Retirement Planning
Retirement Planning
Retirement Planning
Retirement planning means preparing today for your future life so that you continue to meet all
your goals and dreams independently. This includes setting your retirement goals, estimating the
amount of money you will need, and investing to grow your retirement savings.
Every plan for retirement is unique. After all, you may have very specific ideas on how you want
to spend your retired life. This is why it’s important to have a plan that is designed specifically to
suit your individual needs.
Why plan for retirement?
You retire from work, not life. You may have a new set of dreams for your post-retirement life. At
the same time, you may also want to maintain your day-to-day lifestyle without worrying about
expenses.
By planning in advance, you can define the path to achieve these life goals without any financial
dependence.
A step-by-step guide to planning your retirement
You may want to retire at the age of 60, or you may want to plan for an early retirement. The time
you have until retirement can affect a lot of your decisions.
For example, if you are 15 years away from retirement, you can choose to invest smaller amounts
every month. You can also afford to take a more aggressive approach towards investing. In
contrast, if you are 1-2 years away from retirement, you may need to invest a large amount in safer
options.
You may also want to consider factors like pending loans, current savings, ability to take workload
or stress, among others.
Here are some questions you can answer to find out your ideal retirement:
· Would you like to relax and spend time with family?
· Would you like to start a new business?
· Do you have any specific goals to fulfil after retirement?
· Does volunteering and helping your community excite you?
· Do you have responsibilities like your children’s education or marriage to fulfil?
These are just some of the factors you can consider to understand your ideal retirement lifestyle.
You may also have lifestyle-related expenses - some of which may continue even after retirement.
For example, utility bills like electricity and internet are likely to continue.
This is why you may want to go through your current expenses and identify which ones are likely
to continue post retirement.
Step 4: Estimate the cost of your retirement goals
You may want to buy a vacation home to enjoy your post-retirement years. You may also want to
take your spouse on a cruise or explore a new country every year. You need to estimate the cost of
these goals that you plan to fulfil during retirement.
Expense Cost
Living expenses ₹ 50,000 per month
Travel ₹ 5 lakh per year
Child’s education abroad ₹ 2 crore
Emergency fund ₹ 50 lakh
Note: These numbers are just indicative in nature.
In the above example, traveling once every year for 10 years will need a budget of ₹ 50 lakh.
Similarly, for 20 years after retirement, the living expenses could cost another ₹ 1.2 crore. Add to
this, child’s education of ₹ 2 crore and an emergency fund of ₹ 50 lakh.
When you add up all these expenses, it amounts to an estimate of ₹ 4.2 crore.
You will also need to factor in the impact of inflation on this amount.
Next, estimate how much these investments may grow until your retirement. This can give you a
good idea about how much you may need to invest further.
For example, let’s assume you are 45 years old and you have already saved ₹ 60 lakh over the
years. You may expect to earn 8% returns per annum over the next 15 years. You can then expect
your investments to be valued at ₹ 1.9 crore at the time of your retirement.
Step 8: Decide your monthly investment amount
You may want to invest a certain amount every month towards your retirement savings. The
amount of money you invest can have a big impact. For example, if you can invest ₹ 50,000 every
month without fail for 10 years, you can set aside ₹ 60 lakh. This money can grow over the years
and add a lot more value to your retirement savings.
Once you decide how much you plan to invest, you can find out the estimated value of your
retirement savings. You can compare this amount with your estimated cost of retirement. This can
help you identify any gaps and make necessary changes to your plan.
You can also choose a mix of equity and debt to grow your money.
Step 10: Choose if you want regular income or lump sum payout
The last step of retirement planning is about deciding your income after retirement.
You may plan your investments such that they mature on the day you retire and give you a lump
sum amount. You can also plan in such a way that when you retire, your investments give you a
lifelong regular income.
You can also invest your lump sum in an annuity plan and get lifelong regular income every
month, quarter, six months or year.
We understand that growing your money safely is important. This is why we have designed
retirement plans that suit your needs. Some of these plans offer you the potential to grow your
money. There are also plans designed to ensure a guaranteed1 regular income for life.
Types of retirement plans
Depending on your requirements, you can select from these two types of retirement plans:
Retirement Savings plans
These plans help you grow your money over the years before retirement. With these plans, you can
invest regularly over a period of time and build your retirement fund. Typically, you select such
plans when you want to grow your money in a safe manner and are planning for retirement well in
advance.
Retirement Annuity plans
These plans help you get regular, guaranteed1 income throughout your life. You have the power to
decide when you want to start getting your regular income. You can also choose whether you want
your regular income every month, quarter, six months or year.
Typically, you select annuity plans to secure your retirement with regular, guaranteed1 income all
your life
If you invest in a retirement savings plan, you get a lump sum amount as your retirement fund on
maturity. You can invest the entire lump sum amount or a part of it in an annuity plan to get
lifelong regular income.
When you invest in retirement annuity plans, you will start getting regular income every
month, quarter, six months or year starting either immediately or at a later period as per your need.
Depending on the Retirement plan you choose, you have the power to control.
Factors to keep in mind while
planning for retirement
What Are Pension & Retirement Plans?
Pension plans are investment plans that lets you allocate a part of your savings to accumulate over
a period of time and provide you with steady income after retirement. Retirement & Pension Plans
provide you with financial security so that when your professional income starts to ebb, you can
still live with pride without compromising on your living standards. Given the high cost of living
and rising inflation, Retirement planning has become all the more important.
1. NPS
The government of India introduced the National Pension Scheme (NPS) as a financial cushion for
retired persons. Some of its features are as follows:
A. Deferred Annuity
It is a contract with an insurance provider helping you build a retirement corpus. You can make a
single lump-sum payment or pay regular premiums over a fixed time-frame – the policy term.
Thus, this scheme helps you invest as per your resources.
When the policy period ends, your pension starts. If your retirement date is far in the future, this
plan is suitable for you.
B. Immediate annuity
It is a contract between an individual and insurance company, where in the individual pays a lump
sum amount and receives guaranteed income for lifetime, starting almost immediately.
ICICI Prudential Life's Guaranteed Pension Plan is one such retirement policy that offers both
Immediate and Deferred Annuity options. It offers several benefits:
The system is the exact opposite of home loan: it enables a senior citizen to receive a regular
stream of income from a lender (bank or other approved financial institution) against the mortgage
of his/her home. The loan amount is arrived at after considering various parameters such as the
market value & life of the property, age of the borrower(s), etc. The loan amount is paid in either
lump sum or periodical payments (including option of annuity payment).
The maximum tenure of mortgage under the reverse mortgage scheme is 20 years. Nevertheless, if
the borrower outlives the tenure of the loan, he can continue to stay in the house. However, they
will not receive any periodic payments after 20 years unless they choose the annuity payment
option. Further, if one the spouses dies, the other can continue to live in the house. The settlement
of loan will take place when both husband and wife die.
The other advantage of reverse mortgage is there are no repayments involved. Senior citizens are
not required to repay the loan along with interest. It is also a tax-friendly scheme. The lump sum or
periodic amount/annuity received under the reverse mortgage is considered as a loan and not
income for tax purpose. Further, capital gains tax will be attracted only when the property that is
mortgaged is sold to repay the loan.
The lender recovers the amount by disposing of the mortgaged property after giving an option to
legal heirs of the deceased borrowers to release the said property after settling the loan. In case the
property is sold by the lender, any surplus on account of such sale is to be passed on to legal heirs.
Deficit, if any, is borne by the lender. Such surplus is taxed as capital gains in the hands of legal
heirs and calculated in accordance with the income tax law.
The system is not, however, free from pitfalls. First, there is the case of banks capping the
maximum mortgage loan amount. Second, the property should be used only for self-occupation
during the tenure of the mortgage. Third, there is no provision to increase the payment amount to
meet contingencies, and various other costs such as legal fee, loan origination fee, charges relating
to property survey, valuation, title examination, stamp duty and registration, etc, could be
recovered from the borrower.
So, while the monthly payment may suffice in the beginning, senior citizens might feel the pinch at
a later stage in their lives. But despite these shortcomings, reverse mortgage can be a lifeline for
senior citizens and serve as a financial tool which enables them to live independently by retaining a
home during the sunset phase of their life and by monetising an illiquid asset - house property.
https://www.moneycontrol.com/news/business/personal-finance/how-reverse-mortgage-helps-
senior-citizens-increase-their-monthly-income-6319101.html
https://www.dnaindia.com/personal-finance/report-reverse-mortgage-a-gold-walking-stick-for-
senior-citizens-2790491
https://www.india.gov.in/spotlight/national-pension-system-retirement-plan-all