Retirement Benefit Plans in India

Planning for Retirement and supervising the same can lead to a smooth and comfortable retirement, but to achieve one's last goal of the life, one need to initiate planning with the assumption of responsibilities in his life.

While planning for your retirement you should prioritize your objectives and perspective towards life. In order to achieve the goal of retirement, one needs to understand few concepts like impact of inflation on retirement corpus, increase in average life expectancy etc.

Investment Plan for Retired Taxpayers

Given here is a mock investment plan for retired Indian Senior citizens. You can develop your own plan based on your needs and resources available to you.

Senior citizen should stick to risk free investment. They should utilize the investment instruments under section 80C to its fullest. In India Senior Citizen schemes are even more attractive and flexible than any other deposit scheme. Senior citizen may opt for ELSS if they want to earn slightly higher returns on their investment, but the same should not exceed 15-20% of their entire basket.

Retired Taxpayer
Option	Investment (Rs.)
Bank fixed Deposits	60,000
Senior Citizens' Saving Scheme	20,000
PPF	20,000
Infra bonds	20,000
Medical insurance	20,000
Total	140,000

Tips for Retirement Planning

A 5-step plan that you should put on a map for retirement planning.

Step 1: Start Taking risk Early On
Never delay in planning for retirement. Start as early as possible. When you are young, your risk appetite is high. Earning well and then harvesting high returns is on your top agenda.

For example,

Start Investing at the Age	Monthly Investment	Rate of Return (compounded annually)	Value on Retirement (at 65 years of age)
25	Rs.2,000.00	10.00%	Rs.1,26,48,159.00
35	Rs.2,000.00	10.00%	Rs.45,20,976.00

The longer the investment horizon, the longer you can save and benefit from compounding. With the lag of 10 years you have lost more than half of your retirement savings.

Step 2: Buy Buckets - Plan your Investment
Do not put all your eggs in one basket! To achieve the ultimate goal of retirement, one needs to plan it and build a diversified portfolio. A disciplined and systematic approach for investment can actually lead to accumulation of enough saving for retirement.

Step 3: Don't hesitate to take help - Financial planner/Advisor
Consulting a financial advisor who will help you chart out your investment would be a better option if you are not comfortable in making a workable plan. Your advisor should ideally present a number of alternatives to realize your true investment goal. Analyze these options from the retirement perspective, e.g. if you are a risk-averse individual, a limited equity exposure over a longer horizon could be a vital option.

Step 4: Stay on the top of it - Continuous Monitoring
Most of us set it, and forget it, but nothing is permanent except 'change'- the market moves on. Make sure the plan meets your investment objectives with changing market sentiments. For this your financial plan needs to be continuously monitored at regular intervals else your allocation can get out of whack. Also, understand in detail and get comfortable with the risks return trade offs, costs of investment and flexibility of your investment instrument(s).

Step 5: No withdrawal - before Retirement
Ideally, one should not touch the corpus meant for retirement, but after having a good start and building a good corpus, certain time period they start using the corpus for different purpose. One should avoid doing it, so that each and every goal can be achieved with out withdrawing the corpus built for retirement.

Retirement Investment Options

I. Public Provident Fund (PPF) - Features:

1. Fixed-income investment for high tax payers
2. Provides 8% post-tax return.
3. Tax rebate of 20% of the amount invested from your tax liability for the financial year, subject to a maximum of Rs 1,00,000. Interest received is also totally tax free.
4. The interest earned is compounded; that means you earn interest on the interest earned too.
5. All the balance that accumulates over time is exempt from wealth tax.
6. It has low risk - risk attached is Government risk.
7. Lack of liquidity: Withdrawal only after 6 year after you have first made investment. Loan against investment is granted from 3rd financial year.

II. National Saving Certificate (NSC) - Features:

1. Long term, Tax saving instrument that combines adequate returns with high safety.
2. It provides an interest rate of 8% p.a compounded semi annually.
3. Saves tax on amount invested and interest accrued thereon, also makes an investment which is sure to give attractive and safe returns.
4. NSC is available for purchase/issue at all Post Offices in India. Nomination facility is available for NSC. Certificates can also be transferred from one post office to any other post office. Transfer from one person to another person permissible in certain conditions.
5. Certificates are available in denominations (face value) of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000 & Rs. 10,000.
6. Period of maturity of a certificate is six years. Premature encashment of the certificate is not permissible except at a discount in the case of death of the holder(s) and forfeiture by a pledge and when ordered by a court of law.

III. New Pension System (NPS) - Features:

1. A pension plan where you can invest during your working years and withdraw when you retire.
2. Works like a mutual fund (MF). If you want to invest in the NPS, you can choose from three funds or a mix of funds.
3. You have the liberty to choose, change your fund manager, proportion of securities every year unlike mutual fund or unit linked insurance plans with a nominal charge of Rs. 20/-. However, you cannot make more than one switch every year.
4. Option to invest in annually, monthly or weekly basis. But it is advisable to stick to minimum transaction to save on transaction cost.
5. The best thing about this scheme is the fund management charge, which is a bare minimum of 0.0009%.
6. NPS doesn't offer tax benefits under section 80 C. NPS falls under Exempt-Exempt-Tax (EET) system. This means that the maturity benefits that you will receive at the retirement stage will be taxable.
7. Payments will be made once you reach 60 years of age. A part of your invested money (maximum of 60% of your corpus) will be paid out to you as lump sum, and the balance will be kept back as annuity. In case of your untimely death, your nominee will receive this pension.
8. The Tier-2 account is optional for the investors, as it is a voluntary savings account from which the investor can withdraw money, any time and any number of times.

IV. Insurance - Features:

1. Provides financial interests of the family of the deceased policyholder.
2. Covers death or critical illness.
3. Life insurance premium offers tax saving benefits.
4. Customized Life insurance products/policies offers specific advantages for different stages of life.
5. Offers pension/annuity plans.
6. A few policies offer loan facilities against the plan.

There are two kinds of life insurance policies namely the term life policy and permanent life policy.

Term Life Policy

Permanent Life Insurance

V. Monthly Income Plans (MIP) - Features

1. There are many mutual funds houses that have launched Income Funds in India.
2. MIP is a low risk mutual funds.
3. Monthly incomes are normally fixed term plans and appropriate for investors who seek regular risk free income over a period of time.
4. Invested in debt securities and deliver regular monthly income to investors.
5. The advantage of Income Fund is that it provides regular income to the investor either on a monthly or quarterly basis; it also provides stability of capital to the investor.

VI. Others
Other plans that one could opt for as follows:

1. Real Estate
2. Bank FDs and Trusts etc.

Last Updated on 1/18/2012

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