I am too young to plan for retirement.
Fact - It’s never too early to plan for your retirement. The sooner you start, the more you can earn post retirement.
Let’s view an example. Mr X invests Rs 20,000 p.a. in a pension plan from age 25 onwards. Mr Y starts investing from the age of 35 and therefore, invests Rs 50,000 p.a. to make up for lost time. They both plan to retire at age 60.
Mr X, who has invested a total of Rs 7,00,000 over the years, retires with a corpus, of Rs 41,00,000 assuming returns @10% p.a.
Mr Y, who has invested a total of Rs 12,50,000 over the years retires with a corpus of Rs 42,00,000 assuming the same returns!
By starting early you are giving your money time to grow. Also by starting early your money has enough time to recover if there is a market slowdown.
Starting early also means that while you are nearing your retirement you can shift your money into safer investment options like debt funds and do not have to go with riskier options.
Post retirement, my needs will be limited.
Fact - Retirement does not mean the end of all good things in life.
In fact it is a time when you add new dimensions to your life, give it a new meaning. Life post retirement can now be the best job of your life where you can follow your passions like learning a new skill, giving back to society,opening your own library or restaurant etc.
Planning also ensures that you don’t compromise on your lifestyle i.e shift to a smaller house or sell your luxury car for an economy car. Or curtail your visits to your favorite food joint.
Now you can live life to the fullest, post retirement!
I won’t live long after retirement.
Fact - Changing lifestyles have made this statement archaic.
Earlier, people started to work late in life and retired late. This combined with the fact that the average life expectancy was around 65-70 years, meant that one had only 5-10 years of post-retired life. But today people start working in their mid to late twenties and want to retire early. The average urban life expectancy today is 77 years* . In short, the post retirement lifespan has increased and so has the need to prepare for it. Given that you will retire at 60yrs, you will most probably live for another 25 yrs. How will you financially sustain yourself for this period?
*Oasis Committee report
My children will take care of me post retirement.
Fact - While in traditional joint families it was expected of one’s children to look after them, the rise of nuclear families has changed this trend.
Now thanks to retirement planning, you no longer have to depend on your children to look after you. If you have enough money post retirement even your children will not be burdened and you can take pride in being independent.
I have saved enough for retirement- I have a house, a big car, jewelry etc.
Fact- A house, a big car and plenty of jewelry are assets one would not like to sell to take care of monthly expenses post retirement.
eg A 40 year old man has a monthly expense of Rs 25,000 today , the same will cost him Rs 80,000 per month when he is 60yrs and 1.43 lakhs per month when he is 70! And this is assuming inflation to be only 6%.
Retirement planning requires investment in instruments which give higher returns than the prevailing inflation rate and provide for a regular pension.
What you need is a regular flow of income, much like your salary, to do the things you always wanted to do. A good retirement plan will help you do just that.
I have my child’s education, car loan, other responsibilities etc to take care of. Once these are done,
I will plan for retirement.
Fact-Needs tend to arise one after the other. Once you finish paying off current liabilities like child’s education, car loan, home loan etc, other requirements like child's wedding, medical exigencies, higher education etc may arise. As a result, your retirement planning may be postponed to a day when retirement is closer at hand which implies:
1. As depicted above, more investment is required to make up for lost time
2. Your risk taking ability is limited
3 . You can expect average returns - due to investment in debt and short investment horizon
As a result, achieving the desired retirement corpus becomes difficult. Plan your retirement as soon as possible; your post retired life is your responsibility too.
I get tax benefits on my investments but not on retirement plans.
Fact - Taxation on Pension
1. Premium paid for Pension plan qualifies for tax deduction under Sec 80CCC up to max limit of Rs l lakh.
2. Commutation of 1/3 of the fund value at maturity/ vesting is tax free under sec 10(10A) of Income Tax Act 1961.
3. The pension received by a customer is taxable. Customer needs to show the pension received as his income for Tax purposes and pay income tax accordingly.
Investing in a retirement fund will not give me a regular income.
Fact - The accumulated value of your investment will start paying you a regular income in the form of a pension at a frequency chosen by you. The annuity can be received monthly, quarterly, half-yearly or yearly. There are 5 annuity options available under ICICI Retirement Solutions.
Annuity Options
Life Annuity
Annuities are received for as long as the annuitants are alive.
Life Annuity with Return of Purchase Price: Annuity payments are received for as long as the annuitant is alive. Subsequently, on demise, the purchase price is paid to the nominee / beneficiary of the annuitant.
Life Annuity guaranteed for 5/10/15 years and life thereafter
Annuities are received by the annuitant for the guaranteed periods of 5/10/15 years as selected and for life thereafter. However, if annuitant does not survive the guaranteed period, the balance annuity installments due for the balance guaranteed term shall be continued to be paid to the nominee.
Joint life last survivor with return of Purchase Price
Annuities are paid until the annuitant is alive and continue for the spouse’s lifetime. After the demise of the spouse, the purchase price will be paid to her nominee. In case, the spouse pre-deceasing, the purchase price will be paid to the Life Assureds’ nominee.
Joint life last survivor without return of Purchase Price
Annuities are paid until the annuitant is alive and continue for the spouse’s entire lifetime.
Retirement Planning is a tedious and time consuming job.
Fact - Planning for retirement is not complicated if one takes a systematic approach towards it. Here are some simple rules that you must remember while planning for your retirement needs. By doing so, you can arrive at an ideal retirement plan and start saving for it, from today.
Step 1: Decide how much income you require to live comfortably in your post-retirement years. Remember to take into account aspects like increased medical costs, vacations and gifts for family, but reduce costs like children's education and rent, if you own your home. You must map this income basis your current lifestyle.
Step 2: Determine how much you need to save regularly, starting today, to have the right amount. Start allocating as much as you can towards your retirement kitty. In case you are currently not in a position to set apart the funds required, start with whatever is at your disposal. The limit could be revised in future depending on your disposable income.
Step 3: Select the right retirement plan, which will help you meet your post-retirement requirements.
Step 4: Start saving now! By doing so, you will have time on your side and can enjoy the power of
compounding.
Step 5: Systematically invest a fixed amount every month for your post-retirement years.
Retirement planning should be an essential feature of overall financial planning. An early start and a focus on long term goals can ensure that your post-retired life is spent engaging in myriad activities without any worry of finances. Work towards getting your best job today.
