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How to Start your Retirement Plan?

dateKnowledge Centre Team dateMay 24, 2021 views117 Views
Retirement Planning in India | Best Retirement & Pension Plan | Buy Retirement Plan Online

Until about two decades ago, retirement was defined by the employer and their employees were not allowed to work after this age. The age was initially fixed at 58 for several years and then subsequently revised to 60 years.

With increasing life spans and opening up of a plethora of opportunities in a modern, liberalized Indian economy, people have the freedom to choose their retirement. Whereas some people decide to hang up their boots when they feel financially secure, others keep working until their health permits them to do so. But in either case, you need to start saving for your retirement as early as possible.

How to Begin Planning for Retirement?

If you have just started earning, it would be too early for you to judge what you would like to do. However, it’s always better to stay prepared for the most commonly expected future, i.e., retiring at 60 and living through 85.

As per a report titled, The Future of Retirement, the Cost of Ageing, by HSBC, 56% of the working population lives paycheque to paycheque, putting themselves at grave risk for the future. However, the reality is that most do not realise how important this goal is until they are very close to it.

Also, it’s not very difficult to start your retirement plan. Just keep in mind the following:

  • Retirement plan works on the principle of ‘income replacement’. So, if you are earning Rs. 30,000 right now, you should save to have this income as your post-retirement pension.
  • You should start investing at least 10% of your monthly income towards retirement. 15% is the best ratio you can get.
  • Consider higher savings as the scenario for employment keeps changing and you may face periods of unemployment. Inflation is another factor that you must consider. So, higher savings will keep it covered.

Where to Invest for Building a Retirement Corpus?

Initially, your investments may look timid, but the fund will grow over the years if you choose the right savings plans. Remember, you are saving to replace your current income. So, your annual savings will be limited to a percentage of your income.

To start you can save 10 – 15% of your monthly income into any of the following investment options:

1. Employees Provident Fund (EPF)

The EPF, commonly called PF, was launched in the 1950s as a retirement planning scheme for employees working in organizations with more than 20 staff members. A fixed percentage was deducted from the employee’s salary each month and transferred to the EPF account. The employer had to also contribute an equal amount to this PF kitty.

The government of India adds interest to this amount. This compulsory saving scheme ensured financial discipline and built a retirement fund for the employee. PF contributions are also attractive because they are deductible from taxable income.

Let us consider an example, if the basic component of your salary is Rs.15,000, about 12% of this would be your contribution to the PF fund. If you started contributing to PF at the age of 30 and expect to retire at 60:

Employee Contribution (@12%) Employer Contribution (@3.67%)
In a Month Rs.1,800 Rs.550.50
In a Year Rs.21,600 Rs.6,606
In 30 Years (with 5% Annual Increase in Basic Income) Rs.15,28,435 Rs.4,67,443
Total Contribution =Rs.15,28,435+Rs.4,67,443=Rs.19,95,878 (Average of Rs.66,529 per year)
Fund Value In 30 Years (with 8.5% Rate of Interest) Rs.69,97,411 (Approx. Rs.70Lakhs)

2. Public Provident Fund (PPF)

PPF is a Central Government guaranteed investment cum tax saving instrument, still considered to be one of the best options to deliver inflation-beating returns. The current rate of interest is 7.1% and is a safe option if you are looking at risk-free, stable returns in the medium-to-long term.

You can open a PPF account at select bank branches and post offices. PPF account has a minimum tenure of 15 years and can be extended in blocks of 5 years after maturity.

The amount deposited in PPF accounts is eligible for deduction under Section 80C. Whereas, all withdrawals are exempt from taxes. However, partial withdrawals are permitted only from the 7th year onwards. A minimum annual deposit of Rs.500 is mandatory to keep the account active.

If you start investing Rs.67,000 every year starting from the age of 30 and decide to keep the account running until you turn 60, you will earn a lump sum amount of Rs.69,00,000 (Rs.69Lakhs).

3. National Pension Scheme (NPS)

NPS is a voluntary pension scheme that is exempt from taxes both at maturity and annuity (up to 40%) stages. Contributions to NPS are also deductible, under section 80C, from taxable income. In addition, under section 80CCD(1b), contributions of another Rs. 50,000 are allowed for deduction from taxable income.

If you start investing Rs. 6,000 each month from the age of 30, you will build a retirement kitty with NPS, that will grow to approximately Rs. 74 lakhs by the time you turn 60. You can opt to withdraw 60% of the corpus or stay put and receive a pension each month. If you decide to hold the entire 100% for receiving the pension, you can expect around Rs. 40,000 each month.

Besides these legacy plans, you can also explore wealth generation plans that can grow some of your investments aggressively during the same period. This ensures you have Unit Linked Insurance Plans, Saving Plans with Guaranteed Returns in your investment portfolio. Here are some top retirement and pension plans offered by Canara HSBC Oriental Bank of Commerce Life Insurance.

i. Guaranteed Savings Plan

Guaranteed Savings Plan is a comprehensive instrument designed to meet multiple objectives such as wealth creation, insurance cover, and tax benefits. All investments are deductible under section 80C, from taxable income. In case of untimely demise of the policyholder, the family gets higher of the following as a lumpsum amount.

a. 11 times the annual premium

b. 105% of premiums paid until the death

c. Sum Assured

ii. Guaranteed Income4Life

A perfect saving and investment plan if you are looking for an income stream to match a future expense, such as post-retirement. You can choose to invest for a specific period (say 10 years) and defer the pay outs by another 5 years.

Your pay outs will start thereafter. You can also opt to receive the future regular income pay-outs as a lump sum calculated as the current value of the amount.

Retirement Planning in India | Best Retirement & Pension Plan | Buy Retirement Plan Online

The policy also offers some valuable additional features under the premium protection option. Premium protection will financially secure the goal in case of your death or disability within the policy tenure. Some key highlights of Guaranteed Income4Life are:

  • Future premiums are waived off in case of untimely demise or permanent disability.
  • In case of untimely demise, the family will receive the sum assured immediately. The family will receive the fund value at the time of maturity-either in regular income streams or as a lump sum

iii. Pension4Life

Pension4Life plan of Canara HSBC Oriental Bank of Commerce Life Insurance is one of the safest long-term investment plans that offers:

1. Immediate Annuity: The pension starts as soon as you invest a lump sum amount

2. Deferred Annuity: Invest gradually and start a regular stream of income a few years later

If you have recently retired and would like to invest a lump sum amount to earn a regular income, the immediate annuity will meet your requirement. If you have a long way to go before you retire, a deferred annuity gives you time to invest over the years and build a corpus.

You will get income streams called “annuities” till the end of your life after which the purchased/invested amount would be given to your nominee. In case you have opted for a Joint Life Annuity, your spouse would continue receiving annuity even after you, until his/her demise. The purchased/invested amount would then be handed over to the nominee.

To summarize, your retirement plan should be balanced keeping in mind your financial goals, security for your family, and your current ability to invest. A healthy mix of high-growth funds and relatively safer instruments will help you build a stable, sustainable retirement kitty that will allow you an equally comfortable lifestyle post-retirement.

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Frequently Asked Questions (FAQs) for Retirement and Pension Plans

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the Premium calculator available in the ‘Tools and Calculator’ section of www.canarahsbclife.com.

The Invest 4G plan offers three benefit options to choose from. If you have opted for the Life Option or Whole Life Option, the insurer will pay the nominee(s) death benefit if the policyholder meets with an unfortunate incident. However, in the Life Option with Premium Funding, the policy continues even after the death of the policyholder. The company pays the remaining premiums until the policy matures.

Life is unpredictable and so it is important to prepare for all eventualities. If you regularly save a substantial amount of your income for retirement, the corpus may expand to a comfortable level before retirement. In case you become disabled and are unable to contribute to the retirement plans, most plans will continue to multiply your savings. The amount already accumulated will continue to grow and besides the existing plans you can also choose to invest in pension schemes specifically designed for people with disability.

Investment in ULIPs like Invest 4G plan qualifies for tax deductions under section 80C of the income tax law. The maturity benefits of ULIPs are also tax-exempt under section 10 (10D) of the Income Tax Act, 1961. However, if the premium paid during the policy term is more than 10% of the sum assured, the maturity proceeds will be taxable.

The concept of early retirement is catching up fast in India, but there are no specified ages for early retirement. While in some western countries the age between 35 and 45 is considered favourable for early retirement, in India the ideal age is 45-50 years. With the right planning and investments, it is not very difficult to retire early.

At the age of 35-40, people generally have several responsibilities such as children’s education and various EMIs. It is difficult to spare a substantial amount of income for retirement. Depending upon the needs of the household and the lifestyle, one should aim to save around 40-50% of his/her income. Around 10% of the income should exclusively be allocated for retirement planning. Here are some tips to choose the best retirement plan.

  • Focus on your needs: It is easier to formulate a strategy when the goal is clear. Make an estimate of the amount required to sustain your life. Take inflation into account and zero in on the targeted corpus.
  • Research thoroughly: Conduct thorough research before investing in any financial product. Read the term and conditions properly and try to understand how an investment product fits your needs.
  • Consider different products: The market is awash with all kinds of investment products. Do not follow conventional advice as the need of every person is different. Take into consideration all the suitable products, conduct an objective analysis and then invest.

Owning a house is a cherished dream for many. There are several ways to save for a new house, but in urgent cases, people may be tempted to withdraw from their retirement fund. There are various financial products for retirement planning, and all have different withdrawal rules. In the case of the National Pension Scheme, partial withdrawals for special purposes like buying a house are allowed only thrice during the policy tenure. However, to avail the withdrawal facility, you should be an NPS investor for at least 10 years and you are permitted to withdraw only 25% of your contribution. If you have a PPF account, you can withdraw 50% of the accumulated amount, but only after staying invested for at least 6 years. The Invest 4G plan also allows partial withdrawals after five years of investment.

The quantum of monthly savings depends on the specific needs of the buyer. Financial advisors, however, suggest people save around 15% of the monthly income for retirement.

Retirement plans such as NPS have a very low entry threshold. It is also open to all and anyone can open an NPS account and start saving. A small business can also invest in Invest 4G plan from Canara HSBC Oriental Bank of Commerce for as low as Rs 5000 every month.

The choice between paying off a student loan or start a retirement account is not a difficult one. Starting early for retirement planning has its own advantages but extending the student loan will increase the interest burden. You will have to find a balance between the two. Try to pay off the student loan as soon as possible, but do not hold back on investing in a retirement account.

Most people nominate their spouse to receive retirement benefits in their absence. But a spouse is not automatically entitled to be the beneficiary of a retirement account owned by the other spouse.

Gold is a safe investment asset and investors often flock to the yellow metal to stabilise their portfolios. Holding a small quantity of gold can be considered as the intrinsic value of gold remains intact. You can also choose to have an exposure to gold through ULIPs. ULIP funds invest in a variety of asset classes and some fund options also have a small exposure to gold. You can choose fund options with gold to have a small and indirect investment in gold.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

The government has allowed all central government pensioners to open a joint account with their spouses.

Vesting date or age signifies when your pension plan’s accumulation phase is over and the distribution phase can begin. For example, in a deferred annuity plan, you may have a vesting date which is 10 to 30 years away depending on your age at entry. You will continue to invest or stay invested till the vesting date. After the vesting date or age, you can start receiving the pension or withdraw the money from the plan.

The steps may differ from plan to plan. However, you can buy the online retirement plans following the steps below:

  • Retirement Calculator: Use a retirement calculator to estimate your corpus need and expected monthly investment amount to achieve it
  • Choose Plan: Select the online retirement plan you want to start investing in
  • Contact Information: Fill in the personal details including the contact information. Make sure to put the correct e-mail ID which you can access since all future communication about the policy will take place via e-mail.
  • Define Your Investment: Select the goal, investment term, investment frequency and amount you want to invest (based on the calculator estimate)
  • Select Fund Allocation: Online retirement plans give you the option to invest in multiple assets including equity funds. You can select the ratio in which your premium will be allocated to these funds as per your risk appetite. Then select one of the portfolio rebalancing strategies.
  • Select Withdrawal Plan: You can withdraw money based on set milestone or systematically from the plan after the lock-in period. Select the options for withdrawal as per your plan.
  • Review Plan & Investment Details & Complete the Application Form

You can pay the premium amount before or after completing the application form to start investing.

The best time to plan your retirement is when you are planning your career. However, this may not be the time when you really start investing money for your retirement. You must start investing in your retirement plan as soon as you start earning.

Retirement is the only financial goal you cannot repair with other means of funding like a loan. Thus, developing the habit of investing with every income you have is the best way to have a comfortable retired life.

Insurance allows your family, especially your dependent spouse to continue living without financial worries if anything happens to you. Also, insurance may help you save enough for retirement in case of permanent disabilities. Additionally, life insurance retirement plans allow you to build a good retirement corpus with bonus additions.

Yes, you can change the nominee of the policy anytime you need. If you are using an Electronic Insurance Account (EIA) to manage your policies, you can change the nominees anytime from this account. Otherwise, you can contact the customer care to update the nominations on your policy.

You can opt for auto-debit of the premiums from your savings account. You can also pay the premiums online using your debit card, credit card or a payment wallet.

You can get Rs. 1 Core pension plan using the online retirement calculator. The calculator will assess your eligibility and provide you with the probable monthly or annual investment to achieve the goal. If the amount seems feasible you can complete the purchase online or set an appointment for a qualified advisor to help you in the process.

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