For all of us retirement planning is the most priority goal after our kids education and marriage goals. We are desperate to come out of daily routine work schedule and in need of peaceful retirement life as soon as possible. Few plan to start at as early as 45 years of age and few at the age of 60 years.
At what age you want to retire will be dependable on your choice and your financial life. So if a person planned to retire at the age of 45 years and created the enough corpus for retirement planning then he may start his retirement life. This frustration of starting a retirement life early, is mainly because of the job pressure today’s young generation facing and the uncertainty in their work life. But choosing the right retirement planning and start early is the two key factors in successful retirement planning. So let us discuss this issue in detail today.
Before proceeding further, let us first understand the basic terminologies used in retirement planning products or planning process.
Accumulation phase-This is the period in which you have time to create the retirement corpus. Suppose you are currently at 30 years and you are planning to retire at the age of 60 years then this difference between your current age to retirement is what is called accumulation phase. In this example it is 30 years.
Distribution phase-This is the period where you start to withdraw from the accumulated retirement corpus to survive till your last breath. Suppose you are retiring at the age of 60 years and you are expecting that you survive till 70 years of age then your withdrawal period from 60 years of age to 70 years of age is called distribution phase.
Deffered annuity plans-These are the plans where you start to pay now and till your retirement age and retirement benefit will start from the specified age. Suppose your age is 30 years and if you bought such products then you need to pay from now to your specified retirement age (suppose 60 years). Once you reach your retirement age then these products will start to pay you retirement. Example of such plan is “LIC’s New Jeevan Nidhi“
Immediate annuity plans-These are the plans where you invest lump sum and annuity begin immediately. Such plans are useful for those who are about to start retirement and have created lump sum cash. Example of such plan is “LIC’s Jeevan Akshay VI”
Vesting date-This is the date on which you will start to receive your retirement benefit.
Things that matters about retirement corpus creation–
Unexpected blows which not taken care of any of plans-Even if you bought the best retirement products available in India then there are some drawbacks to all of them. PV Subra listed few of them which are eye opener to all of us
What are the current retirement products available for us?
I will try to classify them as below.
1) NPS-National Pension Scheme is Government backed pension scheme and details of which are available at PFRDA. Best points about this scheme are, your amount is locked till your retirement which ultimately force you to wait till retirement and second point is it’s lowest charges (0.0009% to 0.25%). But at the same time few disadvantages of this plan are, maximum cap of equity restricted to 50% only which ultimately restrict your equity exposure and will impact the return part, mandatory buying of retirement product will be little bit unfair kind of idea, no control over your portfolio, retirement benefit you receive is taxable income as usual to other retirement products.
2) Traditional Retirement Plans- These are managed by Life Insurance companies and are treated as traditional plans. As said above there are two variants one is deffered annuity plans and immediate annuity plans. Best example for deffered annuity plan is LIC’s New Jeevan Nidhi and immediate annuity plans LIC’s Jeevan Akshay VI. In case of deffered annuity plans return on such products are too low that even they fail to take care of inflation cost.
3) ULIP Retirement Plans-Currently these plans may look attractive, but you need to verify the cost and liquidity issue once you reach retirement age. One such plan is from ICICI’s Easy Retirement Plan.
4) Retirement Plans by Mutual Funds-These are funds which are differ from above categories and are managed by mutual funds. Again you need to verify the cost, liquidity, taxation and fund performance of such schemes.
5) Creating on your own-The last and best resort to create your retirement corpus is by creating a portfolio yourself where in you can include all asset class based on the risk appetite and start investing. This is the Do It Yourself kind of solution. But it requires some homework from your end. You can choose the equity, debt (bonds, PPF, EPF or Bank FDs)or gold (ETFs) also to create portfolio and efficiently manage it. The risk involves in such type of activity is, you need to be expert in such type of investments and need to do some study always to manage the money.
Hope above points will be helpful to you in creating the retirement corpus.
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View Comments
Hello Basavraj
Nice article.. NPS 60% withdrawal after retirement is now taxfree.
Do u suggest any other investment for retirement which give tax free returns..? (EPF/PPF/MIS has limit for total investment. Pension from pension plan (LIC Akshay/Nidhi) is taxable..I am 50 so can't invest in SCSS or PMVVY..MF is market dependent and also returns are taxable... ULIPS returns are taxfree but I am not interested in life insurance with ULIP and also ULIP has high initial loading.)
Please advice , as I am looking to invest my VRS amount to get some fixed tax free returns every month for life ahead.
Dear Janu,
What about the remaining 40%? 60% withdrawal is tax-free, then where you invest that? NPS will not provide you pension. You have to buy an annuity, which is taxable.
Hello Basavraj
So please suggest me where to invest my VRS amount to get some fixed tax free returns every month for life ahead. I don't see much options to invest lump sum and get assured tax free returns every month at this stage of 50
Thanks !
Dear Janu,
Without knowing your complete financial life, I can't suggest anything BLINDLY.
Hi Sir, Myself Naveen at age 40, researching the best option for Pension at the age of 60. NPS i found best so far, however, your guidance is required. I don't know much about mutual fund and equity investment and i found them risky as well. To be honest I don't know much about all financial instrument.
For NPS, i red that it's backed by Government so it is safe and with good return.
Please advise
Naveen-Refer my post "Top 10 Best SIP Mutual Funds to invest in India in 2017".
Hello Basu,
I have a query regarding NPS. As I understand it, we can start withdrawing from the corpus after age of 60 is attained. Does the rest amount remain stagnant/it earns any interest/it varies based on the market and fund allocation?
Niraj-NPS will not provide you pension. But from the accumulated amount, you have to buy an annuity. Therefore, it all depends on what annuity you purchase.
Dear Sir,
First of all let me congratulate you for the free financial guidance you are providing to the numerous people. Just I am surfing the internet suddenly I came to your comments site in google and I gone through it and found very useful to me.
I have few queries to ask you. Please guide me about pension plans.
I am working in Middle East for the last 9 years. I am having very meagre knowledge about the retirement pension plans. I am living outside the country and my present age is 41 and planning to retire by 65 roughly (if my health supports till that age).
I have gone with some pension plans but all are confusing me with different plans and tables and I am unable to understand.
From the past savings I have bought an independent house worth around 42 lakhs in my home city. I have also taken house loan and paying every month of twenty thousand rupees/-to the bank.
For pension plan I can roughly invest annual one lakh rupees for 15 years
:-
What will be contribution per month to get a pension of Rs. 10000 to 15000/-
Please guide me the best pension plan to get a handsome pension.
Thanks
Murthy .V
Murthy-Thanks for sharing. Never ever try to buy a product which claims to be meant for retirement or pension. Start accumulating on your own by investing equity and debt based on the proportionate and tenure of goal.
Try to find out the retirement calcualtors online and do your homework by inputting your personal data.
Hi Basavraj,
Do we have any fixed indexed annuity plan in India?
Saikat-You may check with LIC's Jeevan Akshay VI.
Is that fixed indexed annuity ? I mean is it linked with market?
Saikat-It is not linked to market.
Its immediate annuity Sir. My question is - What is a indexed annuity product in India?
Saikat-Indexed annuity to which index?? I know it is an immediate annuity. May I know your exact requirement?
Fixed Index Annuity Plan similar to this: https://www.allianzlife.com/annuities/fixed-index-annuities. This is attached to market but no way in case market goes down your principle is still safe. I am looking for an instrument similar to this.
Saikat-As of now there is no such product in India. But do you feel bond market safe to invest??
I thought they were safe, especially if invested in govt securities or treasury. Provided we diversify portfolio across market, asset classes, time and risk.. Your thoughts?
Also, what is your thoughts on NPS(Type 2), I felt it good for 2 reasons:
a. You can diversify and make it a 70:30 bond heavy portfolio and re balance annually.
b. Completely tax free income generation instrument.
Your thoughts?
A good alternative to fixed indexed
Saikat-Govt securities offers you non-default option. But a volatility of interest risk always on your head. We have a misconception that Bonds are safe. But there too you find risk like default risk or interest rate risk. Good question about NPS Tier 2. I just answered the same in a separate blog post. You read it "NPS Tier 2 – Alternative to Savings Account, FDs or Debt Mutual Funds?".
The index is primarily govt bonds or treasury bonds etc...
Hi Basavaraj,
First of all let me congratulate you for the free advice you are providing to the needy. I came to know about your blog by searching in Google for “the best pension plans in India”.
I have few queries to ask you. Please reply when you are free and I am really sorry for the long mail.
I am an NRI residing in Middle east with very little knowledge about the financial planning. For the past 15 years I am living outside the country. I am at the age of 39 and planning to retire by 60 roughly (if I live healthily till that age). I am the only earning member in my family, I have my wife and three school going kids living with me aged 10, 7 and 5. I started thinking about my retirement very early and since then I have been saving a small amount for it. I have approached few people and all pointed in different directions. In the past I have taken few retirement plans from ICICI Prudential and Bajaj Alliance. I have invested almost 20 Lakhs in 3 years. I have to foreclose these policies after 5 years due to the nonperformance of the funds. When they returned the money it was far less than I invested (roughly around 15 Lakhs after 5 years).
From the past savings I have bought a house plot in my home city (worth around 25 Lakhs currently). I have also around 15 Lakhs as NRE fixed deposits in various banks in India. Recently I came to know that depositing in FD’s are not really good due to the current interest rates and inflation trend, hence I would like to know the following
1) What are the best investment plans for the retirement plans
2) How much money I should reserve for a hassle free retirement life
3) I expect a life expectancy of around 85 years
4) Current monthly expenses will be roughly 30k (expected) for me and my wife
5) I have already an investment / investing for the kids education and marriage
6) What are the best invest plan for future? National Pension Scheme or PPF,
7) What is best plan for child education / marriage? Sukanya Samriddhi Yojana, or Recurring deposits, or normal FD’s?
Thank you in advance,
Best regards,
John
John 1) Stor running behind any product which claim to be pension or retirement plan. You MUST create your own retirement corpus based on your time frame. Use equity mutual funds and debt proportionately to accumulate.
2) As much as you can afford to invest. Because it is dead sure goal of your life. All calculations are based on some future assumptions. If anyone criteria fail, then you get hurt. Hence, invest as much as possible.
3) That I already replied.
4) For rest of all, it is hard for me go guide on this public platform.
Thanks you Basavaraj for your reply and suggestions. Could you please explain the statement "Use equity mutual funds and debt proportionately to accumulate" or any link to explain the same.
Best regards,
John
John-You must start equity mutual funds to accumulate retirement corpus.
Thank you for your quick turn around. How do I start investing in equity mutual funds? is there any specific funds I should invest?
I am sorry if this is a nonsense question.
Best regards.
John
Hi Basu,
I am 29 years old married male working as a software engineer. I would like to know about planning my retirement. Currently, I am contributing Rs.24,000/- per year in PPF, I have 1 SIP of Rs. 1,000/- ( Axis Long Term Equity Fund) , EPF contributions are Rs. 4656/- per month (including employer contribution). I am planning to retire at my 58 years of age. I have Rs. 1,50,00,000/- life insurance cover and own health insurance for all my family members apart from employer provided life and health insurance. I am planning to invest Rs.2,000/- per month in NPS under active mode (with maximum exposure for equity till 45 years of my age). Also, I am investing directly in stocks (but the contribution is less). Considering all this, would you suggest if I should go for NPS. Please let me know if you need any further details.
Pawan-I suggest you to create your own retirement corpus than NPS.
Thanks Basu.
But I still have some queries. I am ready to wait till 60 years of my age to get the maturity funds from NPS tier-I account(Just like EPF / PPF with extending the PPF investments after initial 15 years lock in). I think government might make the corpus accumulated as EEE in future than the current EET. What is your opinion about tax on NPS accumulation? I am also looking at NPS as an option to invest 50,000 over and above 80C's Rs. 1,50,000/- limit for tax exemption.
If I need to create the retirement corpus (of Rs. 2,00,00,000/-) on my own then what should I go for. If its investments in mutual funds with SIP, could you suggest which funds should I choose - 1 each from large cap, mid cap, liquid fund and balanced fund. Also please suggest what should be the SIP amount.
Pawan-You know the hindrance for all pension plans? It is taxation, which no Govt ready to understand. Regarding retirement corpus creation and funds, you refer my earlier post "Top 10 Best SIP Mutual Funds to invest in India in 2016".
Thanks Basu !
Dear sir,
my age is 46 and I am working in a private firm, may I go for NPS at this age and if yes then what will be my contribution/annum to get a handsome pension after retirement. if there are any other option that also please suggest.
Anjan-Yes, you can go. How is handsome pension according to you? Without knowing that, how can I say that?
Sir,
what will be my contribution/annum to get a pension of 10ooo/- to 15000/- per month?
Ajan-It depends on many things, hard to say like I must know your working age, asset you chose, investment amount and all.
Hi Basav,
I am working with an PSU and would retire after 16YEARS, my organisation doesnt have Pension after retirement. I am single and without any dependant.
I have a flat of my own and is paying EMI against the loan I have taken from Bank. Would you please suggest a suitable Pension Plan for me .
Thanks is advance
P.Sharma
Sharma-Start accumulate through equity mutual funds on your own.
Hi Basavaraj,
I am 30 year old and wanted to invest for better retirement life. I can invest upto 10k monthly. Here mainly 2 points I am focusing on, first, better retirement amount and second the tax saving.
I am planning to invest in Mutual funds (Franklin India Tax Shield, Axis Long Time Equity fund and SBI Blueship (not ELSS) ). I also have PPF account in SBI. I am confused between NPS and SBI Retire Plan Now to invest.
Please can you help me to decide which one is good NPS or Retirement Plan, or any other idea if you have.
Thanks,
Sandeep
Sandeep-Stay away from NPS and any retirement plans. Accumulate on your own through equity mutual fund investment.