retirement Archives -

5 Ways to Park Your Retirement Money

Fri, 27 Aug 2021 05:33:44 +0000

The Buyt Desk

People retire from active jobs between the age of 50 to 60 years while life expectancy has risen to 80-90 years. This makes it essential that one must plan for their post-retirement expenses as you will be living for a longer time. If you are salaried you will receive a good amount of retirement corpus in the form of gratuity. You must ensure to invest your money in a way that will help you in generating a stream of passive income for you. Your retirement portfolio can possess some fixed income investment, some exposure to equity and a few government schemes that will help you in saving taxes.

Let’s look at some of the safer investment options for retirees-

Bank Fixed Deposit

Bank Fixed Deposit is one of the oldest ways of investment. Though the interest rate of FDs has seen a sharp decline still it is considered to be a safe and secure investment with a guaranteed return. The interest on FD at the present is somewhere around 4 to 7.5%. Ensure that you choose a recognised bank for parking your money and do not get mesmerised by slightly higher returns of not so known cooperative banks or other financial institutions.

Senior Citizen Saving Scheme

Anyone above the age of 60 can invest in a Senior Citizen Saving Scheme. The investor could deposit his/her money in SCSS through a bank and as well as in post offices. The tenure of SCSS is 5 years that can be extended by a block of 3 years after the scheme matures. It gives you interest on your deposit and currently, it is 7.4%per annum. This scheme specifically encourages retirees to invest their retirement corpus within three months of receiving it. The deposit in an SCSS account enjoys a tax deduction of up to Rs.1.5 lakhs under Section 80C of the Income Tax Act. TDS applies to the interest earned every quarter under the senior citizen saving scheme if greater than Rs.50, 000. To prevent TDS deduction if your income is non-taxable, fill the form 15H and submit it to the bank.

PM Vyay Vandana Yojna

It is a pension and retirement scheme operated by the Life Insurance Corporation Of India (LIC). The applicant must be 60 years of age and he/she will have to take this policy for the term of ten years. The minimum corpus for policy purchase is Rs 1.5 Lakh which will offer a monthly pension of Rs. 1000. The maximum corpus an applicant could invest is Rs 15 Lakh, which will offer a monthly pension of ten thousand rupees (Rs. 10,000). It provides the assured return at the interest rate of 7.40 per cent per annum for ten years. PM Vya Vandana Yojna offers a fixed amount as a pension, every month, quarter, half-yearly and yearly as chosen by the applicant.

Monthly income scheme (MIS)

The Monthly Income Scheme can be opened only in the post office. This scheme enables you to get a monthly income from your investment. You deposit a specific amount in MIS and the scheme in return gives the interest back to the investor. The upper limit that you can contribute in MIS individually is Rs 4.5 lakh but if the account is held jointly hen you can invest up to Rs 9 lakh during five years. The interest rate for the quarter ending 30 September 2021 is 6.6% per annum, payable monthly.

Equities

Putting a portion of your money in equity-based products is very important. Equity investment helps you generate inflation-adjusted returns as compared to any other investments. You can always choose a plan which helps you to withdraw a certain portion of your money through the Systematic Withdrawal Plan (SWP). For someone in his/her, 50’s or 60’s wanting to invest in equities can opt for hybrid funds which give a mix of equity and debt both. This will give a good diversification to your portfolio.

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Never Commit These 5 Mistakes With Your Retirement Fund

Tue, 01 Jun 2021 05:43:01 +0000

The Buyt Desk

When it comes to retirement planning it is still a vague concept for Indians. The PGIM India Mutual Fund Retirement Readiness Survey 2020 showed that half of the Indian urban population had no plan for their retirement. Not only did they lack a plan but are making blunders with whatever little they are saving.

Mistake number 1

Not considering Inflation

Only one in five Indians consider inflation while planning for retirement. There is a myth that expenses will drop once you reach old age, so you do not need a huge corpus. But it is exactly the opposite. You must calculate how the value of money changes with time. A Rs 500 note could have bought more stuff for you in early 2000 but in 2021 the same Rs 500 may not have that kind of value. With old age you would need more attention to your health and medical expenses will increase. Similarly, you will not have an active inflow of income but there definitely will be routine expenses as well.

Mistake Number 2

Not aware of the amount required to retire

You should sit down and calculate your expenses. Take the outer limit of every expenditure that you make consider inflation, medical expenses, grocery, electricity bill. Add this up to have a figure in front of you. Evaluate it with your investment and the return that you will earn on them. Match the figure and see are you investing enough to reach the goal of retirement expenses or not.

Mistake Number 3

Depending on others for retirement

As per the Retirement Readiness Survey 7 in every 10 individuals believe that their children will take care of them in retirement. But in reality, only 3 in every 10 individuals get retirement support from their children.

Mistake Number 4

Too early to start

Thinking that you have enough time in your hand and retirement planning can wait. But this delay will cost you. The sooner you start better you are. Organize your saving and investment in a manner that you dedicate a fixed amount towards your retirement planning right from your first salary.

Mistake Number 5

Don’t dip into your retirement fund for funding something more urgent

Just remember nothing is more urgent than your retirement preparedness. Whenever you shortfall does not eye this corpus for fulfilling short term events like vacations, marriage or children education. This corpus has a purpose and does not deviate from the path. Whether it is your NPS, PPF or EPF fund, if you have been saving it for retirement, don’t dive into it the minute you face a shortfall.

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3 Best Investments for Accumulation of Retirement Corpus Decoded!

Fri, 16 Apr 2021 05:51:16 +0000

The Buyt Desk

When you started your profession, you would have thought of buying a house. When you planned a family, you would have thought of your child’s future. When you think of aging, you buy medical insurance. But what about retirement planning? Your job or business is giving you a constant flow of money that will stop after retirement. Thus, you should definitely make a plan to substitute this income afterward to fulfill your financial needs. The sooner you begin saving for retirement, the higher corpus you can generate. A common principle of investment is the diversification of money in different assets. Take care of this while planning for your retirement.

The main criteria to determine investments for retirement are:

How much retirement corpus you will require?
To what extent can you take a risk?
What is your time horizon?
What is the tax liability for the investment?
How much return will the investment generate?
Whether the returns from an investment account for inflation or not?
Whether the investment will provide regular income after retirement or not?

Usually, individuals invest in traditional financial instruments such as FD and small saving schemes for retirement but explore other investments for higher and inflation-adjusted returns. Below are 3 most suitable investments that will help you lead a comfortable and content retired life.

Equity Mutual Funds: A risk-averse individual immediately turns his back towards market-linked equity funds. However, it is just a matter of understanding how equity mutual funds work before they become your favorite type of investment. Moreover, consult an expert financial consultant to decide how to and where to invest in equity funds. Let us closely compare these funds against the above-mentioned criteria for retirement planning.

Over a large time horizon, equity mutual funds can give you great returns. On average, the yearly rate for these funds comes out to be 12-16%.
Without a doubt, these funds are risky as their performance varies with the market. However, as mentioned above, the earlier you start to invest, the greater time you can stay invested. When you stay invested in these funds for a long time like 15-20 years then the risk is averaged out. In short, in a long investment horizon, the risk related to equity mutual funds is low. Also, when you are investing in equity funds, you do not directly trade in equity but hand over the management of your money to a fund expert. A highly knowledgeable expert manages your money, and thus, the associated risk is lowered. There is another way to mitigate risk associated with equity funds. You should invest using a Systematic Investment Plan (SIP) instead of investing money as a lump sum amount.
The returns from equity funds are tax-efficient. They are not taxed according to your income tax slab instead, LTCG tax applies to them. First, the returns from equity funds enjoy tax deduction under section 80C of the IT Act. Further, a return up to Rs.1 lakh is exempt from taxation. After that, the LTCG tax of 10% applies. Thus, in comparison to other financial instruments, you pay less tax when you invest in equity funds.
In the long term, the return rate of an equity fund exceeds the yearly inflation rate. As a result, these funds are good to beat the heat of inflation.
There are three investment modes in equity mutual funds: growth, dividend, and dividend reinvestment. It is possible for you to switch between these modes as per your requirement. In the initial years of your profession, growth mode will be good to generate wealth. After retirement, you can opt for the dividend option. It can be a substitute for your income. However, the problem is that the frequency at which the dividend is paid is not fixed. In this case, you can easily withdraw money from your fund account and invest in fixed-income financial instruments.

National Pension Scheme (NPS): Even now, you are not ready to take the risk associated with equity funds then let us look at a moderate risk financial instrument – NPS.

NPS can provide you decent returns. On average, you can expect a return rate of 8 to 10%. You have to cultivate investment discipline to invest money regularly in the NPS account to enjoy a good retirement corpus after service/business.
Investment in NPS is not risk-free. It is also a market-linked financial product. Nonetheless, the risk is moderate because the money is invested not only in the equity market but also in the debt market. You have the option to choose the fund in which your money should be invested. You can simply choose the low-risk NPS category to mitigate market-linked fluctuations.
After attaining 60 years of age, the accumulated corpus will be paid as a pension to you. Thus, your regular stream of income will continue. In case you wish to withdraw the accumulated amount after retirement, you can withdraw a maximum of 60% of the corpus accumulated. The remaining 40% will be disbursed as pension.
The money withdrawn as a lump sum amount after retirement is tax-free. NPS is considered for the yearly tax deduction of Rs.1.5 lakhs under section 80C of the Income Tax Act. It provides an additional tax benefit of Rs.50, 000 under section 80CCD (1B) of the IT Act as well. Thus, investment in NPS is tax efficient.
As a certain percentage of money is invested in equity under every NPS category, thus, it offers some protection against inflation.

Public Provident Fund (PPF): PPF is a Government scheme that helps you generate a corpus for retirement.

It provides reasonable returns though definitely lower than equity funds. The current rate of interest is 7.1%. The Government revises the rate every quarter. The interest of the scheme is definitely higher than that of a savings account. You can deposit up to Rs.1.5 lakhs per annum.
It is a safe investment, which provides assured returns after the lock-in period of 15 years.
You can withdraw the whole sum after 15 years or extend the scheme in blocks of 5 years.
The best feature of PPF is that it falls in the EEE tax category. The capital, interest, and return of this scheme are non-taxable.
Though PPF has advantages like tax benefit and assured returns, it does not provide a safeguard against inflation. If the rate of inflation is higher than the rate if interest offered in PPF, then there is no actual wealth accumulation.
Once the term is over, you can withdraw the corpus, however, the scheme does not provide you a constant income. After corpus accumulation, you can invest the money in fixed income instruments.

If you have not started retirement planning, begin now. The sooner you start, the better it is. While deciding on asset allocation, it is paramount to analyze the tax liability and consider the inflation rate.

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3 Must do’s for Retirement Planning

Wed, 28 Oct 2020 05:32:24 +0000

By Pankaj Mathpal,CFP

No matter what is your age how old or young you are – there will be a day when you will retire. We are living longer but can’t work that long. Old age and retirement age catches up. Once you retire your active income stops, and if you don’t have a financial plan in place, you may find it difficult to sustain. It becomes essential that you plan your old age during your heydays. The earlier you start better, you will be.

Absence of financial planning can land you in a cash strapped situation in old age. Too much of dependency on children or extended family could backfire, and as we know, there is no social security mechanism for senior citizens in our country. So plan your retirement and start now.

Retirement plan has two phases – accumulation phase and the distribution phase. The idea is to accumulate sufficient wealth during the working life so that you utilize it in post-retirement.

Factors that will determine your retirement plan

Whatever is your investment path do not forget inflation

One must factor in inflation while calculating the retirement fund- a 30 years old person spending Rs. 25,000 per month will need Rs. 143587 at the age of 60 years and Rs. 257143 at the age of 70, assuming the inflation of 6% throughout these years. If we consider the life expectancy of 85 years in this example and if I say that the person will invest his whole retirement corpus at 8% he needs to accumulate around Rs. 3.44 crores assuming that inflation will continue at the same rate after 60 years too.

Reaping ‘Power Of Compounding’ benefit

This is an early bird prize. For earning compounding interest, you have to start your retirement plan as early as possible. Compound interest on early investments adds up to significant multiples. So the earlier you start, the easier it will be for you to accumulate the desired wealth.

How to target inflation and earn returns higher than inflation?

Investing only in traditional products like insurance policies, fixed deposits, and small saving schemes may not be sufficient for creating the desired corpus. One must maintain proper asset allocation and invest some part of the savings in equity to generate decent returns in the long term. Invest more in equity and other risky assets when you are young and keep reducing the exposure in such assets with the progress of age. You may start with a small amount but keep increasing your investment amount year after year.

3 types of investment that can help you in fund accumulation –

National Pension Scheme (NPS)- This is a perfect investment option for those who have time in hand and are looking for a moderate -risk instrument. Assured return is in the range of 8- 10%. It invests in a mix of stock, bond and government securities. The National Pension scheme is a long-term investment plan which fetches regular pension once you retire. After retirement, 60% of the corpus can be withdrawn in a lump sum which is tax-free and the remaining 40% will be utilized as pension and will be taxed as your income. You will be contributing monthly/yearly as you please and build a corpus which is locked till you attain 60 years of age. The yearly investment will be entitled to a tax deduction within the limit of 1.5 lakh under 80CCE and an additional deduction of Rs 50,000 more under section 80CCD1(B). Employer contribution up to 14% of your salary gets a tax deduction under section 80CCD2.
Public Provident Fund (PPF)- With 15 year of lock-in a PPF account is a government-supported small saving scheme. You can deposit a minimum of Rs 500 and a maximum of Rs 1.5 lakh in one financial year. You earn interest as decided by the government on their schemes. It is a bit higher than the bank’s fixed deposit interest rates. At present, the interest on PPF for Oct-Nov-Dec 2020 quarter is 7.1%.
Mutual Funds (MF)- If you have a long-term horizon and want a better return than PPF and NPS then Mutual Fund could be a good option. They are capable of giving a return in the range of 12-15%, but the caveat is stay invested for a more extended period of time. When you are a long term investor, then you reap the benefit of the power of compounding as well. If you are a young investor, you can aggressively invest in equity funds and then switch to debt funds as you near your retirement. You can invest in MF’s through a systematic investment plan(SIP) investments. A SIP brings in a discipline to your investment, and you put in a monthly contribution in a staggered manner. When you invest over a long period irrespective of market condition, you get more units when the market is low and less when the market is high. This averages out your per unit purchase cost.

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Indians Are Not Saving Enough for Their Retirement, Says Survey

Wed, 21 Oct 2020 04:57:32 +0000

By Priyanka Sambhav

Are we not planning enough for our retirement? PGIM Mutual Funds’ Retirement Readiness Survey 2020′ tells us that that retirement planning is low on urban Indian’s priority list. An expensive holiday, children’s higher education, their marriage or even festival shopping gets priority over retirement saving.

The Retirement Readiness survey interviewed 3103 participants between the age of 26-60 in 15 cities and found that 51% of them had no retirement plan whatsoever, and 49% had a retirement plan. But those who did plan their finances for old age depended on life insurance and bank FD’s. 41% of people surveyed focused their retirement investments on life insurance, while 37% preferred fixed deposits. Those who planned their retirement heavily depended upon a conservative instrument of saving with minimum risk. Other retirement investments included health insurance gold, recurring deposits, POSS, NSC/ NSS and property. But the share of this investment was less as compared to life insurance and FD’s.

The survey also found that people are spending 59% of their income on current expenses. Another disturbing finding is that people are confused about the corpus that they would need for their retirement, and when they are calculating it, they are not considering inflation. Most felt that they would need around Rs 50 Lakh for retirement. So think if they retire after 30 years and assuming 5% inflation, so in 30 years Rs 50 lakh will be worth Rs 11.57 lakh only.

The survey also tells us that urban Indians are spending around 59% of income on current expenses, and saving and investment are taking a back seat.

After going through this survey if you have started thinking about retirement planning, then take these 3 steps and get started.

1)Think and figure out the age at which you want to retire. Consider this as the initial groundwork for an effective strategy. Once you know your time horizon, you will know what kind of investment and the level of risk that you can take on your investment.

2) Determine the kind of money you will need to live a comfortable life after retirement. You need to plan for more than what you need. Do not forget that inflation will be eating into your savings.

3) Financial adviser William Bengen in 1994 introduced the concept of 4% rule. According to him, a retiree corpus if calculated on 4% rule would create a paycheck that could last for 30 years. A person can outlive the funds that he has saved if his investment portfolio of 50% equity and 50% bond is such that he needs to withdraw 4% of it annually to fulfil his expenses. It may not be perfect, but we know the corpus and our costs we can draw a plan based on this principle. Let’s say that you assess that you would need Rs 1 lakh n a month for your expenses so in that case, your investment corpus should be of Rs 3 crore.

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