Thought of retirement planning? If not, now’s the time to start. Choosing to invest in retirement investment options isn’t just a financial decision—it’s the foundation for a future filled with peace, security, and freedom.
Imagine how much you could have saved if you started earlier with just 10% of your income. Don’t worry, you haven’t missed the boat. It’s never too late to work on yourself and strive toward financial independence.
Retirement planning should be part of your financial plan. Investing for retirement is, therefore, essential as it helps manage expenses and financial commitments when regular income stops.
Sensible financial management lies in building a corpus retirement amount when you are actively employed. To achieve this, you need to invest in the best retirement investment options to beat inflation and maintain your standard of living. Continue reading to further explore the best investment options for retirement in India and how you can leverage them to your advantage.
Why is retirement planning so important?
As a homo-sapien, sustenance is our main priority. Now, imagine sustaining a week in this modern world without any money. Hard, no?
Once your body is not competent enough to make money, you need to retire. And, if you don’t have any savings or investments to rely on, sustenance gets tougher. Apart from this, if you choose to keep your wealth in a savings account, then inflation will diminish its worth by the time you need it.
Because of these, you should devote a good portion of your income to plan for retirement. But for this, you will need to choose the right retirement investment options to enjoy the golden days of retirement tension-free.
List of the best retirement investment options
Here is a list of some of the best retirement investment options to strengthen your financial strategy. Dive in now to discover the details of each option and whether you should be choosing it.
National Pension System
NPS or National Pension System is a sort of government scheme that aims to provide social security to the working group. If you are an employee working in the public, private, or public sector, you can invest in this scheme. Furthermore, individuals working in unorganized sectors can also put their money into NPS.
This scheme allows employees to invest a defined amount into a pension account at regular intervals to safeguard their post-retirement life. Here are a few details of NPS that help you to understand it better:
- The age criteria for entry lie between 18 and 70 years.
- Both the resident Indians and NRIs are entitled to NPS.
- They have the lowest administrative and fund management charges.
- It also offers the choice of having a fund manager and an investment portfolio.
- Easy to handle account operations and accessibility across the country.
- It features triple tax benefits.
Public Provident Fund
PPF or Public Provident Fund is a long-duration savings and investment scheme backed by the Indian government. It is considered one of the best retirement investment options if you seek good returns, tax benefits, and security.
The rate of return or interest rate is compounded annually on PPF and is set by the government. Here are the key factors that describe PPF:
- It requires a minimum deposit of Rs 500 and allows up to a maximum of Rs 1.5 Lakhs in a single year.
- Parents are allowed to open a PPF account on the minor’s behalf, however, the combined investment in the minor’s and the individual account should not exceed 1.5 Lakhs.
- It has a lock-in period of 15 years, and one can only redeem after 15 years.
- Partial withdrawal is also facilitated under particular terms and conditions.
- Also, the PPF investment tenure can be extended once you reach the end of your tenure.
- Additionally, the loan against the PPF is allowed after 3 years of smooth execution.
- It is also eligible for tax benefits under section 80C. Additionally, it falls under the EEE category, meaning that the principal and interest are both tax-exempt.
Mutual Funds
Mutual funds, I bet you might have heard about this either in TV ads or from any influencers. It is one of the best and most practical private investment schemes to plan your retirement effectively. Here is what you need to know about mutual funds to understand their ins and outs effectively:
- It is capable of generating a CAGR (Compound Annual Growth Rate) in the range of 12 to 15% and more than that.
- Also, you can unleash the advantage of the power of compounding if you stay invested for a longer duration.
- Choosing to invest through SIP in mutual funds offers the rupee-cost averaging benefit.
- Diversification and risk mitigation are two of the great benefits of mutual funds, which offer security to a certain extent.
Since you have a huge time horizon while planning for retirement, you can initially invest in aggressive equity-based funds and then switch to safer investments like debt funds when approaching retirement. Overall, incorporating mutual funds in your retirement schemes can help you accumulate considerable wealth on which you can fall back after retirement.
Unit Linked Insurance Plans
Unit Linked Insurance Plan or ULIP is another best investment option for retirement if you start early. It combines the benefits of both the savings and the life cover at the same time. A portion of your premium paid is going to be invested in the funds of your choice, and the remaining goes towards life cover. Here are a few details of ULIPs you should know:
- It offers the flexibility of customized life cover that aligns with your risk appetite.
- Comes with lower mortality charges for early investors.
- For immediate fund requirements, part withdrawals are there to help you in such situations.
- Moreover, you can also expect tax benefits on the premium paid under section 80C
Health Insurance
Predicting medical emergencies is as difficult as predicting market fluctuations. Therefore, it’s crucial to plan for a health emergency beforehand so that you don’t need to dig into your savings and investments to meet unexpected medical costs.
Investing in health insurance plans is a must, and this can’t be emphasized enough. Because it helps in coping with medical issues post-retirement. Here is what you should know about health insurance:
- It covers both your pre- and post-hospitalization expenses.
- You can avail the benefit of tax deductions under section 80D.
- Premium paid is also eligible for tax deduction under section 80D.
You can boost your financial security by adding a critical illness benefit to your life insurance policy. This usually costs an extra premium, depending on your insurer. If you’re planning to buy a new life insurance policy, consider an integrated plan that includes critical illness coverage. It’s a simple way to protect yourself further.
Bank Fixed Deposits
Bank fixed deposits are the most secure investment option for retirement purposes. They can help you generate moderate returns of 6 to 9%, providing a regular income source. It is best for senior citizens who want security over returns. Here are some points that describe bank fixed deposits:
- FDs allow you to receive monthly interest payouts, helping you create a steady income stream.
- The interest rate is locked in when you open the FD account.
- Senior citizens get an extra 0.50% interest per year.
- You can take out a loan against your FD in case of emergencies.
- Some FDs allow early withdrawals, but a penalty may apply.
Senior Citizen Savings Scheme
It is a government-sponsored scheme for senior citizens and early retirees. Also considered as one of the safer retirement investment options in order to generate regular income. Here are the key features of the senior citizen savings scheme:
- You can start investing in SCSS with as little as Rs 1,000, up to a maximum of Rs 30 lakhs.
- It offers an attractive interest rate of 8.20% per year, paid out every three months.
- Enjoy tax benefits of up to Rs 1.5 lakhs under Section 80C.
- Open an account individually or jointly with someone else.
- The deposit lasts for five years, but you can extend it in 3-year blocks as many times as you like.
- Need cash early? You can withdraw before the term ends, but a small penalty may apply.
Conclusion
Wrapping up, retirement planning is the non-negotiable aspect necessary to enjoy a comfortable life post-retirement. There is a wide range of retirement investment options available in India that align with different individuals’ risk appetites. However, you must choose wisely before making decisions. Keep in mind your risk tolerance, objectives, market fluctuations and goals.
