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Post Retirement Life Savings

 

 





Build a corpus to counter rising medical costs, life expectancy and inflation rate

There was a time in India when children were considered to be the retirement corpus for parents. However, over the years, things have changed.


And as the society has moved on to a nuclear family structure, most individuals now have the onerous task of building a healthy corpus that can help lead a financially independent life after retirement.

 

Most salaried individuals employed either with the government or in the private sector have the Employees Provident Fund (EPF) as a mandatory savings avenue to fall back on when they retire.


But others don't have such a financial security for their retired life. "In our present financial system, assured pension is mainly for government employees, which in most cases is a negligible amount. The annuity schemes which are linked with insurance plans are tax inefficient -they do not even beat inflation.

For India, the whole scenario becomes even more complicated when one looks at the numbers. In a recent research note, pointed out that more than 65% of India's population are below 35 years, and by 2020 the average age of India's population will be 29. "So over the next 25-30 years, almost 50% of our present population would enter retirement.

 

With no social security structure in place, rising costs of living and life expectancy increasing with advancement in medical sciences, it is becoming imperative for individuals to think about his finances during their non working years. This is why planning for retirement is vital -the prime objective is to match your income and expenditure even after your retirement, and maintain the standard of life that you had just before retirement.

 

According to financial planners, through judiciously choosing the right mutual fund schemes after identifying investment requirements, you can save enough to meet post-retirement financial needs even if you are faced with rising medical costs, increasing life expectancy and high inflation. Your savings should be enough to maintain the lifestyle that you are enjoying now.

 

However, retirement planning is like running a marathon in which patience and discipline are the two most important aspects of winning. A retirement corpus can be planned quite comfortably through asset allocation and with the help of mutual fund schemes. Historically, over the long term, a systematic investment plan (SIP) in a good performing diversified equity fund has given an average annual return of more than 15%. While investing in equity funds is one part, you should also have some investments in debt funds as well to reduce volatility in the whole portfolio. And in the equity part, one should avoid investing in sector funds. In addition to these do-It yourself pension plans, there are some fund houses that offer pension schemes too. And for the last two years, industry regulator Sebi has been pushing fund houses to launch more pension schemes and is even ready to talk to the government on behalf of the industry to propose tax sops for such funds.

 

The on going pension schemes from the fund houses have some advantages: They offer pension options like withdrawal of money on a monthly , quarterly, half-yearly or annual basis, the income is tax-free and the portfolio has low to medium level of volatility.

If you are not trained to plan your own retirement corpus, it is advisable to do the same with the help of an efficient financial adviser who understands your needs and profile completely .

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