TomorrowMakers ™

Financial Planning

Can you afford to live to a 100?

30 May 2017
With a little pre-planning, you can live a comfortable life after retirement, even if you have no pension.
 

Kolkata-based Bolin Banerjee retired a couple of years ago. The 62-year-old is enjoying his second innings. His son Vikram is well settled in a private-sector job. So, Bolin is free to pursue his hobby of photography. Since retiring, he has been travelling in pursuit of good pictures.  

After working in a government job for 35 years, Bolin retired with a monthly pension of Rs. 40,000. He has a decent health cover of Rs. 25 lakhs. He has even made sure that after his demise, his wife will get a Rs. 15-lakh pay-out from his term insurance.  

At the age of 62, Bolin is fighting fit. Besides borderline hypertension, he has little to worry about on the health front. He may easily live another 25 to 30 years. The question that arises now is whether Bolin’s pension money will be enough for the next three decades. 

On the bright side, at least he gets pension. Private-sector retirees may never have a regular pension income. This would be the case for Bolin’s son, Vikram. In fact, Vikram could even end up living longer than his father, considering that life expectancy in India is rising. Census data says that five years are added to the life span of an individual every decade. This is due to rising incomes, constantly improving health care facilities and affluent lifestyles.

Planning for retirement with pension plans 

India lacks universal social security, making it necessary for people to plan for retirement well in advance. Pension plans are some of the best instruments in such cases, as they allow you to build a corpus over time, ensuring you have a steady income post retirement 

To get the most out of pension plans, it is best to start investing in them as early as possible. By doing so, you can eventually have more than one plan and use compound interest to grow your savings. Depending on the type of pension plan, you can either choose to start it with a lump-sum amount or through regular monthly deposits. Similarly, based on your preference, you can get a lump-sum pay out or a monthly income, at the end of the tenure. One of the best things about these plans is that you can opt for pension plans that offer tax benefits 

Other retirement options  

Public Provident Fund (PPF) has been a popular saving instrument in India for the past few decades. It continues to remain so, as the returns that an investor gets are tax-free. It comes with a considerable lock-in period of 15 years, but you get returns at 7.9% per annum. So, it manages to beat inflation. It also provides decent returns that could be useful in your retirement years. The government is also pushing the National Pension Scheme (NPS), which could turn out to be an excellent retirement planning option. NPS does not enjoy an EEE (Exempt, Exempt, Exempt) tax status yet. But NPS investments have become more attractive with the 2017 Union Budget. Now, you can withdraw 25% of the corpus for emergency use without it being taxable.  

Related: 5 Retirement Planning Blunders To Avoid

Equity mutual funds 

Equities provide the best long-term inflation-adjusted return, which makes them great for asset building over the years. Investing in an equity fund over the long term through a Systematic Investment Plan (SIP) is an ideal option. This way you benefit more from the power of compounding. This means the returns are reinvested along with the principal amount, thus enhancing the value of the corpus. Once you have built a considerable corpus, you can set up a Systematic Withdrawal Plan (SWP). With this you can withdraw a fixed sum each month, and this can give you a monthly flow of income during your retirement years.  

To cut a long story short, getting older does not have to be as bleak as it sounds. All you have to do is plan for your retirement. The trick is not to rely excessively on one product or asset class. Instead, look for a customised and comprehensive retirement solution. It should take into consideration your lifestyle, risk appetite, and long-term financial goals.  

 

 

Disclaimer: This article is intended for general information purposes only and should not be construed as investment, insurance, tax or legal advice. You are encouraged to separately obtain independent advice when making decisions in these areas.

 
 
 

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