India has one of the highest populations of youngsters, and
with each passing year, more and younger Indians are joining the workforce. At
the same time, India is expected to have a population of over 200 million who
will be above 60 years in 2035. This section of the population will need to be
able to financially support itself as the cost of living and lifestyles change.
As individuals are expected to live for 15-20 years post
retirement, it becomes essential for an individual to financially secure his
golden years. Added to this is the rising medical cost, which is running way
ahead of the normal inflation, and the breakdown of the joint family support
system.
Most working individuals in their early thirties may not
even think of a life after retirement. By the time they get into their forties,
the thought of retirement settles in and then begins the planning - one of the key
challenges here is to make up for the time that is lost due to lack of planning
early.
For example, if an individual spends Rs 25,000 a month
today, at an inflation of 7 per cent, the expenses after 25 years would
increase to Rs 1,36,000. Add to this medical expenses, which increase with age
and other expenses - the monthly expenses could actually exceed Rs 1,50,000.
Retirement
plan is a systematic process, the earlier one starts, the better it is, as
this gives one the opportunity to regularly save to build a corpus. The benefit
of time coupled with the power of compounding helps to create a substantial
retirement corpus.
There are two key phases in the retirement planning activity
- the accumulation phase and the annuity or payout phase. In the first one, the
individual contributes a certain amount regularly. The annuity or payout phase
is when the pension is paid out. The age from which one starts receiving
pension is called as the Vesting age.
HOW MUCH DO I NEED?
A systematic approach makes it easier to estimate the amount
required after retirement and accordingly select an appropriate financial
savings instrument.
Calculate: Based on the current expenses, calculate the
amount which will be required to financially support oneself and the family,
after retirement. Companies offering pension products have retirement
calculators on their websites which can help one to calculate the quantum of
money required post retirement for financial independence.
Save: Regularly start saving a predetermined amount of money
that will help you build the desired corpus for life after retirement. It is
advisable to put aside a portion of your income as savings before expenses,
rather than saving what is left after expenses.
PUBLIC PROVIDENT FUND:
Public Provident Fund is a 100 per
cent debt-oriented investment, guaranteed by the government of India. A minimum
contribution of Rs 500 a year is mandatory. This product has a lock-in of 15
years. Partial withdrawals are permitted from the sixth year subject to certain
conditions.
While EPF and PPF have been providing returns ranging
between 8.5 and 9 per cent (the current returns for 2014/15 are 8.75 per cent
and 8.70 per cent for EPF and PPF, respectively), the other pension products
have provided higher returns primarily due of the exposure to equities. The
below table depicts the performance of equity markets, the probability of
positive returns and the expected returns from a regular annual investment of
Rs 20,000 in equities.mosimage
EPF and PPF are tax free on maturity. For NPS the entire
proceeds are taxable. Maturity amount of unit-linked plans are tax exempt
provided the sum assured is 10 times the annual premium. An individual needs to
ensure that their retirement planning portfolio comprises of a mix of products
mentioned above. The key is to start early, make regular contributions and
remain invested till retirement age.
[Source: http://businesstoday.intoday.in/story/investing-tips-for-retirement-planning-icici-prudential-exec/1/217806.html]
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