On the surface, retirement planning appears to have remained relatively unchanged over the years. We work, save, and then retire. The mechanics remain the same. But today’s savers face some challenges that previous generations did not.
Life expectancy is increasing, which means you’ll need your money to last longer – possibly into your 90s. Bond yields are also much lower than previously, implying that you can’t buy a few fixed-income instruments and earn a double-digit return. Then there’s the public health crisis caused by the coronavirus pandemic. It gets exacerbated by the fact that more companies are shifting away from defined benefit pensions — which guarantee you a certain amount of money in your golden years — and toward defined contribution plans, which are vulnerable to market volatility.
So, how do you get the retirement you’ve always desired? Retirees want to do all the things they couldn’t do while working after all. Exotic vacations, marathon running, novel writing, and spending more time with friends and family are just a few of the options. There are several steps in this retirement guide that will help you map out a plan that is right for you, from budgeting and setting goals to selecting the best retirement savings account.
What exactly is effective financial planning for salaried employees in India for retirement?
Financial planning is a systematic approach to managing your finances that begins as soon as you earn money. It emerges as a powerful tool for salaried employees to make the most of their hard-earned money.
- Maintenance of monthly budget: It’s the first step in financial planning, in which a person must begin by saving a portion of their monthly salary. Maintenance of a written diary and recording the monthly budget can help wisely. Expenditures get generally classified into three types: Needs, Desires, and Savings. Financial experts recommend following the 50-20-30 rule, which states that you should spend 50% of your monthly income on necessities, 20% on savings and investments, and 30% on wants.
- Insurance plan: Putting your hard-earned money into a life insurance policy is a wise decision. Insurance is a type of protection for you and your family that you can use when necessary. Banks provide a variety of insurance options. The following are the most common: The two types of insurance: a) term insurance and b) health insurance.
- Paying Off Debts: Debt can be a real trap in one’s financial planning if not paid off on time. Yes, unless you pay off all of your debts, all of your earnings and plans will be for naught because you will get trapped in a vicious circle of monthly EMI payments.
- Retirement planning investment plan: This is the final and most crucial step in financial planning that will assist you during your retirement years. Most people forget about this because they spend half of their lives paying EMIs and debts. You must set aside at least 15-20 percent of your monthly income for savings.
But where should a salaried employee invest in a retirement planning investment plan?
You should invest money in the retirement investment plan via appropriate financial instruments to build a solid financial foundation for your retirement years. All investments may not guarantee substantial returns. However, the potential for healthy returns is higher if you invest wisely and for a period. A salaried individual must manage investments and expenses within a set income. As a result, salaried individuals must consider amount, risk, risk, and return when deciding on the best investment option for them.
- Real Estate: Many people avoid real estate investments because they believe they are risky or require a massive investment. Assetmonk, for example, can assist you in investing in the best CRE properties with a minimum of 10 lacs. It also offers accessible real estate investment opportunities through fractional ownership. Real estate, when approached wisely, can help you build wealth and passive income for your retirement years while also protecting your assets from market volatility. Real estate investments have historically been an excellent inflation hedge, protecting against a drop in the purchasing power of the rupees. The prices in some areas may fall over years or decades. But, most investors who see this trend will sell their property before losing money.
Do not miss Retirement Investment Strategies With Real Estate In India.
- Equity Mutual Fund: Equity mutual funds (MFs) invests at least 65 percent of their assets in stocks. They get invested in equities outperform fixed income instruments and inflation by a wide margin over the long term. They are ideal for retail investors who want to invest in stocks but lack the expertise or time. Equity funds also include a subset of funds known as Equity Linked Savings Schemes (ELSS). They are tax-deductible under Section 80C of the Income Tax Act. These funds also have the shortest lock-in period of any Section 80C option, at three years.
- Public Provident Fund: PPF is a central government-mandated scheme for salaried individuals. It got established to provide financial security to the elderly and is one of the safest funds among all investment options. PPF investments are also tax-deductible under Section 80C. It currently offers 8% compounded annual returns with a lock-in period of 15 years.
- Debt Mutual Funds: Debt mutual funds, for example, invest in fixed income instruments such as corporate debt securities, corporate bonds, government securities, and money market instruments. Debt funds are less volatile than equities and produce higher returns than fixed deposits. Furthermore, debt funds do not charge a penalty for early withdrawal. If you redeem your investment before a predetermined period, some debt funds may charge an exit load of up to 3%.
- National Pension System (NPS): The National Pension System (NPS) is a market-linked product used for retirement planning. Investors who do not fall under the ‘Government or Corporate’ model can participate in NPS through the ‘All Citizens of India’ model. The investments get locked in until you reach the age of 60. But it can get extended for another 70 years. A minimum of 40% of the accumulated corpus must get invested to obtain an annuity, with the remaining tax-free amount withdrawn at maturity. Section 80C allows for a tax deduction of up to Rs 1.5 lakh, and Section 80 CCD 1 permits an additional of up to Rs 50,000.
- ULIP: A ULIP is a product that combines life insurance with a market-linked investment. A portion of the premium gets used to ensure your life. But, the remainder gets invested in stocks, bonds, market instruments, and so on. They provide death and maturity benefits. ULIPs also have a 5-year lock-in period and are tax-deductible under Section 80C. Insurers also offer a variety of fund options to accommodate varying risk tolerances. You can also switch between these fund options to accommodate changing risk tolerance or market conditions.
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