Retirement is that time of your life when you may no longer have a regular source of income. It is the time when you have to live on the money you have accumulated throughout your professional life. So the earlier you start saving for your retirement, the more money you will have at the time of your retirement.
Everyone should save for the post-retirement life
Ideally, retirement planning should start as soon as you start earning. Most employers offer EPF for their employees. As per the rule of Employee’s Provident Fund (EPF) schemes, the employee has to contribute 12% of their basic salary and the employer also contributes the same amount to the fund. The power of compounding helps accumulate a huge amount at the time of your retirement. However, those who are self-employed or do not have a fixed income, cannot enjoy the EPF schemes offered by employers. For them, the only option is to invest in a pension plan from a reputed insurance company. You can also invest in a mutual fund if your risk appetite is high. This will help your retirement planning to stay on track.
Never withdraw your funds before retirement
Be it a big event like your daughter’s wedding or a medical emergency in the family; NEVER withdraw your EPF balance. Even if you are saving through a mutual fund or if you have a pension plan that allows fund withdrawals, never dip into your retirement funds before your retirement. There are many people who withdraw their EPF when they change jobs. But it will only reduce your retirement savings. Moreover, if you are withdrawing your EPF within the first 5 years of joining, the withdrawn amount will be taxable. So, never touch the money you are setting aside for your post-retirement life. A successful retirement planning is a long-term endeavor and it takes a lot of patience to reach your financial goal.
Diversify among various monetary assets
Only depending on EPF for retirement planning is not enough these days. You should have a pension plan, a mutual fund, and other investment plans so that your hard earned money grows into a lump sum amount at the time of your retirement. However, a major part of your investment portfolio’s performance depends on its asset allocation. So, you should divide your money between fixed income, stocks, and other asset classes. If you invest in equities, your equity exposure should be of 100 minus your age. Even the type of stocks in your equity portfolio should vary with your age. It is always better to invest in asset allocation funds in which the corpus gets redistributed depending on the investor’s age. The exposure to equity reduces with age.
Take inflation into account while planning for retirement
Inflation plays a crucial role in determining the value of money you will have at the time of your retirement. Your retirement planning should account for inflation as a major part of your savings. Inflation is the general decrease in the value of money. So, in order to prevent inflation from stripping your retirement corpus of its value, you should keep increasing your investment amount every year. Even every time your income grows, you should increase the amount you save or invest. This will keep away the effects of inflation from your retirement corpus. It is always better if you buy a pension plan as that takes care of inflation and the vesting benefit is generally huge.
If you want to avoid the risks involved in investments, purchasing a pension plan would be the best option for you. Before you start retirement planning, you should check, with the help of a pension calculator, how much money you need to have at the time of your retirement. There are many pension plans available in the market. Visit an online comparison portal like policybazaar.com where you can compare between different pension plans. It will help you choose the best plan based on your retirement goal.