5 ways of financial planning for retirement

Ways of financial planning for retirement;  Why retirement planning important to us; Endowment plans for retirement planning; Retirement / Pension plans

5 ways of financial planning for retirement

How many of us are doing financial planning for retirement? As per a study conducted in India, only 10% of the individuals are creating a corpus for retirement planning. Majority of individuals are thinking about retirement planning, just 5-6 years before the retirement age.

Why retirement planning is important to us

Every individual wants to have financial independence after retirement. However when individual’s income is under sun-set, raising medical expenses, emergency money requirement and money required to live the balance of the life would become important.

When an individual should start for retirement planning

The early you start, the more corpus you would accumulate. The late you start, the more you need to save to achieve the retirement planning. Investing in best investment plans would maximise the accumulative value.

5 ways of financial planning for retirement:

There are various investment and retirement tools available for retirement planning.

1)   Retirement / Pension plans: There are several insurance companies which are offering retirement / pension plans. The early you start, the lower amount you need to invest in such plans. The returns on such plans would be sufficient for inflation in future years (rising prices year on year). Generally 30% of the sum assured would be paid as lump sum at maturity. The balance would be paid on annuity basis i.e. from 60 years of age; amounts are paid through equal amounts till the end of your life. Currently, there are very good retirement / pension plans available in the market which you can grab it.

2)   Endowment insurance plans: Another investment tool available to build retirement corpus is taking the endowment insurance plans. We should not mix insurance and investment. Insurance is a need. However endowment plan can be used as insurance plan cum investment plan. Under endowment insurance plan, insurer need to pay equal monthly/quarterly/yearly insurance premiums  till the end of the insurance period or till the time the insurer is survived. Taking endowment insurance plan not only provides for retirement planning, but it would also help the family to meet financial goals in case of absence of the insurer. Generally the annualized returns on insurance plans are ranging in 6% to 6.5%, which may be sufficient to beat the future inflation.

3)   Bank fixed deposits: There are various bank fixed deposits which are offered with higher interest rates for long term objective. The interest rates ranging from 8% to 9% per annum. However post tax the returns would be lower.

4)   Public Provident fund: PPF account needs to be opened for 15 years period and an individual can invest up to Rs 70,000 per annum. Apart from getting tax saving benefit, the yield would be 8%+ per annum. The PPF account can be extended for any number of years beyond 15 years. Currently the PPF account is offered in post offices and State Bank of India. This is one of the good ways of financial planning for retirement.

5)   Mutual funds: Investing in mutual funds would yield good returns in the long term. In the last 10 years, mutual funds have returned 15% annualized returns; hence this is also one of the good ways of financial planning for retirement.

Conclusion: Financial planning for retirement is very important for every individual. It should be started early in the life so that less amount can be saved every month / quarter to achieve the maximum corpus retirement. Do the retirement planning with diversified investment tools and options to maximize the corpus amount during retirement.

Readers, what your opinions about the financial planning for retirement?  Please give your comments.

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Suresh KP

One comment

  1. Dear Suresh,

    I am a regular follower of your website and I must say you are doing a great job of educating people like me about money matters and investments. However, I would really appreciate an article having a step by step account of how to go about retirement planning using SIP according to age.

    Everybody talks about mutual fund planning for retirement, but nobody talks about HOW exactly to go about it (e.g. invest in a mid cap fund for the first xx no of years, or invest in a large cap fund for yy number of years). Also, after you stop a particular category of SIP, WHAT DO YOU DO WITH IT?…….do you redeem the units and reinvest in another mutual fund of a different category, that too as a lump sum or as an SIP, or do you let it be till retirement?

    I realise that you need to factor in many other details such as the person’s income, monthly expenses, amount set aside for investment etc., but there must be a common thread to investment strategies.

    Basically, I would like to know how many months or years to continue on to an SIP of a particular category (large/mid/small/hybrid/etc) depending on years to retirement, should one have stages of investment (e.g. first 5 – 10 years, 2nd 5 – 10 years and so on) and any other such kind of useful information.


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