Retiring Soon? What's Your Strategy?

In a country like India, where the economy is growing slowly and the inflation is at an all time high, retirement planning is a tough job. In the giant financial product marketplace, one might end up buying a financial product that might not yield an amount sufficient for post-retirement life. The marketplace is filled with numerous retirement products for investment in India. But before we dig deeper, let us get familiarized ourselves with two phases of retirement planning: accumulation and distribution. While the accumulation phase requires the accumulation of the amount required for post-retirement needs, the distribution phase comes into picture when the accumulated amount needs to be aptly distributed to fulfil the financial needs arising in later life.  

Pre- and Post-Retirement Investment Products

1. New Pension Scheme (NPS): Having delivered annual returns of around 10% in the last couple of years, NPS is a perfect product for retirement. Although this product is mandatory for government employees, it is open to all individuals across the country. NPS comes with a mandate to invest in an annuity insurance plan worth 40% of the total amount accumulated through NPS at the time of retirement.
2. Employee’s Provident Fund (EPF): With a fixed rate of return per annum (8.5%) and tax deductions of up to Rs. 1 lakh, EPF is the most common and popular saving instrument in India. Although EPF does not impose restrictions like mandatory annuity purchases, it is strongly suggested to keep investing in the EPF account (by means of EPF transfers in case of job change) and not close/settle it upon leaving the job. This will help earn guaranteed return as an outcome of compounded investments.
3. Equities: Instruments like stocks and mutual funds, which offer equity investment, are unbeatable when it comes to providing maximum returns. For retirement needs, make sure to pick products under these instruments for the long term (10 years or more). However, keep a check on your products and review them annually to identify poor or non-performing products and replace them with better ones.
4. Monthly Income Schemes (MIS): Getting a regular income is of paramount importance to someone who is retiring. Schemes that offer monthly income are called monthly income schemes and are provided in the form of funds by means of investment in mutual funds. Such schemes are also offered by post offices at an interest rate of 8.4% per annum and a maturity period of 5 years. MIS requires the investment of a lump sum. The corpus thus accumulated is further invested in numerous financial instruments to ensure a fixed monthly income.
5. Pension Plans:Much like the MIS, pension plans also require you to invest a lump sum amount in exchange of monthly income. These plans are offered by insurance companies and under mutual funds; however, the rates charged by insurance companies tend to be higher than those charged under mutual funds.

With most of the investment products like NPS (which requires compulsory investment in annuity insurance plans) and pension plans requiring early and long-term investments, it is advisable to start early savings for retirement. This can be anytime between 2 and 3 years after one gets his/her first job.