RETIREMENT PLANNING

Retirement planning means preparing today for your future life so that you continue to meet all
your goals and dreams independently. This includes setting your retirement goals, estimating the
amount of money you will need, and investing to grow your retirement savings.

Every plan for retirement is unique. After all, you may have very specific ideas on how you want
to spend your retired life. This is why it’s important to have a plan that is designed specifically to
suit your individual needs.
Why plan for retirement?
You retire from work, not life. You may have a new set of dreams for your post-retirement life. At
the same time, you may also want to maintain your day-to-day lifestyle without worrying about
expenses.
By planning in advance, you can define the path to achieve these life goals without any financial
dependence.
A step-by-step guide to planning your retirement

Step 1: Set your retirement date

The first step of retirement planning is to answer the question: At what age would you like to
retire?

You may want to retire at the age of 60, or you may want to plan for an early retirement. The time
you have until retirement can affect a lot of your decisions.

For example, if you are 15 years away from retirement, you can choose to invest smaller amounts
every month. You can also afford to take a more aggressive approach towards investing. In
contrast, if you are 1-2 years away from retirement, you may need to invest a large amount in safer
options.

You may also want to consider factors like pending loans, current savings, ability to take workload
or stress, among others.

Step 2: Decide what you would like to do after retirement

You may want to live a simple life, or you may have large dreams like starting a new venture or
taking up new hobbies. Your post-retirement lifestyle can dictate how much you may spend on a
daily or monthly basis.

Here are some questions you can answer to find out your ideal retirement:
· Would you like to relax and spend time with family?
· Would you like to start a new business?
· Do you have any specific goals to fulfil after retirement?
· Does volunteering and helping your community excite you?
· Do you have responsibilities like your children’s education or marriage to fulfil?

These are just some of the factors you can consider to understand your ideal retirement lifestyle.

Step 3: Find out what expenses would continue after retirement

Your monthly expenses today may or may not continue post retirement. For example, you may be
paying for your child’s education currently. But if they are likely to graduate before you retire,
those expenses may not continue.

You may also have lifestyle-related expenses - some of which may continue even after retirement.
For example, utility bills like electricity and internet are likely to continue.

This is why you may want to go through your current expenses and identify which ones are likely
to continue post retirement.
Step 4: Estimate the cost of your retirement goals
You may want to buy a vacation home to enjoy your post-retirement years. You may also want to
take your spouse on a cruise or explore a new country every year. You need to estimate the cost of
these goals that you plan to fulfil during retirement.

Step 5: Plan for an emergency fund

There can be unexpected circumstances like medical emergencies or accidents. Such situations can
create a financial strain after retirement. By building your retirement savings, you can build a
cushion that can minimise the impact of such unfortunate events.

Step 6: Tally the amount and add inflation

By now, you may have a clear picture of your retirement lifestyle and goals. The next step involves
listing these down and assigning an amount for each goal or expense. For example, you can make a
list like below:

Expense Cost
Living expenses ₹ 50,000 per month
Travel ₹ 5 lakh per year
Child’s education abroad ₹ 2 crore
Emergency fund ₹ 50 lakh
Note: These numbers are just indicative in nature.

In the above example, traveling once every year for 10 years will need a budget of ₹ 50 lakh.
Similarly, for 20 years after retirement, the living expenses could cost another ₹ 1.2 crore. Add to
this, child’s education of ₹ 2 crore and an emergency fund of ₹ 50 lakh.

When you add up all these expenses, it amounts to an estimate of ₹ 4.2 crore.

You will also need to factor in the impact of inflation on this amount.

Step 7: Calculate how much you have saved already

You may have saved regularly over the years. Your workplace may have also contributed regularly
to an Employee Pension Fund. You should take stock of all your investments to date.

Next, estimate how much these investments may grow until your retirement. This can give you a
good idea about how much you may need to invest further.

For example, let’s assume you are 45 years old and you have already saved ₹ 60 lakh over the
years. You may expect to earn 8% returns per annum over the next 15 years. You can then expect
your investments to be valued at ₹ 1.9 crore at the time of your retirement.
Step 8: Decide your monthly investment amount
You may want to invest a certain amount every month towards your retirement savings. The
amount of money you invest can have a big impact. For example, if you can invest ₹ 50,000 every
month without fail for 10 years, you can set aside ₹ 60 lakh. This money can grow over the years
and add a lot more value to your retirement savings.

Once you decide how much you plan to invest, you can find out the estimated value of your
retirement savings. You can compare this amount with your estimated cost of retirement. This can
help you identify any gaps and make necessary changes to your plan.

Step 9: Choose your investment option

Every investment option has a different way of earning returns. Some options, like equity, have a
higher potential of earning returns, but they come at the cost of higher risks. Other options, like
debt or fixed-income investments, offer a safer approach but may earn lower returns.

You can also choose a mix of equity and debt to grow your money.

Step 10: Choose if you want regular income or lump sum payout
The last step of retirement planning is about deciding your income after retirement.

You may plan your investments such that they mature on the day you retire and give you a lump
sum amount. You can also plan in such a way that when you retire, your investments give you a
lifelong regular income.

You can also invest your lump sum in an annuity plan and get lifelong regular income every
month, quarter, six months or year.

Where to invest for retirement?

Many investment options can help you save for retirement. Some options may attract higher risks;
others may help you protect your wealth.

We understand that growing your money safely is important. This is why we have designed
retirement plans that suit your needs. Some of these plans offer you the potential to grow your
money. There are also plans designed to ensure a guaranteed1 regular income for life.
 Types of retirement plans

Depending on your requirements, you can select from these two types of retirement plans:
Retirement Savings plans
These plans help you grow your money over the years before retirement. With these plans, you can
invest regularly over a period of time and build your retirement fund. Typically, you select such
plans when you want to grow your money in a safe manner and are planning for retirement well in
advance.
Retirement Annuity plans
These plans help you get regular, guaranteed1 income throughout your life. You have the power to
decide when you want to start getting your regular income. You can also choose whether you want
your regular income every month, quarter, six months or year.
Typically, you select annuity plans to secure your retirement with regular, guaranteed1 income all
your life

How retirement plans work

Before choosing a plan, you must, first, identify your needs and goals. If you have some years until
retirement and want to build a corpus, you can go for a retirement savings plan. If you are nearing
retirement and have some funds to invest, you can choose a retirement annuity plan.

If you invest in a retirement savings plan, you get a lump sum amount as your retirement fund on
maturity. You can invest the entire lump sum amount or a part of it in an annuity plan to get
lifelong regular income.

When you invest in retirement annuity plans, you will start getting regular income every
month, quarter, six months or year starting either immediately or at a later period as per your need.

Depending on the Retirement plan you choose, you have the power to control.
Factors to keep in mind while
planning for retirement
What Are Pension & Retirement Plans?
Pension plans are investment plans that lets you allocate a part of your savings to accumulate over
a period of time and provide you with steady income after retirement. Retirement & Pension Plans
provide you with financial security so that when your professional income starts to ebb, you can
still live with pride without compromising on your living standards. Given the high cost of living
and rising inflation, Retirement planning has become all the more important.

Why You Need Pension & Retirement Plans?

Retirement & Pension Plans provide ample regular income in retirement with the help of money
saved during work life. Your family can maintain its lifestyle without your regular pay cheque
despite constantly rising living costs.
Adequate retirement planning also help you to meet unexpected expenses without a worry.

3 Reasons You Need To Start Your Retirement Planning Today

By your mid-thirties, chances are that your standard of living has seen a great improvement since
your twenties, when you first joined the workforce. But have you stopped to think about what
happens when you are no longer able to work for a living? No, retirement planning is not
something you need to worry about when you’re older. It’s something you need to act on today.
Getting an early start on building that retirement nest egg can make a world of a difference to the
security of your financial future. Here’s why you should start planning for your retirement today.
More Savings, More Earnings
We all know the burden of taxes can be a hard one to bear, especially when you have a family to
provide for. With the weight of these financial burdens, it can be easy to neglect yourself and your
future financial security. You tell yourself that you’ll start saving for retirement once you get that
promotion, once you turn 40 or once your kids go off to college.
However, the sooner you begin the better. In fact, investing money in your retirement plan can
even help you save on taxes. By investing in retirement schemes such as the Public Provident Fund
(PPF) and New Pension Scheme (NPS), you can avail up to Rs.1.5 lakhs in tax deductions under
Section 80C.*
What’s more, the power of compounding has a lot to offer you. Say you begin investing Rs.300 per
month at the age of 25. Assuming an interest rate of 8%, you’d have over Rs.1 million by the time
you are 65. Now if you invested the same amount starting at the age of 35, you’d have only
Rs.440,000 at 65. In this case, starting a decade earlier would more than double your final amount.
Maintaining Your Independence
When you’ve spent your life supporting and providing for your children, it’s likely that they will
want to help you out financially in your old age. However, being too dependent on them could
mean them delaying their own financial goals as young adults. Wouldn’t it be better instead for
you to have your own source of income? The earlier you start on your retirement savings, the
bigger corpus you’ll have to fall back on. Perhaps you will even be able to help your children as
they get settled!
And should something happen to you, a retirement plan or a pension plan will help ensure that
your spouse and children are looked after in your absence.
Reaping Rewards
Sometimes it seems that the harder you work, the more inflation gets ahead of you. But what do
you do about it? You save - not only for short-term goals and emergencies, but for your retirement
as well. Even if it is only a small sum that you can manage to stash away at the end of the month,
it’s better than nothing, and the small sum will grow eventually.
So don’t hesitate to start investing. Start small and let compounding do its job, so you don’t have to
live small later in life. It’s possible to maintain your current standard of living after you retire or
even go on that dream vacation. All it takes is the right approach.
Now that you’ve seen how early retirement planning can help you continue to live life on your own
terms even after you’ve stopped earning, your next step is to start investing in a retirement plan.
With the abundance of options available in the market, it can be difficult to zero in on the
retirement plan for you. At HDFC Life, we provide retirement plans to help you meet the high cost
of living and rising inflation. Choose from our range of pension schemes to find the one that best
suits your needs.

Factors to Consider While Buying Pension Plans

You are convinced that you need to buy a pension plan for a financially secure retirement.
However, you are not sure how to get started and the various steps to take. Here are some major
aspects about pension plans that you need to keep in mind before buying them.
Determine retirement savings target
When you are saving for your retirement through regular in retirement plans, or in a pension plan
or a pension scheme, you need to figure out the savings you require at retirement. This will help
you figure out the regular investment you need to make in pension plans. Remember to take into
account your retirement savings from other sources like provident fund. In this stage, also take into
account the retirement income needs of your spouse and family members, such as a financial
dependent member with special needs. If this sounds a little complex for you, take the help of
online calculators or the help of a financial advisor with proven expertise.
Start early
To have ample retirement savings, you need to buy the pension plan early in your work life. This
will make sure you have ample time to make small investments so that you can save a large
amount.
Premium payment period
When buying a pension plan from a life insurance company, get a sense of the time till which you
will need to make the premium payment. This will keep you informed about your financial
commitments to the pension plan.
Determine the kind of retirement income needed
The amount of regular investments you need to make in pension plans also depends on the
retirement income arrangements you expect to have in place. For instance, if you have company
pensions or superannuation funds, these, along with provident fund and gratuity, will mean that
you will need to reinvest these retirement savings at retirement, or create regular income through,
among other things, annuities. Since two thirds of retirement savings in pension plans or retirement
plans have to be converted into regular retirement income, you need to have a sense of your
retirement income needs.
Look beyond tax savings
Sure, pension plans in India provide annual tax deduction from total income under Section 80CCC
of the Income-tax Act, 1961, for amounts upto Rs 1.5 lakh but that should not the main reason for
buying a pension plan. Pension plans help you address the risk of outliving your money in
retirement. You need to manage the risk in any case. Therefore, ensure that you eyes are firmly on
your retirement income needs when buying a pension plan. In India, retired life is no longer a small
period. The right decisions taken while buying a pension plan may well make a difference between
you digging deeper in your pockets in retirement and leading a carefree retired life.
What are the Steps to Buy Retirement Plan?
A retirement plan is a multi step process that evolves with time. The following steps will help you
map out a retirement plan:
• Set a budget - list out 30 things in order of priority breaking them into short, medium and
long term goals. Allocate your current income to get an estimate.
• Evaluate your current financial position - examine your current financial position versus
your financial goals, be more proactive about savings, investments and income.
• Identify your income sources - consider all your income sources including insurance,
investment portfolios, assets, and an option to do a part-time job to take charge of your
retirement funds.
• Are you running short? Re-evaluate your investment, make catch-up and bite-sized
contributions to fill the gap.
When should I start planning for retirement?
Retirement planning really depends on what stage of life you are. When you want to start really
depends on you, your needs at 30 versus at 50 will be very different, so plan wisely.
• If you are 20-30 years away from retirement then you need to be focused on accumulating
retirement assets. At this stage try to get through the crunch years in decent overall
financial shape (without credit, debts, etc.).
• If you are 10-15 years away from retirement then it’s crunch time, and fine-tuning your
retirement plan. Look at your income options, your retirement assets and align your
retirement goals to them.
• If you are just about to retire then it’s all about adjustments to minimize tax, maximize your
income, and manage your assets. It’s about making your assets last as long as you can.
The earlier the planning the better but the closer you get to your retirement, you will have to pay
close attention to details.
What is the importance of insurance in retirement planning?
Many of us view life insurance as a way to protect families with death benefits. It is not just a
savings or investment vehicle, but if needed, it can provide flexibility and access to a policy’s cash
value, making it a valuable addition if properly utilized in a comprehensive retirement income
plan.
Having an appropriate type with the correct amount of life insurance in your retirement will
accomplish multiple things. It can help protect your income, provide tax-free cash flow, manage
taxes, help your loved ones recover from any financial risks, and also improve the total returns in
your portfolio.
In short, life insurance can provide more than just protection as it has the potential to provide
protection and benefits throughout your retirement years.
Read
https://www.policybazaar.com/life-insurance/pension-plans/
https://cleartax.in/s/pension-plans-india

Investment Options for Pension Funds

What are pension funds?

Pension funds are financial tools that help you in accumulating funds for your post-retirement
years. By investing a certain amount regularly towards your pension fund, you will build up a
considerable sum in a phase-by-phase manner. They generally have two stages–
 • Accumulation stage: You pay a specific amount regularly until you retire.
• Vesting stage: Once you retire, you get a steady flow of income for life.

Types of Pension funds in India

1. NPS
The government of India introduced the National Pension Scheme (NPS) as a financial cushion for
retired persons. Some of its features are as follows:

• You have to invest in this scheme until 60 years of age.

• The least sum you must invest is ₹ 1000. There is no upper limit.
• Your money will be invested in debt and equity funds based on your preference.
• The returns depend on the performance of the funds you choose.
• When you retire, you can withdraw 60% of the savings.
• You must use the remaining 40% to buy an annuity – a retirement plan offering periodic
income.

2. Public Provident Fund (PPF)

PPF is a long-term investment scheme with a 15 years' tenure. Thus, the impact of compounding is
enormous, especially towards the end of the term.
Every year you can invest a maximum of ₹ 1.5 lakhs in your PPF account. You can pay upfront or
through twelve instalments staggered over the financial year. Your PPF investments are eligible for
tax* deductions under Section 80C of the Income Tax Act (ITA). The interest you earn is also tax-
free*.
The government sets the interest rate on PPF every financial quarter, based on the profits from
government securities. The funds are not market-linked.

3. Employee Provident Fund (EPF)

EPF is a government savings platform for salaried employees. Both your employer and you have to
make equal contributions towards your EPF account. Your share is removed from your salary
every month. The Employees' Provident Fund Organisation (EPFO) sets the interest rate on the
investment. On retirement, you receive the total funds contributed by you and your employer along
with the accrued interests.

4. Annuity plans with life cover

Such plans provide a life cover along with a regular source of income. If an unfortunate event
occurs while the plan is active, your family member receives a lump-sum payout, however there
are other options too that do not offer this financial coverage. Annuity plans are of two types:

A. Deferred Annuity
It is a contract with an insurance provider helping you build a retirement corpus. You can make a
single lump-sum payment or pay regular premiums over a fixed time-frame – the policy term.
Thus, this scheme helps you invest as per your resources.
When the policy period ends, your pension starts. If your retirement date is far in the future, this
plan is suitable for you.
B. Immediate annuity
It is a contract between an individual and insurance company, where in the individual pays a lump
sum amount and receives guaranteed income for lifetime, starting almost immediately.
ICICI Prudential Life's Guaranteed Pension Plan is one such retirement policy that offers both
Immediate and Deferred Annuity options. It offers several benefits:

• A lifelong guaranteed income

• Eleven annuity options, including pension for your spouse/family member or return of
purchase price to your nominee in your absence
• Options to avail income on a monthly, quarterly, half-yearly, or annual basis
• Top-up option to systematically increase your annuity income
• Attractive discounts for NPS subscribers or existing customers
• Tax rebates* for the premiums paid
• Option for lump-sum payout on the diagnosis of critical illnesses or permanent disability is
covered under the plan
• Options to get back the purchase price earlier in your lifetime

Reverse mortgage as a synonym to “retirement planning” in India- a path less discovered

Reverse mortgage in simple terms is the process of converting one’s home equity into cash and it is
a financial product available exclusively for senior citizens. When a person invests in
deposit/savings products of banks or other financial institutions like fixed deposit, recurring
deposit, mutual funds, systematic investment plans, he/she would normally expect a return on the
investment. However, when we talk about home, no one sees it as an asset that can give you fixed
returns at any point in time in your life. It is only considered as an avenue that requires spending
money without giving any actual return (except for the increase in the property price over a period,
which is also not guaranteed when a crisis like the US subprime happens). Keeping these facts
aside, people in our country still invest almost all their life’s earnings in owning a home and keep
paying the loan EMIs for the rest of their life just for the pleasure of saying that “I own a home”.
The Indian culture is such that investing in a home is an emotional decision for a vast majority of
us and thinking of mortgaging our “dream home” to a lender can be a nightmare. Moreover, the
Indian parents consider home as one such asset which they should leave for their children after
them, no matter whether the children want to stay in it or not. These might be the reasons why a
reverse mortgage is not very popular in India, unlike our western counterparts where people realize
the importance of it.
With the change in the generations, the mindset of our people is also undergoing a huge change.
From a decade old parent for whom retirement and financial safety of the children used to be the
top priorities of life, there is a transformational shift to the current generation for whom
investments for old age don’t; look like a fancy term anymore and living in the moment, traveling,
exploring new cultures and creating memories have become the new mantra. The figures also
substantiate this. Recently, a survey conducted by a mutual fund company stated that for the vast
majority of Indians, priorities such as children, spousal security, fitness, and lifestyle ranked higher
than investments and retirement planning. It also stated that urban Indians are saving and investing
less while allocating nearly 59% of their income to their current expenses. Moreover, with the
uprise in the number of nuclear families and increased dilution of joint-family culture, the concept
of retirement from “a stable employment and retirement after 60” has taken a U-turn. People have
more money to spend due to multiple sources of income.
Statistics depict that the average age of 67.27% of the Indian population in 2020 was between 15-
64 and 6.57% of the people belonging to 65+ years of age group. This implies that over the next
20-25 years, a larger chunk of the country’s population would be either senior citizens or
approaching that age group. At the same time, 17.5 million people of Indian origin are residing in
other countries, as immigrants as of 2019 and this is the largest share of international migrants
from any country. The majority of these migrants are youth, who move to other countries for their
higher studies or in search of a job and end up settling there. If one tries to join the dots, it is easy
to understand that the future of the country is going to be a larger group of age-old citizens staying
in their bigger and smaller homes with their children settled in some other country. The product
called reverse mortgage works best for such a group of people. It will give these senior citizens a
regular income and financial independence even in the absence of their loved ones. To give this
thought factual backing, it is important to look at the retirement fund corpus of India. The
retirement fund corpus of the country that stood at INR 25,078 bn in 2018 is expected to grow to
INR 62,353 bn by 2025. The contradiction is that the pension industry is highly underpenetrated at
almost around 88%. The current retirement fund corpus includes EPF and related plans, life
insurance and annuity schemes, private pension funds, and PPFs. This is where there is a huge
scope for the reverse mortgage to tap this less explored retirement product market, by giving a
completely new angle to retirement.
The question about the acceptance of such a product might still arise. For a country that
accommodates multiple cultures, religions, and languages without any conflicts, which decide to
open its economy one fine day after remaining as a closed economy for years, where citizens prefer
Hollywood movies and songs over Bollywood and cricket and football over hockey and kabaddi,
adoption of a so-called “western retirement product” like the reverse mortgage is not an
impractical thing.

The system is the exact opposite of home loan: it enables a senior citizen to receive a regular
stream of income from a lender (bank or other approved financial institution) against the mortgage
of his/her home. The loan amount is arrived at after considering various parameters such as the
market value & life of the property, age of the borrower(s), etc. The loan amount is paid in either
lump sum or periodical payments (including option of annuity payment).
The maximum tenure of mortgage under the reverse mortgage scheme is 20 years. Nevertheless, if
the borrower outlives the tenure of the loan, he can continue to stay in the house. However, they
will not receive any periodic payments after 20 years unless they choose the annuity payment
option. Further, if one the spouses dies, the other can continue to live in the house. The settlement
of loan will take place when both husband and wife die.
The other advantage of reverse mortgage is there are no repayments involved. Senior citizens are
not required to repay the loan along with interest. It is also a tax-friendly scheme. The lump sum or
periodic amount/annuity received under the reverse mortgage is considered as a loan and not
income for tax purpose. Further, capital gains tax will be attracted only when the property that is
mortgaged is sold to repay the loan.
The lender recovers the amount by disposing of the mortgaged property after giving an option to
legal heirs of the deceased borrowers to release the said property after settling the loan. In case the
property is sold by the lender, any surplus on account of such sale is to be passed on to legal heirs.
Deficit, if any, is borne by the lender. Such surplus is taxed as capital gains in the hands of legal
heirs and calculated in accordance with the income tax law.
The system is not, however, free from pitfalls. First, there is the case of banks capping the
maximum mortgage loan amount. Second, the property should be used only for self-occupation
during the tenure of the mortgage. Third, there is no provision to increase the payment amount to
meet contingencies, and various other costs such as legal fee, loan origination fee, charges relating
to property survey, valuation, title examination, stamp duty and registration, etc, could be
recovered from the borrower.
So, while the monthly payment may suffice in the beginning, senior citizens might feel the pinch at
a later stage in their lives. But despite these shortcomings, reverse mortgage can be a lifeline for
senior citizens and serve as a financial tool which enables them to live independently by retaining a
home during the sunset phase of their life and by monetising an illiquid asset - house property.

https://www.moneycontrol.com/news/business/personal-finance/how-reverse-mortgage-helps-
senior-citizens-increase-their-monthly-income-6319101.html
https://www.dnaindia.com/personal-finance/report-reverse-mortgage-a-gold-walking-stick-for-
senior-citizens-2790491

New Pension Scheme

National Pension System

Government of India established Pension Fund Regulatory and Development Authority (PFRDA)-
External website that opens in a new window on 10th October, 2003 to develop and regulate pension
sector in the country. The National Pension System (NPS) was launched on 1st January, 2004 with
the objective of providing retirement income to all the citizens. NPS aims to institute pension
reforms and to inculcate the habit of saving for retirement amongst the citizens.
Initially, NPS was introduced for the new government recruits (except armed forces). With effect
from 1st May, 2009, NPS has been provided for all citizens of the country including the unorganised
sector workers on voluntary basis.
Additionally, to encourage people from the unorganised sector to voluntarily save for their retirement
the Central Government launched a co-contributory pension scheme, 'Swavalamban Scheme-
External website that opens in a new window' in the Union Budget of 2010-11. Under Swavalamban
Scheme- External website that opens in a new window, the government will contribute a sum
of Rs.1,000 to each eligible NPS subscriber who contributes a minimum of Rs.1,000 and
maximum Rs.12,000 per annum. This scheme is presently applicable upto F.Y.2016-17.
NPS offers following important features to help subscriber save for retirement:
• The subscriber will be allotted a unique Permanent Retirement Account Number
(PRAN). This unique account number will remain the same for the rest of subscriber's
life. This unique PRAN can be used from any location in India.
PRAN will provide access to two personal accounts:
• Tier I Account: This is a non-withdrawable account meant for savings for retirement.
• Tier II Account: This is simply a voluntary savings facility. The subscriber is free to
withdraw savings from this account whenever subscriber wishes. No tax benefit is
available on this account.

https://www.india.gov.in/spotlight/national-pension-system-retirement-plan-all