7 Essential Questions to Ask yourself while Planning your Retirement

Written by : Knowledge Centre Team

2021-02-28

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We work hard and earn our living so that when we retire, we can spend time with our families. Planning a trip abroad, starting a new hobby, giving more time to your children, and, above all, attaining full freedom are the things we aspire for after retirement.

But to make all these things achievable, we need to properly plan for our retirement. Retirement planning is essential to creating a good corpus during your work life that can be used in the future.

A good retirement plan will provide answers to the most important questions about your retirement goal.Here are seven of the most essential retirement planning FAQs that will help you plan effectively:

When to Retire?

This is the most common question regarding retirement. In India, the retirement age is generally between 58 and 60 years old. But nowadays, many people are taking early retirement from their jobs at the ages of 50-55.

The decision to retire must be made after considering various factors. These can be the following:

a) Financial Situation

You should be financially stable. That is the first and foremost consideration. After retirement, your income stops. Decide whether your corpus is enough to take you through the years to come.

b) Assess your Goals

There are some milestones that you want to achieve while you are still working. These can be marrying your daughter, taking care of your child's education, buying a new house, etc.

2. How Much to Save?

You need to save a certain amount regularly, specifically for retirement. The answer to how much you should save depends upon the age at which you will be retiring.

The more time you have before retiring, the less you will have to invest per month. On the other hand, you will have to save more if you start planning at a later stage.

Generally, the retirement fund should be such that it can replicate the income that you earned at the age of 30.

Let's understand with an example, Ishaan is a 30-year-old married individual. He decides to start saving for retirement. He currently earns Rs 1 lakh per month. To be able to live on this amount at the age of 60, he must contribute at least 9-10% of his monthly salary.

If he wants to retire early, say at 55, then he has to contribute in the range of 18-20% of his salary regularly. If Rahul wants to retire at 50, then the amount he has to contribute every month rises to a whopping 34%.

3. How Much Will you Need to Retire?

Everyone lives a different life. Thus, there is no specific amount that can be deemed enough for retirement. It depends on factors such as your current expenses, number of dependents, your future needs, etc.

Take into account all the future expenses you will incur. These can include your kitchen expenses, house maintenance expenses, and monthly bills. Make sure you keep a certain amount aside to meet emergencies as and when they arise.

Apart from these basic expenses, you should also consider your plans after retirement. Will you be working again? Will you be spending your money on leisure activities such as travelling, etc.?

Use a retirement planning calculator to find out the corpus you need to build.

4. Where to Invest for Retirement?

After assessing how much you can invest and how much will you be needing for your post-retirement, the next question that arises is how to reach that amount you require. Sound investments can help you do that.

You can invest in the following investment options for your retirement as per your risk appetite and preferences.

1. If you do not like to take many risks and want to ensure that your corpus remains safe then you can consider the following investments.

Public Provident Fund (PPF)
Employees Provident Fund (EPF)
Debt Funds

2. If you can afford to take some risks and prefer high wealth creation rather than average returns, then you can take a look at the following market-linked plans

NPS
ULIPs
Mutual Funds

If investment safety is your preference for retirement, you can consider the Guaranteed Savings Plan from Canara HSBC Life Insurance. This plan provides you with the benefit of savings while at the same time protecting you by offering life cover. In this plan, you are entitled to receive guaranteed returns on maturity, along with bonuses.

5. Will the Pension be Taxable?

All the investment options listed in the above point differ based on taxability. Whether the amount you receive at the end is taxable or not depends on the option you have invested your money in.

For example, if you invest a lump sum in immediate annuities on or after retirement, your regular pension will be taxable. However, long term ULIP plans and deferred annuity plans where you can invest regularly for some time may offer better tax benefits.

For example, ULIPs such as Canara HSBC Life Insurance Company’s Invest 4G allows tax-free partial withdrawals if:

Your annual investment into the plan has never exceeded 10% of the life cover
our total annual investment into this ULIP was below Rs 2.5 lakhs (w.e.f. 1st Feb 2021)

You can opt for the Century Option in Invest 4G to continue the plan for a lifetime. Once you retire, use its systematic withdrawal option to create a tax-free regular pension for yourself.

6. Is NPS Enough to Retire Safe?

NPS is one of the most popular investments to safeguard your retirement. In this scheme, your money is invested in market securities. The saving scheme will mature when you retire. You can withdraw 60% of your corpus at maturity, and the remaining must be used for an annuity.

Continuing with the same example as Rahul, He decides to invest 10% of his income, i.e., Rs 10,000, towards NPS. He decides to retire at 60. Assuming the rate of interest is at 8%, his corpus will be equal to Rs 1.48 cr. In the same case, if he continued with the policy for another 10 years, that is till 70, his corpus would become Rs 3.4 Cr.

Thus, the longer you stay invested in your NPS account and the more you contribute, the more wealth you can create.

Click here to use compound interest calculator

7. What is the Right Age to Begin Retirement Investment?

From all the points listed above, it becomes clear that the more time you give yourself to invest, the better your fund value will be, no matter which investment you choose.

So, it is better to start early. You can start by setting aside a small sum from the day you start earning. As your income grows, you can increase your contribution.

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