Retirement Investment Options in India

What is Retirement Planning?

Retirement planning is one of the essential financial plans every individual must make. Simply put, it is a preparation you make for future financial expenses. Till you are working, there is a regular flow of income. However, after retirement, you need to have a steady income in order to continue your expenses and lifestyle. Apart from this, retirement planning may also help you meet some of your post-retirement investment goals as well.

Importance of Retirement Planning

Retirement planning has a lot of aspects, and most of the reasons only persuade you to start retirement planning today. Let's have a look at some of the benefits you avail yourself with a retirement plan –

Benefits

• You get a regular monthly income even after retirement
• You can meet your financial goals with the post-retirement income and do not have to limit your goals
• Individuals with retirement plans are also eligible for loans
• In case the policyholder passes away, the family left behind gets the benefits
• Retirement plans are pretty safe and secure

Examples A few examples of the retirement plans are –

• Fixed deposit
• National Pension Scheme
• LIC retirement plans
• NPS for traders
• Senior citizens savings scheme (SCSS), etc.

What happens if you do not Plan for Retirement

Individuals who work in the organised sector may receive retirement benefits, but that alone may not be enough for the rest of their life. Also, spending all your retirement money may only leave you puzzled about future expenses. So, to organise that money and keep it going for years ahead, you need a proper plan with a regular monthly income and several other benefits. On the other hand, people working in the unorganised sector may get no significant retirement benefit. This is why such workers must have a retirement plan so that they face no financial crisis post-retirement age.

Understanding Retirement Investment Options and Benefits in India

National Pension Scheme (NPS)

Launched by the Government of India, this is a retirement investment scheme to help retirees with a regular income flow.

Features

• A voluntary scheme that all Indian citizens can apply for
• You give the option to change the pattern of investment, fund manager and also the Point of Presence
• Your NPS account remains the same even if you switch your job
• One account for one individual
• Contributions begin from ₹ 500

Eligibility

• Any Indian resident between the age of 18 to 65 years is eligible for this scheme.

Benefits

• Easy eligibility criteria make the scheme very easy and accessible
• It is a voluntary scheme that offers flexibility
• An affordable way to secure your retired life
• A simple retirement investment that also comes with triple tax benefits²
• The earlier you start this investment, the more benefits you can reap

Public Provident Fund (PPF)

This is a savings instrument that also offers tax benefits². The main objective of the Public Provident Fund is to facilitate small savings like investments and convert them into profitable returns.

Features

• Affordable investment that can begin from ₹ 100
• The minimum tenure period is 15 years
• Funds must be deposited at least once in 15 years to maintain the account active.
• One account per individual

Eligibility

• Any Indian resident can apply, though one person can have only one account
• Eligible to open a second account as a guardian on behalf of a minor.

Benefits

• Income tax deduction under Section 80C of the Income Tax Act for all deposits and interest during withdrawal. However, the maximum deposit should not exceed ₹ 1.5 lakhs per annum
• Risk-free returns as the returns don't depend on any volatile market
• The low investment amount can also lead to accumulated funds
• Long term investment brings disciplined saving habits

Mutual Funds

These are some of the best private funding schemes, where the money is collected from different investors and invested in various asset classes, handled by a fund manager.

Features

• Mutual funds are registered with the Securities and Exchange Board of India (SEBI)
• Each fund is a trust, which involves trustees, sponsors, custodians and asset management companies(AMC)
• There are various types of funds based on your risk capacity
• You can invest in mutual funds either as a lump sum or through monthly or quarterly investment

Eligibility

• Any Indian resident above the age of 18 can invest in mutual funds.

Benefits

• Liquidity, investors can redeem their funds at any point in time
• Diversification of the funds results in a balanced portfolio, avoiding major losses
• With expert management, investors don't need any experience as experts handle the investments
• Allows low investments to begin
• Low fees for managing the funds
• Complete transparency on portfolio, funding and expenses

Fixed Deposits (FD)

These are one of the best low-risk investment options where a lump sum is deposited in a bank for a fixed tenure at a pre determined interest rate. However, the funds cannot be withdrawn within the tenure period. Features

• Single deposit is only allowed in one FD scheme.
• The tenure period can differ between 7 days to 10 years
• Minimum investment varies from ₹ 1,000 to ₹ 5,000 depending on the bank's policy
• The interest rates, once fixed, cannot be altered during the tenure period
• FD interest rates are higher than the savings account

Eligibility

• Any Indian or Non-resident Indian (NRI) can invest in FD
• Indian minors can invest under a guardian's holdings
• Foreign and domestic companies are also eligible
• Investors (individual or joint)
• Sole proprietors

Benefits

• Assurity on fixed interest, irrespective of the markets conditions
• Liquidity. Easy withdrawal of funds at any point.
• Availability of loan on fixed deposit
• The tenure period is flexible, ranging from a few days to months to years.

Atal Pension Yojna (APY)

This guaranteed^# pension scheme has been launched to ensure a regular flow of income for individuals who wish to have a safe retirement plan. Features

• Atal Pension Yojana is administered by Pension Fund Regulatory and Development Authority (PFRDA)
• Enjoy a regular flow of income after five years of account opening

Eligibility

• Individuals between the age of 18 to 40 years are eligible
• The KYC of the bank account must be done

Benefits

• Get a guaranteed^# monthly income between ₹ 1,000 to ₹ 5,000
• The Indian Government also contributes 50% of the subscriber's contribution to the account or ₹ 1,000 per annum

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

Launched by the Government of India, the scheme aims to provide senior citizens with a regular inflow of income. Features

• Receive a regular flow of monthly pension

Eligibility

• No cap on the minimum age
• The maximum age limit is 60 years
• The policy tenure is 10 years

Benefits

• One can avail of a monthly, quarterly, half-yearly, or yearly income
• Pensions can range from ₹ 10, 000 to ₹ 1,20,000

Life Insurance cum Pension Plans

As the name suggests, such plans offer annuity along with life coverage. A single plan comes with two crucial financial roles, savings as well as protection.

Features

• Life Insurance cum Pension Plans come with a death benefit. In case of death of the insured, the nominee receives financial aid
• The vesting period can be from 5 to 30 years
• Most plans come with assured additions
• There may also be a vesting benefit

Eligibility Most plans are available for individuals who fall in the age group of 25 to 70 years. A plan like the ABSLI Empower Pension Plan comes with an accumulation period of 5 to 30 years. Benefits

• Life Insurance cum Pension Plans offer much more than traditional pension plans.
• Inculcate a habit of disciplined savings
• When investing in the capital market, long term investments often prove to be very beneficial.

Employee Pension Scheme (EPS)

Launched in 1995, the Employee Pension Scheme is for employees working in factories and other establishments that come under the Miscellaneous Provisions Act 1952. Features

• Every month the employer contributes 8.33% of the employee's salary to the EPF.
• The Central Government also makes a 1.16% of the contribution
• In case of an employee's disability, the employer has to deposit the funds in the EPS fund

Eligibility

• The employee should have at least 10 years of service
• Retirement age – 58 years

Benefits

• An affordable way to safeguard your retired life
• Get a 2-year bonus on the completion of 20 years
• Even in the case of the death of the individual, the family can be eligible for a pension
• Under the EPS, pension plans for widows, orphans and children are also available.

Varishtha Pension Bima Yojana (VPBY)

With a lock-in period of 15 years, one can really make huge benefits at a comfortable premium. Features

• Varishtha Pension Bima Yojana has a lock-in period of 15 years
• After 3 years, individuals can take a loan up to 75% of the purchase price
• In case of critical illness, the yojana can be terminated, and 98% of the single premium paid is received. However, if terminated after 15 years, 100% returns are provided

Eligibility

• Any individual above the age of 60 years can apply for Varishtha Pension Bima Yojana.

Benefits

• You need not encash any amount. All the payments are made through either NEFT or ECS.
• You can easily avail a loan against this yojana after completing three years.
• As a matter of death benefit, the nominee of this yojana receives the death benefits in case the policyholder dies during the tenure.

LIC New Jeevan Shanti Plan

LIC always comes up with something beneficial for everyone. LIC New Jeevan Shanti plan can be started as early as you are 30 years old. Features

• LIC New Jeevan Shanti Plan provides the option of choosing between single life and joint life deferred annuity
• You can either purchase this plan online or offline
• It is a non-linked and non-participating plan

Eligibility

• The minimum purchase price is ₹ 1,50,000. There is no maximum limit
• People between the age of 30 years to 79 years can apply

Benefits

• In case of the death of the policyholder, the death benefit is given to the nominee.
• The annuity can be paid either yearly, half-yearly, quarterly, or monthly
• LIC New Jeevan Shanti Plan gives security to your family even when you are not there

Pradhan Mantri Shramyogi Maandhan Yojana (PMSMY)

In order to secure the financial interests of the workers of India, this plan has been introduced by Prime Minister for the unorganised sector. Features

• Individuals receive an assured pension of ₹ 3,000 per month
• This is a voluntary and contributory pension scheme
• It provides utmost social security to the unorganised sector workers

Eligibility

• Individuals with a monthly income of up to ₹ 15,000 can apply
• Age must be between 18 years to 40 years
• It is specially planned for unorganised sector workers

Benefits

• Receive ₹ 3,000/ month as a pension
• This plan provides a sense of social security to the workers.

NPS for Traders

National Pension Scheme for traders ensures that the trader and their families receive financial support after their retirement. Features

• This is a voluntary and contributory pension scheme
• This plan includes death benefits
• The spouse can also receive a family pension in case the policyholder dies.

Eligibility

• One must be aged between 18 to 40 years to apply.
• Individuals must have an annual turnover of ₹1.5 crores or below
• The applicant must be a retail trader/shopkeeper or self-employed

Benefits

• Get assured income of ₹3,000/month as a pension.
• In case the policyholder dies, the spouse receives 50% of the full pension as a family pension

Senior Citizen Savings Scheme (SCSS)

SCSS is a 5-year plan that lets you expand it for another 3 years. It is ideal for senior citizens who wish to get a stable monthly income after retirement. Features

• The interest rate offered under SCSS is revised quarterly
• The maturity tenure for SCSS is 5 years which can be extended for extra 3 years
• Deposit amount below ₹1 lakh can be deposited in cash

Eligibility

• People above the age of 60 years can apply
• Minimum deposit- ₹ 1,000
• Maximum deposit- ₹ 15 lakh

Benefits

• Premature withdrawal is allowed after 1 year of account opening
• Individuals can receive quarterly disbursals of the benefit in their linked account

Post Office Monthly Income Scheme (POMIS)

POMIS can be opened by a single individual or as a joint account. With a 5-year lock-in period, this plan gives great financial support Features

• Post Office Monthly Income Scheme can be opened for a single or joint account.
• Premature termination of the account is permitted after one year. However, a 2% deduction is charged from the principal amount.
• The lock-in period for POMIS is 5 years.

Eligibility

• The minimum deposit required is ₹ 1, 000
• The maximum deposit limit for a single account is ₹4.5 lakh, and for a joint account, it's ₹ 9 lakh.

Benefits

• Annual interest earned can go up to 6.6%
• In case of the death of the account holder, the nominee receives the benefits.

Senior Citizen Fixed Deposits

FD has always been a safe choice for deposits, especially for senior citizens who do not wish to take major investment risks. Features

• It is one of the safest and ideal retirement plans for senior citizens
• Avail high interests than others and enjoy better returns
• There are plenty of options to choose from

Eligibility

• One must be above the age of 60
• The minimum deposit may start at ₹100, and many banks offer no cap on the maximum limit

Benefits

• Enjoy interest rates as high as approximately 8%/annum
• Account can be opened with a minimum deposit of ₹100
• Enjoy a tenure of as minimum as 7 days and as long as 10 years

How to make a successful Retirement Investment?

You work hard to build a comfortable life for you and your family all your life. You mountain the best lifestyle that you can, and as you near retirement, you may have other goals in mind. Covering all aspects of your retired life becomes important while you are in your prime. With the right retirement investment plan, you can ensure that your golden years are spent doing what you love.

Let's take a look at that all that is crucial when making a retirement investment.:

Start Saving and Investing Early in your Life

When making any long term financial plan, the power of compounding can never be underestimated. While a higher risk appetite may promise you a higher reward, you need to be cautious of the market fluctuations always. You need to prepare a compounding graph that would help you stay on track.

You will realise how fruitful your investments can be when you start saving at an early stage in life. You get into the habit of systematic and disciplined savings, and thus you have more years to save. That's not all; you also gain years of experience and develop expertise in various investment options. With fewer responsibilities over your shoulders, you may feel more confident to invest aggressively.

Calculate your Net Worth

As an investor, it is vital that you know your net worth. Your net worth will give you a fair idea of whether you are on the right track to retirement, saving, investing and spending. The balance between your asset-liability greatly affects your net worth. Most financial experts suggest that one should reach 65 debt-free, though there's no denying that the sooner it is, the better.

Do not be disheartened even if you feel your net worth is not as high as you would want it to be. Calculate your net worth every year to know that your retirement goal is on track. Also, keep in mind that you need to set goals considering your net worth and work on them.

Calculate how much you need for your Retirement

Chalking out your current and future financial needs is important for retirement investments. You would have to determine your retirement spending needs. A foreign holiday, children's wedding etc. are a few instances you may want to save up for. In such a scenario, using an online retirement calculator is a great tool that would help you estimate how much you would need once you retire.

Using an instrument like the ABSLI retirement calculator is straightforward. It requires some basic details such as your current age, your retirement age, your gender, your monthly income and expenses etc. The ABSLI retirement calculator widget will give you the amount you would need to retire in a few seconds.

Maintain a Balanced Portfolio

Regular rebalancing or maintaining your retirement investment is crucial. When making long term plans, allocating a proportion of your portfolio with shorter tenure may allow easy liquidity. However, at the same time, you also need to make commitments that offer better returns. You may also want to have a portfolio that balances your risk appetite.

Pay Attention to Investment Terms and Conditions

When making a retirement investment, do not ignore reading the policy documents. While many of us conveniently overlook the offer documents, it can be a costly mistake. Save yourself any kind of heartburn later in life and read through the fine print.

Check Employer contribution method for your Retirement

Make sure you stay updated about your PPF or EPF accounts. These days just about every piece of information can be made available online.

Get Help when you Need it

While making a retirement investment may seem to be a simple task, it can often become a little overwhelming with so much to think about and plan. The best way here is to seek professional help. Take the help of a financial expert, discuss all your concerns with them and you will surely be directed in the right direction.

Buy Required Health Insurance Plans for you and your Family

The corona pandemic has been instrumental in making us all realise the importance of a health insurance plan. A health insurance policy can make or break any financial plan. With the rising healthcare costs, a visit to the hospital can easily take thousands down the drain. Investing in a comprehensive health plan for yourself and your family is important.