Retirement Planning is the process of planning for a comfortable living after your earned income disappears. To avoid trouble down the road it is important to understand the various aspects concerning retirement planning.

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Retirement Income planning consists of Personal planning and Financial Planning. 

Personal planning involves identifying hobbies and activities that you would want to pursue after your working life is over.

Financial Planning is used to identify the investments that will fulfil your future expenses after Retirement.

Financial planning can further be categorized into short term goals financial planning and long term financial planning. For most individuals, retirement planning falls under long term goal planning. This time horizon bifurcation is used to choose the type of investments that will be earmarked for this goal.

Personal Planning

All too often people entering retirement do not place enough emphasis on personal planning to ensure they maximize their opportunities. So take the time now — at an early stage in your planning process — to think about the choices you have about how you would like to spend your time during retirement.

Do you want to volunteer at a local school or hospital? Take up that hobby you were always interested in, but never had the time to start? Go back to school and pick up a few special interest courses? Travel around the world? Buy property in a cooler climate and spend the summer months there?

These and many other lifestyle questions will be used to determine your investment options as they will drive the financial risk and return that must be met in order to achieve your goals.

Financial Planning

Will you have adequate funds to provide the kind of retirement lifestyle you envision? Remember your income will likely come from three general sources: government pensions, employment-related sources and your own personal investments.

Your retirement will be more enjoyable if your income is structured to fit your lifestyle choices and if you have developed a retirement plan to protect the assets you have worked hard to acquire.

Foolproof Steps To Retirement Income Planning

1. Identify & compare your income and expenses to determine any shortfalls or surpluses.
2. Use our Retirement Calculator to know how much upfront or SIP investment is required.
3. Review & analyze the various retirement income strategies.
4. Develop an action plan.

Investment Avenues To Create Your Retirement Fund

When we look across all the investment avenues available to save for your Retirement, we apply a general filter of Safety of Investment that guarantees a payout as income. We also need to beat inflation by around 3-4% only. Keeping this in mind, let us look at a few options that you can consider as avenues to create your retirement fund –

1. Public Provident Fund (PPF):

Public Provident Fund or PPF is one of the most popular age-old retirement planning strategies. However, PPF is popular with entrepreneurs for another reason.

PPF was created specifically to give people incentives to save for retirement.

Even if you are unable to pay your debts/liabilities, this investment of yours cannot be attached for recovery of the same, hence making it the safest option for a risk-taking entrepreneur. At a current tax-free interest rate of 7.8%, lock-in period of 15 years (options of pre-mature withdrawals and loan facility available) you can invest a maximum of 1.5 lakhs per annum. The maturity amount and the interest amounts are all tax exempted under section 80C. Your money will double in 16 years, triple in 24 years, quadruple in 30 years and quintuple in 34 years.

2. Mutual Funds:

The most sensible retirement portfolio is through the Mutual Fund route which can be created through a systematic or a lumpsum manner. This is something that most people are aware of but does not do it as systematically as they should!

You may create your retirement portfolio SIP in equity funds or lumpsum investment in liquid or debt funds and then systematic transfer or STP into equity. 

Systematic transfer of units or STP is similar to a SIP wherein there is a monthly investment made from the investor’s account to the fund account. The only difference is that in an STP the investor first accumulates a lumpsum usually in the liquid fund and then gradually (weekly or monthly) transfers a fixed amount to an equity fund. Hence, the risk exposure happens gradually and not outright like in the case of pure equity funds. 

This is one of the best proven methods for retirement planning and can be used effectively especially because of the tax efficiency. Equity mutual funds are tax free after 1 year of investment. So, if you withdraw money through a systematic manner for your post-retirement expenses, you can effectively create a tax-free inflation-adjusted pension for yourself for life! The only catch is to continue your investments without a break and not but the entire tree!

3. National Pension Scheme (NPS):

You can opt for NPS along with other traditional retirement options like PPF. Thus, this option gained maximum popularity primarily because of an additional tax saving investment of upto Rs. 50,000. This investment can be done over and above the 1.5 lakh 80C limit. 

This is a secured pension scheme approved by the Central Government wherein, a citizen between 18-60 years of age can contribute a minimum of 6,000 per year. This is investment option, you can choose both equity as well as debt in a chosen combination of the two.

However, in NPS, the withdrawal can happen only at age 60 (which means a lock-in period upto 40 years). Withdrawal also is only allowed upto 60% of the value and the remaining 40% needs to be put into an annuity for monthly pension. 

You might wonder why stocks aren’t on the list. Although the stock market has rewarded long-term investors with generous returns, over short periods of time it is prone to wild swings.

Save Now & Enjoy Retirement Later

If you’ve yet to start saving for retirement, make 2019 the year you ramp up. That’s because the more time you give yourself to grow your savings, the more you’ll get to take advantage of compounding growth.