Living long is also a concern and has to be addressed carefully at younger age. The rising trend of nuclear family, advancement of science and medical facility has forced the people to seriously think about the same. The government is also concern about this issue. NPS has been floated and PFRDA has also been formed and more tax incentives are also included in new DTC. IRDA has also asked for guaranteed benefit under new pension schemes of insurance cos., so that people start their retirement planning.
Still most of the people do not plan for comfortable retirement and struggle afterwards when there is nobody to take care. If you want your life to be the same as today, where you decide everything for yourself and spouse, than you must act now. One has to start retirement planning at earliest and has to decide his/her asset allocation depending on the retirement age and the corpus required. It is always advisable to hire a financial planner for comfortable retirement and complete financial freedom. The following points will help you to plan for building up retirement corpus.
1) Budgeting is the first step. Write down your income and expenditure and find the surplus available for the different goals.
2) Decide your retirement age.
3) Decide about your life expectancy depending on your family history.
4) Plan till your spouse’s life expectancy.
5) Calculate your expenses at the time of retirement by adding inflation to it.
6) Calculate corpus required at the time of retirement.
7) Decide your asset allocation.
8) Plan your investment and calculate monthly investment required.
9) Avoid traditional plans of insurance and add EPF/PPF for debt.
10) Review and rebalance at regular intervals.
Equity is the best option for retirement benefit as the goal is long term say above 10 years time. Still one cannot ignore debt part & must also consider EPF/PPF for retirement benefit. The salaried people do not have any choice but have to go with EPF. The businessman and the professionals must include PPF in their retirement planning, as it is better than traditional insurance plans, FDs, Postal Schemes.
EPF:
The Employee Provident Fund is a retirement benefit available to salaried employees. Under this scheme, 12% is deducted from the employee's salary (basic + DA) and contributed towards the fund. The employer also contributes an equal amount to the fund. However, an employee can contribute more than 12% if the scheme allows for it.
The amount deducted from Salary is eligible for tax benefit u/s 80-C up to 1 lakh. The rate of interest at present is 9.5% per annum, which is also tax-free. The EPF corpus is available to person after his/her retirement or after resignation. The fund can be transferred from one employer to other in case of resignation and joining other organisation. One can also withdraw the same but if the tenure of employment is less than 5 years than the withdrawal amount will be taxable. Premature withdrawals are allowed but in limited cases. One can take loan from EPF account in case of emergency.
PPF:
The Public Provident Fund is established by the central government. One can voluntarily open an account with any nationalised bank or post office. The account can be opened in the name of individuals including minor. The minimum amount to be deposited in this account is Rs 500 per year. The maximum amount you can deposit every year is Rs 70,000 in one account. The amount deposited is eligible for tax benefit u/s 80-C. The rate of interest at present is 8% per annum, which is also tax-free. The entire balance can be withdrawn on maturity, that is, in the beginning of 17th year from the financial year in which you opened the account. It can be extended for any period in a block of five years.
You can take a loan on the PPF from the 3rd year of opening your account to the 6th year. The loan can be taken up to 25% of the amount in the account at the end of the 2nd year immediately preceding the year in which the loan is applied. Partial withdrawals are allowed after 7th year. One can withdraw 50% of the balance at the end of the 4th year, preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower.
The liquidity is low in both EPF/PPF as they are basically designed for retirement benefit. One must know all these options before planning for retirement. It is always advisable to allocate EPF/PPF to retirement corpus as debt allocation.
This article is first appeared ar myiris.com on 28.04.2011
