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Best Investment Options for Retirement in India

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How Much Money Does a Couple Needs to Retire Comfortably?
September 05, 2024

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Financial freedom is the key to a peaceful retired life. Creating a source of regular income helps manage the expenses post-retirement when the steady source of income ceases. With a range of investment options for retirement, you can create a constant income stream for a stress-free retired life. 

Read on to learn more about some of the top retirement investment options.

What Is The Importance of Retirement Planning?

When regular income stops upon retirement, one relies on savings and investments to meet financial commitments. Considering the scenario, planning for retirement is vital to beat inflation and maintain one’s standard of living through suitable investment plans.

Prudent financial management lies in creating a retirement corpus when you are actively employed. This helps create a regular source of incomeafter retirement, one that helps take care of financial commitments post-retirement, ensuring a stress-free and peaceful retired life.

Best Investment Plans For Retirement

If you are looking for some of the top investment options for retirement, you can consider any of the plans discussed below:

1. Pension Plans

Pension plans are built over a period of time to secure a permanent source of income post-retirement. When choosing the best pension plan in India, you will get the various types of pension plans and schemes. Start contributing to this plan early to avail a sizable fund later on. An individual can also deposit money monthly. Upon retirement, this will yield payments as an annuity, considering detailed information about the pension. Thus, with a pension plan, you can stay assured of receiving a regular income once it reaches its maturity stage.

2. National Pension Scheme (NPS)

The National Pension Scheme (NPS) is an initiative the Government of India took to provide a regular incomesource to the subscribers. The subscribers can invest a defined amount through a pension to secure their post-retirement life.

  • Both resident Indians and NRIs are eligible for NPS

  • The entry age is between 18 years and 70 years

  • Administrative and fund management charges are the lowest.

  • NPS offers the choice of an investment portfolio and fund manager.

  • There is ease of account operation and accessibility across the country, irrespective of the home POP-SP branch.

  • NPS features triple tax benefits

3. Unit Linked Insurance Plans (ULIP)

ULIPs are often considered the best investment options for retirement, especially if you start early. These are savings as well as life cover plans. A part of the premium paid is invested in funds of your choice, and the other goes towards life cover. 

  • ULIPs feature the flexibility of tailormade life cover as per individual risk appetite.

  • There are lower mortality charges for early investors

  • Part-withdrawals are allowed for immediate fund requirements.

  • Expect tax benefits on premiums paid under Section 80C

4. Systematic Investment Plan (SIP)

Systematic Investment Plans are the best investments for retirement and all life stages. Through SIPs, investors can systematically direct a certain amount towards mutual fund investments at regular intervals. It could be weekly, monthly or quarterly instead of making a lump sum investment. When you invest in a mutual fund, you buy units at the Net Asset Value (NAV). You get more units when the market is down and fewer units when it is up.

  • You can start investing with as low as Rs. 500/- a month

  • The option of auto-debit helps avoid payment missouts

  • Paves the way for long-term investment

  • Early investors stand a better chance of maximising returns

  • Switching and redeeming units in SIP investments is seamless, making them one of the easy-to-manage retirement investment options.

5. Health Insurance

Medical emergencies are difficult to predict. It is, therefore, vital to plan for the future to avoid digging into your savings and investments to meet unexpected medical costs. Health insurance plans is one of the most important retirement investment options to cope with medical issues post-retirement. 

  • It covers both pre and post-hospitalisation expenses.

  • Tax deduction under Section 80D is available as given below

    - Upto Rs. 50000/- total, i.e., Rs. 25000 for the individual and Rs. 25000 for the parents where both are aged below 60 years

    - Where the insurer and the family are less than 60 years and the parents are above 60 years, up to Rs. 25000 for the insurer and family and Rs. 50000/- for parents, i.e., Rs. 75000 together.

    - Where the insurer, family, and parents are all above 60 years, Rs. 50000/- for insurer and family and Rs. 50000/- for parents, i.e., Rs.1.00 lac together.

  • Premiums paid are eligible for tax deduction under Section 80D up to Rs. 25000/- and up to Rs. 50000/- for senior citizens. 

You can further secure yourself financially by opting to add the critical illness benefit to your existing life insurance policy (depending upon your insurer) for an extra premium. You can also buy an integrated policy if you are thinking of buying a life insurance policy as well. 

6. Public Provident Fund

The Public Provident Fund (PPF) is a long-term savings and investment scheme. The Government Of India backs it, making it one of the best investment options for retirement if you are looking for safety, returns, and tax benefits. The interest rate on PPF is compounded annually and is set by the government. 

  • PPF requires a minimum deposit of Rs. 500 and allows up to a maximum of Rs.1.50 lacs in a year.

  • The parent can open a PPF account on behalf of a minor child, but the combined investment in the individual account and the minor account should not exceed Rs. 1.50 lacs.

  • It has a lock-in period of 15 years and is the best investment plan for retirement in India.

  • The complete amount can be withdrawn after 15 years

  • Partial withdrawal of funds is permitted subject to certain conditions

  • PPF investment can be extended for 5 years once the tenure of 15 years is over. 

  • Loan against PPF is permitted after three years.

  • Investment under PPF is eligible for tax benefits under Section 80C. PPF falls under the EEE category, i.e., the principal, interest, as well as maturity proceeds have tax exemption.

7. Bank Fixed Deposits

Bank fixed deposits are the best investment for retirement to generate a regular source of income. Seniors can choose to invest their retirement benefits in Fixed Deposits (FDs) for a fixed tenure. 

  • FDs offer the option of monthly interest payout to create regular income.

  • The interest rate is fixed at the time of opening the account. 

  • Senior citizens are eligible for an additional interest of 0.50% p.a.

  • Loans can be availed against FDs in the case of emergencies.

  • Premature withdrawal is permitted on certain FDs with a penalty.

8. Senior Citizen Saving Scheme

The Senior Citizen Saving Scheme is a government-sponsored scheme for senior citizens and early retirees. It is considered one of the safer investment options for retirement to generate regular income. 

  • The minimum investment in SCSS is Rs. 1000, and the maximum is Rs. 30.00 lacs 

  • The existing interest rate is 8.20% p.a. The interest payout is done quarterly.

  • Tax benefits up to Rs.1.50 lacs are available under Section 80C

  • Accounts can be in individual or joint names.

  • Deposit tenure is five years, extendable in blocks of 3 years any number of times.

  • Premature withdrawals are permitted with a penalty.

9. Investment in Mutual Funds/Equity

Investment in Mutual Funds/Equity takes care of the two concerns of investment — generating a regular income and preserving capital to cope with inflation. Mutual funds/equity are one of the preferred investment options for retirement for the following reasons - 

  • Equities, with their potential for capital appreciation, can be well-suited for a prolonged investment period. They allow the power of compounding to work in favour of investors.

  • Mutual Funds/Equity can outpace inflation over the long term.

  • Mutual funds offer diversification by investing in a variety of assets. Therefore, the risk is spread across different sectors and companies. 

  • Debt mutual funds are low-risk investment options that protect the capital and help generate regular returns.  

Why should you plan your retirement?

Retirement planning is essential to reap the benefits of your financial portfolio and maintain your lifestyle even after you no longer work. Every individual with a certain earning amount must aim at building a strong financial foundation for securing their future as well as their family’s. Moreover, if you start planning for your retirement at an early age, you will be able to build yourself a corpus that can last you and your loved ones till the end. Also, if you are into planning your retirement goals, start with a proper understanding of the importance of retirement planning. Retirement Calculator can help you assess your savings needs effectively.

Keep reading to find out the reasons in detail why it is essential to do retirement planning:

  • Retire Early 

There may come circumstances in your life where you have to retire early. This might happen due to a medical condition or having other future plans that you want to fulfil before your movement gets limited. Hence for such scenarios, if you already have a certain retirement corpus build, it will help you to decide to retire early easily and suffice yourself and your dependents as required.

  • Fulfil Your Retirement Goals

With a proper retirement plan, you can enjoy the financial freedom to fulfil your future goals, especially the ones after your retirement. This includes planning to start a new business, travelling, spending vacation with family post-retirement or even contributing to your child’s marriage. Being financially secure will help you attain a separate peace of mind and move towards your goals.

  • Save for the Children and Family

Another reason behind planning your retirement corpus is to provide your children, spouse, and other members of the family financial support and guidance after your retirement. If you have enough money saved for your education or marriage, it becomes easy to deal with any financial obstacles during your time of need. Also, you can plan on investing in a term insurance policy, which will financially secure your family in case of your untimely demise. 

  • Increasing Average Life Expectancy

The presence of financial stress can greatly impact your life expectancy. Planning for retirement will help you not worry about finances in old age. Hence, there will be less stress and your life expectancy on average will increase.

FAQs on Investment options for Retirement

Q. What is the best investment for retirement right now?

The best investment plan for retirement right now includes a Senior Citizen Saving Scheme, PPF, Bank Fixed Deposit, National Pension Scheme, Unit Linked Insurance Plan, Mutual Funds, and SIPs.

Q. Which investment is better for retirement?

Investing in PPF, NPS, and SIPs is better for retirement because, with these plans, you can invest and also generate income regularly for post-retirement years.

Q. What is the best source of income in retirement?

The interest earned on the retirement corpus and the regular income generated out of the annuity are the best source of income in retirement.

Q. How can I increase my wealth in retirement?

Invest a part of your retirement corpus in market-linked plans like equity and mutual funds to earn good returns. Also, investing in Fixed deposits will earn interest on your corpus.

Q. How can I generate income in retirement?

Senior Citizen Saving Scheme is the best investment plan for retirement in India to generate income. The quarterly interest income will take care of your financial needs.

Conclusion

To conclude, retirement planning is essential to lead a comfortable life post-retirement. There is a wide range of retirement investment options available in India that meet the risk appetite of individuals. However, make sure to choose the right one before making the financial decision considering your risk tolerance, market fluctuations, objectives, and goals. By taking retirement planning seriously, you can stay financially independent in post-retirement years.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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