How can you Structure a Retirement Plan if you are a Business Owner?

Written by : Knowledge Centre Team

2021-02-28

875 Views

Locate branch

Resume journey

Pay Premium

If you own a business, you are likely to stay active in it for as long as you can. Unlike corporate and government jobs where there is a set age till you can work, a business owner has no such limit.

But no matter how passionate you are about your business, there will be a time when you feel that maybe it is time to take the back seat. Thus, retirement planning is as important for a business owner as it is for a salaried individual.

Early retirement planning will help you retire free from financial stress and maybe even aspire to something unique.

Retirement and Pension Plans for Business Owners

As a business owner, you can safeguard your retirement by investing wisely. Your savings must grow over the years. Investing in the following investments can help you create a good corpus that you can use to live on after you retire from your business.

1. Public Provident Fund (PPF)

This is one of the safest investments that you can make with your money. A PPF scheme not only helps you save but offers interest on your money as well. This scheme is offered by the government, hence it is an extremely secure and trustable instrument to invest in.

Here are the things that you need to know about PPF:

a) The current interest rate is 7.1% per annum (w.e.f 1st April 2020).
b) You can invest a maximum of Rs 1.5 lakh in a given year.
c) The term of PPF is 15 years. This can be extended by another 5 years after maturity.
d) PPF is one of the few investments that enjoy an E-E-E status. That is the amount is exempt at all three stages, investment, interest, and maturity.

2. National Pension Scheme (NPS)

The NPS or National Pension Scheme, is a common retirement saving scheme for employed as well as self-employed people. A national pension scheme, or NPS, is a market-linked investment scheme. In this scheme, you can invest your money in market-linked funds such as debt, equity, etc.

National Pension System | National Pension Scheme

So, there are no fixed returns in NPS; these depend on the market performance of your assets. Here are the key features of NPS for retirement planning:

a. You can choose to invest by opting for one of the 2 options: Auto and Active
b. In the active fund option, you need to decide in what ratio your funds will be invested
c. The auto option works on pre-defined guidelines
d. NPS matures only after you retire or the age of 60
e. You can only withdraw 60% of the value after retirement. The rest is to be invested in an annuity
f. NPS is eligible for tax benfits u/s 80C and 80CCD (2)

3. Unit Linked Insurance Plan (ULIPs)

It is a type of life insurance policy but with rich investment features. If you invest in ULIPs for your retirement planning, you can invest in the market and grow your fund’s value. At the same time, your life is also financially covered. Key features of ULIPs for business owners' retirement are as follows:

a) ULIP combines the benefit of both insurance and investment in a single plan
b) You can invest in pure equity, pure debt or hybrid funds within the same plan
c) Option to switch between funds multiple times
d) Automated portfolio management for aggressive investors
e) Tax savings, including tax-free regular income anytime after the lock-in of five years

You can invest in the fund option as per your risk appetite and preference.

4. Pension Plans

A pension is the income that you receive after retirement. In a pension plan, you need to invest regularly while you run your business. From this, a regular income stream will be created for you after you retire.

Pension plans are of many types:

a. Deferred Annuity Plans

With this plan, you invest your money and will start receiving income at a later date.

b. Immediate Annuity Plans

Here, the regular pay-outs start immediately after your contribution

c. Pension With Life Cover

These are the plans that are from life insurance companies. A lump sum amount is given to the beneficiary if you die during the term

Annuity plans from Canara HSBC Life Insurance, such as Guaranteed Income4Life, offer you guaranteed benefits and ensure a regular income stream for you.

5. Mutual Funds

A mutual fund can also help you grow your wealth. A mutual fund is a type of investment fund that is created from the money invested by a large number of investors. This cumulative fund is then invested in market security to earn returns. There are many types of mutual funds available.

a) Equity Mutual Funds
b) Debt Funds
c) Liquid Funds
d) Hybrid Funds

Mutual funds have no certain limit or period of investment. Thus you can use these funds to invest in even after your retirement. This will keep your money working.

Structuring your Retirement Savings

Now that you know the various options you can invest in to plan for your retirement, here are some tips that can help you structure your savings.

How Much Should I Invest?

The answer depends on a lot of factors, such as your current and future expenses, goals, present income, liabilities, etc. However, as a small business owner, you should try to invest at least 20% of your income.

As a business owner, you are likely to be at more risk than a person who earns a regular salary. So it is even more important to safeguard your future. 15-20% is the ideal amount you should contribute specifically for retirement.

Allocation in Different Investments

You should not be dependent on only one investment to plan your retirement. Diversification is necessary to build your wealth. Investing in multiple assets also helps you limit your risk.

While planning for your retirement, you need to invest in a retirement and pension plan that offers you the safety of your corpus as well as an option that offers you maximum growth.

You should invest at least Rs 2.5 lakhs per year in your ULIP plan, this is because ULIPs are tax-free if the premium is less than Rs 2,50,000 in a year. The rest of the amount should be invested in NPS. You can select the Auto option to get steady growth and minimal intervention.

Why Invest 4G ULIP?

Invest 4G ULIP from Canara HSBC Life Insurance is perfect for planning your retirement. Invest 4G ULIP offers you the following benefits:

a. Option to continue the plan till 100 years of age
b. Choice of 8 funds to choose from
c. 4 automatic portfolio management strategies
d. Premium funding benefit
e. Systematic withdrawal option for building a pension

With ULIPs like Invest 4G, you can build your retirement corpus for as long as you like and then start your pension when you finally decide to retire.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

How to Start Retirement Planning?

Importance of future spending goals in retirement planning

Retirement - Top Selling Plans

We bring you a collection of popular Canara HSBC life insurance plans. Forget the dusty brochures and endless offline visits! Dive into the features of our top-selling online insurance plans and buy the one that meets your goals and requirements. You and your wallet will be thankful in the future as we brighten up your financial future with these plans.