Retired life in India is evolving. Is your financial planning on track?

Retirement these days is about travelling the world and doing everything you missed out on while you were busy with your career. Here’s how to plan for it.

Retired life in India is evolving. Is your financial planning on track

With the 60s being considered the new 40s, how can retirement remain the same? This new phase of life is no longer about staying with your kids and grandkids, or moving to an old folks’ home. A lot of people are looking forward to their retirement to follow their dreams and passions. With time finally on their hands, they want to do all the things they were unable to do earlier because of work and family constraints. Why retirement savings must be treated as a marathon and not a sprint? Read more

Whether it is going on a cruise around the world, taking up a hobby, buying the car you have always fancied, learning a new instrument, visiting friends in various parts of the globe, or volunteering time and resources for a cause close to your heart, your retirement fund should factor in your aspirations. Along with covering basic expenses, your retirement corpus should also be able to pay for these other future needs.

Related: 5 Indian cities that are great for retiring in

Investments for a comfortable retirement

In addition to enhancing the returns on their retirement portfolio, investors also need to consider the payout or liquidity the investment offers during the vesting period. A good mix of traditional and alternative asset classes can help build a fall-back corpus as well as generate a regular income stream that can be used to fund all your essential and incidental needs. Here are some options to consider.

REITs: Real Estate Investment Trusts (REITs) are a great alternative to add real estate to your portfolio without the hassle of dealing with tenants, managing upkeep and maintenance costs, or overcoming the high entry barrier of purchasing a property. 

REITs operate like mutual funds, where the fund manager invests in high rent yielding properties such as commercial real estate, malls, hotels, hospitals, etc. In addition to gaining from appreciation on the REIT share price, a majority of the rental income (up to 90%) is distributed to shareholders as dividend income annually, which can be a precious addition to your cash flows.

Mutual fund SIPs: A systematic approach to equity investments, especially when initiated at an early age, can help you accumulate a substantial corpus for life after retirement. Mutual fund SIPs help even out volatility over the long term and compound your wealth. A modest SIP of Rs 10,000 at an average return of 12% p.a. will give you a corpus of about Rs 3.5 crore at the end of 30 years!

Investing via mutual fund SIPs have a host of other advantages too. You can save and invest as per your budget and increase or decrease contribution depending on liquidity. You also have the flexibility of switching between funds or redeeming investments as and when you wish. Having a large corpus at your disposal can be a great safety net and makes it easier to pursue any high value purchases, like making the down payment for a retirement home or a paying for a foreign trip without worrying about financial repercussions. 

Related: Investment options that are popular among retirees

NPS: The National Pension Scheme or NPS is a government sponsored pension plan with tax benefits that should be an integral part of your retirement investment plan, especially if you are a salaried professional. It offers the freedom to choose your own investment amount and pension fund as per your risk appetite. 

On reaching retirement age, 60% of the corpus can be withdrawn as a lump sum, while the balance 40% is used to purchase annuities. The withdrawable funds are tax-free in the hands of the subscriber and can be used to pay for immediate expenses like relocating to a new place, buying a car, or deployed towards income generating investments such as fixed deposits, debt funds, etc.

Related: Could NPS be the missing piece in your tax planning puzzle? [Premium]

Dividend yielding stocks: Those with an understanding of stocks and a higher appetite for risk can consider investing in shares of companies that have a track record of distributing earnings back to shareholders. Ideally, you would want to accumulate stocks of businesses that have a dividend payout ratio of at least 40% (proportion of annual earnings given back to shareholders) and a dividend yield of 3% (dividend as a percentage of stock price).

Over a period of time with a substantial holding, in addition to capital appreciation, the dividend income from such stocks could grow as the company grows, therby giving you a lot more liquidity in hand.

Related: Floating rate savings bonds: What makes them attractive for senior citizens?

Things to consider

  • Start early: Even the best of investment choices will not be able to get you to your retirement goal if you don’t start investing early. Time is the most important factor for compounding your savings. Is 50 too late for me to start saving for retirement?
     
  • Increase savings: Save more as you earn more. A bigger retirement kitty will be able to counter the effects of inflation and ensure you don’t have to work with a closed fist post retirement.
     
  • Have a diversified portfolio: Your financial plan needs to include different asset classes across the risk spectrum that have the potential to generate returns while minimising volatility. Consult a wealth management professional to help structure and streamline your retirement planning. 
     
  • Get insurance: With advancing age you are more vulnerable to serious health issues. Adequate health insurance coverage ensures that medical costs don’t eat away at your retirement savings. Answer these questions to see how your retirement days will look like?

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