In India, we are conditioned to put our loved ones' interests above our own. Hence, one works hard all one's life to make the family's dreams come true. In the process, one may fail to plan for one's own retirement. Retirement planning is essential for a stable post-income life, without dependence on relatives for sustenance.
How to save for retirement
The savings you set aside every month must actually be segregated into two heads: One, for your child's future education, and Two, for your retirement. Set aside money from your income under both these heads every month. Divert all additional earnings from gifts, salary increment, annual bonuses and other income from a side business or rent from property, etc. in your savings bank account. You can earn quarterly interest on the savings as well. In time, you will have a handsome corpus of savings ready for you by the time you round the retirement corner.
Grow your wealth
Over the course of your working life, you will accrue savings and enough money to make investments as well. If you have a large savings fund at your disposal, or if an investment has reaped good returns, you can reinvest the money in another instrument or make a fixed deposit. You should aim to grow your surplus money, so choosing the right instrument is key. While most people make a long term fixed deposit or recurring deposit, others might invest in Unit Linked Insurance Plans (ULIPs) or plug in a large amount of money in an annuity plan.
Invest in pension plans
Often, the best way to deal with retirement expenses is to invest in a good pension plan that provides enough income for the post-retirement years. This income can supplement your savings and returns from investment, such that you can pay your monthly expenses from it and also have some money left over for other incidental expenses.
Is there income tax on retirement benefits in India?
Yes, there is. So, tax planning is equally essential. Knowing the tax on pension in India is important to prevent any surprises later. If you have an insurance policy, you can save taxup to Rs 1,00,000 per year under Sec 80C. However, pension plans get a deduction of Rs 10,000 only, under Sec 80CCC of the Income Tax Act, 1961. This tax benefit is final and cannot be increased, even if one pays a premium on pension plan higher than Rs 10,000 per year. The deduction is clubbed under the overall exemption limit of Rs 1,00,000 so the overall tax benefit is brought down to Rs 90,000 per year. Similarly, while the maturity benefit of insurance plans is tax free in India, only one third of the pension plan maturity amount is tax free in a pension plan.