Retirement Solutions

To accumulate wealth for retirement the first thing you need to know is how much retirement corpus is required and when, considering all the factors which we discussed above. You need to consider the desired retirement age, the life span post retirement, the inflation during both pre and post retirement period and finally the average return that you would obtain while accumulating funds as well as during the retirement phase to calculate the retirement corpus required. Once you are clear about it then you can think about the options available to accumulate.

Accumulation products available in India for Retirement.

• Pension plans from Life insurance companies: Life insurance companies offer insurance cum investment plans which provides annuity income post retirement. The returns from these plans are generally less than inflation hence one should be careful before investing.
• Pension Plans from Mutual funds: This option is available to investors post 2018. They provide a mix of equity and debt-oriented investments in order to maintain efficient return with stability. The tax benefits are similar to life insurance pension plans and has a lock in period of 5 years. Investment can be done via SIP or in lumpsum.
• Equity mutual funds: An equity mutual fund is an aggressive option for the wealth accumulation but if your retirement is more than 10 years away then highly effective option because equity as an asset class provides the highest returns over the long term. Moreover, you can save taxes by using ELSS option. You can do regular savings by way of SIP as well as lumpsum investments.
• Employee provident fund and employee pension scheme: This is the natural and mandatory choice for all the employees working in government, semi government, PSUs and corporate sector. This scheme is run by central government and provides an interest rate of 8.1%. The employer as well as employee contributes 12% of employee’s basic salary. Few employees increase their contribution of EPF but that is not a prudent strategy as other better options are available. EPF has E-E-E tax benefit.
• Public Provident Fund (PPF): Self-employed and workers of unorganised sectors who are not entitled for EPF can open a PPF account which is again a sovereign guaranteed investment account. The current interest rate is 7.1% with an annual limit of 1.5 lakh and has E-E-E tax benefit. National Pension Systems: This scheme is open to all citizens of India but more beneficial for those not covered under EPF. NPS is run by the PFRDA who appoints professional fund managers to manage the fund. As NPS has equity exposure the long-term returns are better than EPF and PPF. The NPS has additional tax benefit of 50000 over and above the regular 80C limit.

Annuities – Annuities have been used for the retirement income for many years. Annuity is an insurance product in which you need to make an investment and it makes payments to you on a future date. The payments are determined on length of your payment period. It is a contract which can not be reversed so one has to be careful choosing the right option.

Types of Annuities:

1. Immediate Annuity: This type of annuity plan is purchased with a lumpsum amount and the pension begins immediately. This is the most preferred annuity plan.

1. Deferred Annuity: This plan has two phases, the accumulation phase and the vesting phase. During the accumulation phase the policyholder makes a regular contribution or lumpsum payment and allow investment to grow till vesting date. On reaching vesting date the pension begins.

As you can see for a stress-free retired life, you need to have clear idea about what type of retirement life you want to live, how much corpus is required to live your desired retirement life. How much you need to save and in which investment options and for how long. Post retirement which options to choose from the various options available for your regular retirement income and for your other desires. This requires a careful planning, appropriate investing, periodic evaluation and modification of your plan.