8 Best Retirement Investment Plans & Options
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Several people in India do not have any financial plans for their post-retirement years. However, during these critical times when healthcare expenses are constantly on the rise and there is little dependence on children for financial assistance, ensuring your retirement corpus provides maximum benefits is important.
Why is Retirement Planning Important?
Your regular income discontinues when you retire and without enough investments and savings, sustaining your current lifestyle after retirement may be difficult.
If you invest your money in a bank savings account, the rate of interest is lower than the inflation rate, which means it will be inadequate to meet your future requirements.
Without retirement planning, you may have to depend on others for financial assistance and may face severe constraints in case of emergencies.
How to Choose Retirement Investment Plan?
You may choose from different investment options; however, opting for the right financial instruments is important.
The chosen retirement investment options should not only grow your savings but also give you a regular income during your golden years. While selecting the investment plans, consider the following factors.
- Write down your retirement goals
- Determine your regular expenses and take into account an inflationary increase in the costs
- Consider all your income sources after you retire, such as pension funds, insurance policies, etc.
- Estimate the number of years you will survive after retirement
- Think about your risk appetite
These points will enable you to estimate the retirement corpus you will need, which can help you identify the right retirement investment plans.
8 Best Retirement Investment Options
Mutual Fund Investments
MFs are an excellent option to build a retirement corpus. They can offer between 12% and 15% annual returns over a period.
However, interest rates are not fixed. You may choose between different types of schemes, such as equity, debt, and balanced funds. Initially, you may invest in equity funds and as retirement draws closer, you may switch to debt funds.
You may invest a small amount at regular intervals via systematic investment plans (SIPs) in some of the best mutual funds for retirement and build a large corpus over the long term.
Public Provident Fund (PPF)
PPF is a government-backed scheme, and your investments are eligible for tax benefits under section 80C of the Income Tax Act, 1961.
An amount of up to INR 1.50 lakhs per year is eligible for a tax deduction. It has a lock-in period of 15 years, and the interest rate is pre-determined by the government.
Fixed Deposits (FDs)
FDs have been a popular investment choice for decades. These deposits offer assured returns over the investment tenure.
Traditionally, only banks offered FDs; however, now several non-banking financial companies (NBFCs) also offer corporate FDs. Generally, the interest offered by NBFCs on FDs is higher when compared to bank deposits.
You may opt for cumulative deposits that help build a huge corpus because the interest is reinvested with the principal. Most deposit issuers offer a higher rate of interest to senior citizens. Alternatively, if you want to earn a regular income, you may choose non-cumulative FDs.
Senior Citizens Savings Scheme (SCSS)
This scheme is aimed at senior citizens who want income after they retire. You may invest up to INR 15 lakhs in Senior Citizens Savings Scheme (SCSS) and earn a pre-determined interest rate on the amount.
The scheme matures in five years but has a provision to extend the investment tenure by three years from the date of maturity. The interest is paid at quarterly intervals.
Post Office Monthly Income Scheme (POMIS)
You can invest from INR 1500 up to INR 4.50 lakhs in POMIS. The scheme has five-year tenure but does not offer any tax benefits. POMIS is not recommended if you are in the higher income tax bracket because the returns are taxable.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
It is a guaranteed pension scheme that offers a monthly payout for ten years. PMVVY has been extended up to 31st March 2023, and the entry age is above 60 years.
You may invest at least INR 1.50 lakhs to get a monthly pension of INR 1000. There are no tax benefits for investments in this scheme. You may avail of a loan for up to 75% of the deposited amount after three years.
Invest in real estate
Generally, the demand for real estate is constantly rising due to the increasing population in the country. Typically, when you invest in a property, its value continues to appreciate over the years.
However, before investing, you need to choose the location carefully to ensure maximum increase in the prices. You may earn a regular rental income from your real estate investments, which ensures you can sustain your lifestyle even after you retire.
RBI Floating Rate Savings Bonds
The Reserve Bank of India (RBI) Floating Rate Savings Bonds offer flexibility in terms of capital investments and age.
These bonds have seven-year investment tenure and are redeemed at face value on maturity. The rate of interest varies during the tenure.
The interest rate for the first coupon period paid on 1st January 2021 was 7.15%. The first coupon rate was higher when compared to other instruments like National Savings Certificate (NSC).
Investors aged between 70 and 80 years can prematurely withdraw their money after five years from the date of issue. Senior citizens aged over 80 years may withdraw their investments after four years from the date of investment.
Different factors to consider for planning your investment type
| Factors | What should I ask myself? | Reason/ Importance |
| Risk Tolerance | How much risk am I willing to take? Different investments have different levels of risk. | Crucial to align with your personal risk appetite. High-risk options like equities offer higher returns but come with volatility. |
| Return on Investment (ROI) | The expected rate of return from the investment. | Important to ensure your retirement corpus grows enough to beat inflation and support your lifestyle. |
| Inflation Rate | Consider the average inflation rate in India, which erodes the purchasing power of your returns. | Vital to choose investments that offer returns higher than the inflation rate to maintain purchasing power. |
| Liquidity | How easily can you convert your investment into cash without significant loss? | Essential to meet unexpected expenses or emergencies during retirement. |
| Tax Implications | The tax treatment of returns from the investment. | Tax-efficient investments can significantly increase your post-tax returns. Understand the tax rules for different instruments. |
| Investment Horizon | The period for which you plan to stay invested. | Longer investment horizons can justify higher-risk investments, while shorter horizons may require more stable options. |
| Income Generation | Does the investment provide regular income (e.g., interest, dividends, annuities)? | Critical for ensuring a steady cash flow to meet day-to-day expenses during retirement. |
| Capital Protection | The safety of the principal amount invested. | For retirees, protecting the capital may be more important than chasing high returns, especially in low-risk tolerance scenarios. |
| Diversification | The ability to spread investments across different asset classes. | Reduces risk by not putting all your eggs in one basket. Diversification can balance out the volatility of individual investments. |
| Government Guarantees | Are there any government-backed guarantees for the investment (e.g., PPF, EPF)? | Government-backed options tend to be safer, providing peace of mind regarding the security of your principal and interest. |
| Market Volatility | The extent to which the investment’s value fluctuates due to market conditions. | High volatility can lead to uncertainty in returns, which might not be suitable for conservative retirees. |
| Exit Load/Penalties | Any charges or penalties for early withdrawal or exiting the investment before maturity. | High exit loads can reduce overall returns, making it important to understand these before committing to an investment. |
| Reinvestment Risk | The risk that future interest rates will be lower when reinvesting the returns from an investment. | Relevant for fixed-income investments like bonds or FDs, where interest rates might drop in the future, affecting future returns. |
| Ease of Management | The complexity involved in managing the investment. | Retirees may prefer investments that are easy to manage, especially if they are not financially savvy or prefer a hands-off approach. |
| Estate Planning | Consider how the investment will impact your estate and the ease of transfer to heirs. | Important for ensuring that your wealth is easily passed on to your beneficiaries with minimal legal complications and taxes. |
| Costs/Fees | Any associated costs such as management fees, brokerage, or advisory fees. | Fees can eat into your returns, especially for actively managed investments. It’s important to understand all costs involved before investing. |
Power of compounding
It is never too early to put money in retirement saving plans. When you start investing at a young age, your capital is invested for a longer period. This gives you the opportunity of building a larger corpus through the power of compounding.
With compounding, your return on the principal is reinvested to earn additional income. This means the corpus becomes significantly large by the time you reach retirement age. Moreover, when you are younger, you can take more risks to earn higher returns on investments. This also gives you the chance to build more wealth over the long term.
You may conduct extensive research, analyze the different options, and choose from multiple investment products.
Investing is crucial but do not overlook the importance of regularly monitoring the performance of financial plans and making modifications to your portfolio based on your changing circumstances.
Moreover, before putting in your hard-earned money, check the terms and conditions carefully to avoid any hassles in the future.
