Steps for Retirement Planning in India 2024| HDFC Life (2024)

CALCULATE PREMIUMTALK TO OUR ADVISOR

1800-266-9777(ALL DAYS, FROM 9AM TO 9PM, TOLL FREE)

1

Immediate annuity plans

Annuity planshelp a retired individual with regular monthly payments. How does this retirement planwork? After one has made a single lump sum investment, the annuity payout begins within a year. This option is particularly helpful for those who are nearing their retirement and require a feasible option.

2

Deferred annuity plans

As the name suggests, this kind of annuity plan works differently than the one mentioned above. Here, the investor decides the time period over which they want to receive the annuity payouts. In this case, an individual makes small payments over a period of time to create a large corpus for retirement.

3

Senior citizen savings scheme

4

National Pension System

NPScan be extended to individuals who fall between the range of 18 and 70 years. The tax benefits under this plan can go up to Rs 2 lakhs in a financial year and works best for those who have a moderate to high risk appetite. This is because investments are largely in market-linked instruments including equities and debt funds. Investors can also opt for corporate, government bonds and alternative investment funds. The National Pension Scheme account matures after the investor turns 60 years old.

Preparing for a Longer Life

Advancements in healthcare and awareness about healthy lifestyle choices have increased India’s life expectancy from 68 years in 2015 to 69.7 years in 2020. With India’s growing life expectancy, people today have to plan their finances expecting to live longer than earlier generations. Retirement planning is not just about saving money. It is also about ensuring that the retirement savings will last throughout the retirement years. To achieve this, one needs to plan for retirement with a long-term view, considering inflation, increasing healthcare costs, and other expenses. Individuals must select retirement plans that enable them to enjoy a stress-free retirement and focus on the things that matter the most to them.

Fight Inflation

Inflation refers to the rate at which the prices of goods and services increase over time, decreasing the purchasing power of money. You must consider the impact of inflation on the cost of living while planning for retirement. If you assume an inflation rate of 5%, the cost of living will double in 14 years. So, if you’re hoping to retire in 20 years, you’d need more than double what you require now to maintain your standard of living. Retirement plans find safe avenues to invest your money and build a corpus that can help you battle the impact of inflation.

Leave a Legacy

Retirement planning enables you to leave a legacy for your loved ones. Planning your retirement helps you accumulate wealth that you can use once you retire and pass on to your loved ones. By starting to save early for retirement and investing in retirement plans that offer guaranteed returns, you can build a significant corpus over time. You can also use the accumulated funds to support a charitable cause and help make a difference, leaving a legacy that goes beyond financial wealth.

Maintain Your Standard of Living

Crucially, retirement planning enables you to maintain your standard of living once you hang up your work boots. Retirement planning involves identifying your retirement goals, estimating the expenses, and creating a plan to accumulate sufficient savings to meet them. You can use retirement plans to create a retirement corpus that provides monthly payments to help replace your regular income and maintain your standard of living. Since these plans invest your funds, they can help battle the impact of inflation on your finances.

1

Financial independence

If you are someone who has earned a regular income all your life, it's natural to feel uncomfortable being financially dependent on another person in your retirement. By investing in a retirement plan, you can continue enjoying regular payouts and at the same time, can achieve the goals that were neglected when you were pressed for time. It is one of the most important benefits of retirement planning.

2

Life expectancy

The average life expectancy today is 70-75 years, so if you retire at 60 years, you will still have many years of retirement where you need regular income. That’s where a comprehensive retirement plan helps. You can start your retirement planning as early as 20 yearsor 30 yearsor 40 yearsof age.

3

Medical costs

As costs of medical treatments rise, it is important to have a corpus for emergencies. While a sound health insurance plancan help you tide over such emergencies during your work life, it’s better to factor in medical expenses that arise in old age as well. That’s because spending from your own pocket is not practical particularly during old age, when an individual is more susceptible to illnesses.

4

Tax benefits

Investing in a retirement plan can help reduce tax liability and maximise savings. You can claim a deduction of up to Rs 1.5 lakh for the premiums paid towards the plan under Section 80C of the Income Tax Act, 1961.

5

Peace of mind

It may sometimes get very challenging to manage money, both for short-term and long-term needs. Sometimes, health issues may crop up without notice and it’s bound to hurt your pocket, especially if you are old and do not have a regular income. With retirement planning, you can stay happy and healthy without being stressed.

1

Start Saving Now

When it comes to planning for retirement, the earlier you start, the better. Starting early gives you more time to save a corpus that will grow steadily each year. The power of compounding works better the longer you stay invested, so purchasing a pension plan in your 20s and 30s will help you enjoy a financially secure retired life.

2

Prepare for Future Financial Emergencies

While planning your retirement, you must consider future financial emergencies. For example, purchasing a health insurance plan and setting up a contingency fund to help with medical costs or other emergencies helps you maintain your financial independence once you retire.

3

Explore Life Insurance Options

Every good financial plan includes a life insurance policy. You can consider getting a term plan to secure your family’s financial future and help your spouse prepare for retired life. Ensure you evaluate your options and find a policy that provides enough support for your loved ones.

4

Diversify Your Investments

When it comes to planning your finances for the future, never put all your eggs in one basket. You should find ways to diversify your investments to ensure good returns over the years. Ideally, look for investment options that allow you to lower your risk by investing in different types of funds. Evaluate the various investment and retirement plans available and pick one that suits your financial goals and risk appetite.

5

Think About Your Retirement Goals

Finally, before you purchase a retirement plan, understand how much you would need to achieve your post-retirement goals. Consider the cost of travelling in the future or the cost of learning how to play an instrument or set up a consultancy. List your goals and carefully consider how much they would cost. Once you understand how much you need, you can work on a plan to help you achieve your target.

1

Expected retirement age and investment horizon

It is important to evaluate your expected retirement age and accordingly plan your future. One must consider their current age, expected retirement age as well as the investment horizon to build a strategy for retirement.

2

Risk appetite

If one starts retirement planning early on, their risk appetite is likely to be higher than someone who begins late. In that case, they can invest in assets like equities that may be risky but offer higher returns.

3

Current financial situation

Another aspect that must be considered in retirement planningis an individual’s current financial situation–their expenses, lifestyle and any debts they have. This will help understand how much needs to be saved for retirement.

4

Spending on retirement needs

This may sound like a far-fetched plan but it is imperative to account for several expenses including housing, healthcare and other expenses that may arise during old age. Determining these expenses may be a good idea to help build a comprehensive retirement strategy for the future.

5

Asset allocation plan

Also, the returns earned from an investment may be lower, particularly in case of higher inflation. Once an individual has evaluated their investment goals, investment horizon, risk appetite and similar needs, they can consult an asset allocator for guidance.

The 4% rule in retirement planning helps you make your funds last for 30 years. The rule states that you should withdraw only 4% of your corpus in the first year, and for every subsequent year, raise the withdrawal amount enough to keep up with inflation.

The 3 R’s of retirement are:

1.Retirement Planning– It involves setting aside a portion of your income through your working years so you have enough to support you once you retire.

2.Regular Income– Once you retire, you should have the means to get a regular stream of income. For example, purchasing a pension plan or annuity helps you enjoy a regular income to cover your daily expenses and maintain your standard of living.

3.Risk Management– Once you retire, you must manage and mitigate risks as far as possible. You can invest in low-risk investment instruments that provide steady returns to combat the impact of inflation on your savings.

India offers two types of retirement plans, Pension Plans and Annuity Plans. The two often work together to secure your finances once you retire. You can purchase a pension plan in your 20s and 30s. The money you put into the plan gets invested on your behalf and builds up a corpus for your retirement. You can then use the corpus to purchase an annuity that provides regular payouts for the rest of your life.

The retirement lifecycle has three phases:

1.Pre-Retirement Stage– During this time, individuals are working and focusing on saving and investing for retirement.

2.Retirement Stage– Just after retirement, people in this stage rely on their investments to take care of their day-to-day expenses.

3.Post-Retirement Stage– At this stage, people may require additional support while dealing with age-related health concerns. Some individuals may require long-term care, which will only be possible through adequate financial planning in the pre-retirement stage.

5What is the legal retirement age in India?

6What is the ideal income I need in retirement?

7What is deferment?

8What is retirement planning?

9What are the steps in planning your retirement?