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What Is Retirement Planning And How Much Money Is Needed After Retirement In India?

dateKnowledge Centre Team dateJune 24, 2021 views192 Views
Retirement Planning | Buy the Best Retirement and Pension Plan

Retirement planning is a tough process, but the benefits of this investment are a boon to us during our old age. The process of identifying retirement income objectives and the actions and decisions required to meet those goals is known as retirement planning. It also involves estimating your expenses, identifying various sources of income, and maintaining financial stability.

Let us find out what is retirement planning, why is it necessary for retirement planning, how to plan for retirement, and how much to save.

What is Retirement Planning?

Retirement planning allows you to plan out your long-term financial goals and estimate future cash flows to make the right investment decisions.

Retirement planning is mainly preparing yourselves for life after you quit working. It does not necessarily depend on just financial aspects. It also considers non-financial features like lifestyle, decisions about living and even determines when it is the right time to quit. Retirement planning is an investment made midway through your life to set aside money for post-retirement.

Many reasons and events may arise in the future that may compel you to spend a significant sum of money. Additional medical bills, treatment expenditures resulting from illnesses, and other uncertain financial needs could cause. A retirement plan can help you overcome these situations.

How to Build a Retirement Corpus?

Retirement corpus is the fund you'll need to set aside and have saved towards the end of your working life. It is the first and foremost thing to consider before beginning with a retirement plan. Retirement corpus can be obtained using the formula:

Size of corpus = Annual income requirement/Investment yield.

Your Retirement Corpus Guide

4 Factors for Calculating Retirement Corpus

Retirement planning can help you make the right decisions related to financial or career aspects. Retirement plans allow you to make effective financial decisions. Retirement plans have tax exemption benefits. Section 80C of the Income Tax Act allows tax exemptions up to 1.5 lakh rupees annually.

1. Number of years until retirement

The ideal retirement age is 60 years. However, it is important to make plans post-retirement. Those who plan to retire early must be aware of the consequences in the future. Your post-retirement life will be longer if you desire to retire sooner. As a result, you will need to set aside a larger retirement corpus. However, this is not a feasible option as the time available is less in such cases.

2. Inflation rates

One of the most neglected factors when it comes to retirement planning is the inflation rate. Future planning involves a lot of aspects. One of them is unpredictable inflation rates. Your savings must be stable to meet these higher expenses in the future. Experts suggest that a 6 percent rate is the bare minimum. Calculating your inflation adjustments can be done using the following formula.

C(n) = C(t) * (1 + 6%) ^n

  • where C(n) = Corpus after a few years,
  • and C(t) = Corpus required today
  • n = number of years
  • 6% = Average inflation rate

3. Estimation of monthly expenses

Regular income that you receive post-retirement is the money that you save up over the years of your paid life. To enjoy more income post-retirement involves saving up more money. Setting your income criterion too low only makes it harder for you because it turns out to be inadequate. Calculate your monthly expenses using the following formula:

E = e*(1+r)^n

  • Where 'E' is the monthly expense at retirement time,
  • 'e' is the current monthly expenses,
  • 'r' is the rate of inflation during the accumulation phase,
  • and 'n' number of years left to retire.

Estimating your monthly expenses involves all those costs that go into home utility, health care, income tax, vacations, and emergencies. Consider all such factors to determine and calculate your monthly expenses.

4. Expected rate of return

During the accumulation period, you can afford to accept more risk in exchange for a larger return because you'll have more time to make up for any losses by increasing your earnings, delaying retirement, and so on. You can devote a larger portion of your investments in equities directly, through mutual funds, or through the National Pension System to increase your returns on investment.

Check if your retirement corpus will be enough.

However, it is advisable to go for other investment plans such as fixed deposits, the Senior Citizen Savings Scheme (SCSS), the Pradhan Mantri Vaya Vandana Yojana (PMVVY), and the Monthly Income Scheme (MIS). These are backed by the government and provide guaranteed regular income.

Retirement plans are important for managing and balancing out your expenditures and income and saving adequate amounts for the future. Apart from that, it also has multiple benefits, such as tax benefits. The first thing to do is calculate your retirement corpus and figure out how much savings must be done through your paid life to compensate for income post-retirement.

Canara HSBC Oriental Bank of Commerce Life Insurance offers assured loyalty additions through schemes such as Pension4life. They have the best retirement plans with limited premium pay to save you from a burden in the future. They can guide you to build a perfect retirement plan and provide you the best plan benefits. Figuring out where to reside post-retirement and investing in assets can help you save a lot of money later in the future. Renting out your properties can serve as an asset. Retirement plans allow you to figure out financial issues as a whole rather than individually. Consider your financial choices as a series of competing interests, each of which is influenced by the others. It will allow you to make better decisions. Peace of mind is one of the benefits of investing in a retirement plan in advance and figuring out all about it. They automatically relieve you of stress regarding future decisions.

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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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