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Upon retirement, most individuals lose the comfort and security of a regular and steady income. While you are working and earning, you establish a certain standard of living and constantly strive to better your position. Maintaining this standard of living post-retirement is a challenge to say the least.
To manage your finances effectively after retirement you need to do things differently. There are several investment avenues that can be used for retirement planning. Before discussing these, let us look at the characteristics of these investment options.
Characteristics
- You must invest in safe avenues because you cannot afford to lose money at this point in life
- After retirement you will depend on these investments to meet your expenses, which is why it is advisable to opt for plans that offer periodic returns
Individuals are advised to consider various tax saving tips when weighing out different investment options for retirement planning.
Investment Options
a) Mutual Funds
These are professionally managed funds that pool revenue from different investors. The amount is invested in different asset classes, such as bonds, stocks, and other securities. Many experts consider mutual funds as a good investment option because of the different investment options based on risk profile, professional management, tax advantages, and low costs.
b) National Pension Scheme (NPS)
This is a government-approved retirement plan available for individuals and corporate employees aged between 18 and 60 years. There are plenty of guides and instructions available online on how to apply for NPS and you can sign up from the comfort of your home. Also, check the various tax benefits associated with this plan.
Individuals can opt for Tier I and Tier II (optional) accounts and must invest at least Rs. 6,000 per annum in their Tier I NPS account. Tier I has withdrawal restrictions, while there is greater flexibility on withdrawal in Tier II account.
The contribution made by accountholders can be invested in 3 asset classes: equity, government bonds, and securities issued by state governments, private companies, and public sector undertakings. Investors can be actively involved in the investment procedure or may rely on professional fund managers for the same.
When you reach the age of 60, you can withdraw a maximum of 60% of accumulated corpus as a lump sum. The remaining 40% is converted to annuity and you can use an NPS pension calculator to determine the precise amount of monthly annuity you can avail.
c) Employee Provident Fund (EPF)
EPF is available only to salaried individuals. Employers and employees contribute a pre-determined percent of basic salary every month. The accumulated money is available when the investor retires or resigns from the company.
d) Public Provident Fund (PPF)
PPF is a good tax saving and investment option. It is also a useful retirement planning tool, used by a large section of the population. Investors can invest between Rs. 500 and Rs. 1.5 lakhs per annum in their PPF accounts. The duration is 15 years, after which you can close the account and withdraw the amount, or extend in blocks of 5 years at a time.
e) Other Options
In addition to these, there are other investment avenues like insurance pension plans, reverse mortgages, Post Office Monthly Income Scheme (POMIS), fixed deposits, and Senior Citizens Savings Schemes (SCSS). You can look for more information on these before you make your final investment decision.