SAVING OPTIONS FOR YOUR RETIREMENT FUND

The growing financial pressure on retirement systems worldwide is forcing individuals to change the way they think about retirement. It is a need of the time for an individual to plan at an early stage to invest in various investment products to create an adequate size of retirement corpus. Long before retirement, an individual needs to carefully map out his or her plans for ensuring a secure retirement.

A retirement plan is an arrangement to provide you an income or pension during the cessation of service when you are no longer earning a steady income from business or from employment. All the activities in the post-retirement period need money, and without money, one cannot survive in society. Like financial planning, retirement planning has become an integral part of human life today.

“A small amount of investment fulfills your dreams; one must think about it.”

You need money for every major decision, such as buying a house and a vehicle, planning for children’s higher education, and retirement. You create a clear goal that your life would look like, set your milestone based on your resources, and find the real path you want to go in your life. Once your goals are set, you may start saving a small amount each month regularly. Your long-term goals may face uncertainty due to the volatility of the market (ups and downs), but don’t stop until you reach your destination.

Maintain a disciplined approach:

An investor must be well-disciplined; otherwise, he/she will lose money due to wrong decisions such as selling stocks and shares & mutual funds haphazardly due to market volatility. The decision to not invest in the bear market also reflects that the investor is not well disciplined as he/she is not investing regularly as per the defined/targeted goals.

Which investment products you need in retirement planning?

Retirement planning generally includes two stages, such as the accumulation stage and distribution stage. Accumulation stage is that stage when you create corpus over the period, usually up to retirement, and after that, the distribution stage starts, where you spend your created money up to life long.

These are some of the investment instruments that can form part of a retirement plan during the accumulation stage:

1. Pension plan,

2. National Pension Plan(NPS),

3. Public provident fund (PPF),

4. Gold, e-gold & Gold Bond,

5. land & building,

6. Debt instruments,

7. NCD and bonds

8. Equity and

9. Equity related instruments (mutual funds).

These are some of the investment instruments that can form part of a retirement plan during the distribution stage:

1. Bank deposits, 

2. Company fix deposits,

3. Govt bonds, 

4. Senior Citizen Savings Scheme (SCSS), 

5. Pension Yojana, 

6. Annuity of Life Insurance Company,

7. Post office MIS.

8. National Savings Certificate (NSC)

9. Kisan Vikas Patra(KVP)

10. Pradhan Mantri Vaya Vandana Yojana(PMVVY)

You can arrange to use the corpus in the distribution stage through interest, dividends, annuity, and withdrawing capital, which you have accumulated during the period of working in your life. 

Bank fixed deposits offer senior citizens 0.5% more than the current interest rate, which is 6.50% as of May 2020 in SBI for 5 years and up to 10 years. However, the Senior citizens saving scheme (SCSS), the most attractive option for retirees, is currently offers 7.4% per annum( the rate declared as on 01.04.20), payable from the date of deposit of 31st March/30th Sept/31st December in the first instance & after that, interest shall be payable on 31st March, 30th June, 30th September and 31st December. The maximum amount a retiree can deposit in SCSS of Rs. 15 lakhs for Five years. All the small savings schemes interest rates have change quarterly as they are linked to government bond yields, i.e., around 5.96% today. 

In a downward interest rate scenario, Government (taxable) bonds, 2018, offer very lucrative interest rates, i.e., 7.75% per annum for retirees and interest is payable on half-yearly. The maturity period may vary from 5 years to 7 years, depending on the age of the investors.

Government of India (GOI)7.75 percent (taxable) Bonds are far better options for retirees as well as Individuals in comparison to other fixed-income investment avenues such as fixed deposits, National Savings Certificate (NSC) or Kisan Vikas Patra (KVP).

Pradhan Mantri Vaya Vandana Yojana (PMVVY):

Cabinet approved Pradhan Mantri Vaya Vandana Yojana (PMVVY) on 20.05.2020 up to 31.03.2023 for a further period of 3 years beyond 31st March 2020, with a reduction of the monthly assured rate of return to 7.4 percent from 8 percent for the entire duration of 10 years. 

The new rate of interest will not affect the subscriber those who invested on or before 31st March 2020. The latest annual assured return rate(interest) will be reset every year in line with the revised rate of returns of the Senior Citizens Saving Scheme on the first day of the Financial year, i.e., 1st April.

The applicable assured rate of return for the financial year 2020-21 is 7.4 percent payable on monthly. Once you deposited the same rate will apply for ten years, and you will get a monthly pension on the deposit amount. 

The minimum investment has also been revised to Rs.156,658/- for the pension of Rs. 12000 per annum and Rs. 162,162/- for getting a minimum pension amount of Rs. 1000/- per month under the scheme.

The maximum investment that can be made in PMVVY is restricted to Rs 15 lakh per senior citizen, and the maximum monthly pension in PMVVY is Rs 9,250 per senior citizen. So, if both spouses are above age 60, the maximum monthly pension can be Rs 18,500 in the family on an investment of Rs 30 lakh during the financial year 2020-21. The above pension amount will vary in the next two financial years 2021-22 & 2022-23 because of the new revised rate to be fixed and announce by the Finance Ministry at the beginning of each Financial year.

It is a process to think today about your future life and also for your beloved ones. To achieve your retirement goals, you need the right amount of corpus to take care of your needs & key commitments and provide regular retirement income to maintain your lifestyle post-retirement life.

Assess your retirement needs and understand your likely retirement income:

Identify various key commitments, responsibilities, and goals to estimate the corpus required for your retirement goal. The earlier you distinguish between your income and investment, the more attractive is the corpus that you can generate for your retirement. At the age of 30, if your monthly expenses are Rs. 30000/-and assuming the inflation rate by 4% per annum, you require Rs.97302/- per month at the age of 60. Start investing in diversified equity mutual fund at the age of 30, a very small amount say Rs.4000/- per month(SIP) for your retirement after 30 years you will accumulate Rs.1.50 cores with an annual return of 12.30%, which is sufficient to generate Rs.97300/- per month (assume 7.75% interest in Govt. bonds/ bank FDR), for your post-retirement living expenses easily.

Those who invest irrespective of the market trend will achieve their goal in due time. The above corpus can be achieved only by disciplined approaches regardless of market volatility. 

Readers may know that the above interest rate is not fixed, it varies from time to time based on the rate announced by the Central Bank (RBI).

Challenges: 

The challenges that retirees face nowadays, mainly due to two factors: falling of interest rates, not generates enough money to sustain monthly expenses, and substantial medical costs due to longer life span. It is prudent to make a diversified portfolio, keeping in view the life span.

Strategy

Without an investment strategy, you cannot survive in this changing world. Strategy in connection with investment and financial plan is entirely different. You may plan so many things in your life; without a concerted strategy, you cannot achieve it in your life. For example, you want a significant corpus for your Retirement kit at the age of 60 years; accordingly, you chalk out a monthly financial investment plan through the SIP route. The strategy you can follow: 

Keep watching your long-term investment and evaluate the product based on risk and returns periodically say yearly and divert your risk assets into debt/ liquid funds when you are in the age bracket of 57 to 58 years. You can get your monthly income after superannuation through a systematic withdrawal plan (SWP). 

“Retirement is not an age; it’s a monetary amount you have thought about for the rest of your life.”

Properly filed documents and ensure nomination registration: 

The first and foremost duty of a retiree is to collect all the personal documents and filled in correctly and make sure that your spouse and at least one other member of your family is aware of that. In fact, it should be done during the pre-retirement stage. Ensure that the original will, insurance policies, and locker documents are known to your spouse and one of the family members to whom you prefer.

Check all the investment accounts along with bank account whether the nomination is available or not? 

Pro Tip: It is advisable to make all investments in the joint names of self and spouse, with nomination facility.

What can you do after retirement? 

It is time to spend your life with your loved ones and enjoy your life full of passion and cut out all the negativity from your life. It may have happened that you have forgotten many items in your cupboards, which is not useful or is no more relevant; start distributing your unnecessary things to others, which you had stored in so many years.

Restart enjoying your hobbies, which were left behind due to work pressure. Start living a life you always wanted to. Get back into shape; make yoga and brisk walking a part of your daily life. Physical exercises like cycling, walking, and yoga can make you fit and reduce your medical expenses. Activities maintain your hormonal balance and boost your immunity, which will keep you healthy and happy. 

Forget what you have done during your working period. Be social and maintain a friendly attitude with people. You will start to see your relationship with your family and friends in a new way, which you couldn’t expect in your superannuation period.

If you need any support for your retirement planning, get in touch with me, and I will help you as best I can.

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