Retirement planning: Don't delay, start now!

Everybody has to retire sometime, be it corporates, sportspersons or professionals. One can assume that they may have planned for this well in advance. Likewise have you planned for your retirement? Here are a few basics that will help you.

What is Retirement Planning?

Retirement Planning is the process of determining retirement income goals and the actions and decisions necessary to achieve these goals. It includes sources of income, estimating expenses, implementing a savings program and managing assets.

Need for retirement Planning

Simplifying Retirement Planning

Firstly, you have to decide how big a retirement corpus you need depending on factors like your current living expenses, inflation, your future liabilities, likely expenses after retirement etc. Then you will have to evaluate how much you need to save every month to reach that corpus. This will depend on how long you wish to continue working. It’s up to you to decide that whether you want to work till 60 or retire at your forties or early fifties. The proportion of your savings will depend on this decision.

Here are some simple avenues by which you can build a healthy corpus for your retirement:

• You can open a PPF account. It is a government backed, long term retirement savings instrument which gives you tax exemption on the money you invest under section 80C of the Income Tax Act. Furthermore, the interest is also non-taxable and the maturity amount is exempt from tax as well. However, the maximum investment amount under PPF is Rs. 1 lakh p.a. for tax exemption.

• You can also invest in fixed deposits (FDs) but sometimes they fail the inflation test. The rate of inflation could be higher than the interest earned on the FD.

• Beating inflation often involves taking higher risks. Saving through market linked products may prevent inflation from eating into your returns. Equities can be one of the asset classes which may beat inflation in the long run. It works on the funda of “High risk, High returns”. However, you can also look at gold as an investment option. So, rather than following stereotypes to reach a retirement corpus, you should construct a portfolio based on your life-style, time horizon and risk appetite.

You can invest in Mutual Funds which is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. One of the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in the scheme. Ideally, one should begin saving it as soon as one begins earning. A Systematic Investment Plan (SIP) in mutual fund is also one of the route to help you to build a good corpus over the course of time.

If you are in your 20s or 30s, generally when you have a larger risk appetite, you can start investing in diversified equity funds, which carry the potential to create long-term wealth. A mix of large-cap and mid-cap funds can be a part of your portfolio. However, you may gradually shift your money to debt funds as you get closer to your retirement.

Retirement planning is still at a very nascent stage in India and clearly, Mutual Funds can co-exist with other retirement products. Our objective of this article is to help you in choosing right investment option to help you allocate your assets wisely and manage your financial needs for your retirement. However, you should consult a professional financial planner and get his/her advice before taking any investment related decisions.