important to assess your ability to take risks while choosing a retirement plan. If your risk tolerance levels are high, you may choose equity-based plans that provide high returns. On the other hand, you can go with debt-oriented plans if you prefer stability and low-risk options.
- Retirement Goals
While defining your retirement goals, make sure to factor in your lifestyle, medical and other possible expenses. Additionally, calculate the total amount with respect to an average inflation rate.
- Effects of Taxes on Your Retirements
Before choosing a retirement plan, understand the tax benefits that are provided by these plans. Various plans offer tax deductions and tax-free withdrawals under specific conditions.
Steps to Building Your Retirement Fund
You can follow the steps mentioned below to build the corpus for your retirement.
Step 1: Starting Early and Invest Regularly
Starting your contributions early towards a retirement plan is essential as it provides your investment more time to compound, leading to a larger retirement corpus. Even if your initial amount is smaller, the investments must be made regularly. Additionally, this allows you to build financial discipline.
Step 2: Diversifying Your Investments
To reduce the risk associated with investments, individuals must diversify their capital across different retirement plans and investment classes. This will also help to maximise the potential returns.
Step 3: Periodically Review Your Plan
Based on the changes in financial circumstances or market conditions, individuals must frequentl adjust their retirement strategy. This will help you to increase your potential returns while reducing the risk factor.
Creating a Withdrawal Strategy
Post-retirement, to make sure that your investment corpus lasts through your lifetime, individuals must have a sustainable withdrawal plan. In this plan, you can:
- Calculate Monthly Expenses: To acquire a monthly withdrawal amount, individuals must calculate an estimate of their monthly expenses.
- Factor in Inflation: To maintain purchasing power, individuals must take inflation into account while calculating the monthly withdrawal amount.
- Adjusting Monthly Amount Based on Market Conditions: Based on personal financial needs and current market performance, make sure to be flexible with your withdrawal amounts.
Conclusion
Careful planning and informed decision making is required when choosing the best investment plan. While choosing among various retirement plans and financial service providers such as Tata AIA, individuals must perform in-depth research. Selecting the right retirement plan involves considering essential factors like risk tolerance and retirement goals and following the steps mentioned above to secure your financial future. Moreover, starting early, contributing regularly and reviewing your plans frequently can further help maximise your potential returns to have a stress-free and comfortable retirement.
Disclaimer
The information provided in the above article is for informational purposes only. It is not a professional or legal advice. The Insurance Regulatory and Development Authority of India (IRDAI) is not responsible for decisions made based on the information available in this article.