Retirement planning may be defined as the process executed in order to achieve certain goals at the time of retirement; it varies from person to person according to their ambitions and goals.
It is a process of creating multiple source of income, saving and investment for financial support of post retirement phase of life and asset and expenses management etc.
You must have heard these lines from your grandparents or parents that they wish they must had invested in these schemes to get benefited in the present times. Yes or no; I don’t know about you but I have heard this.
Ever curious why, because the time factor in mainly plays a big role in a way to become financial free.
These instruments maybe investment in pension schemes or real estate or gold whatever lastly matter is your planning and your goals.This is why you should look up to retirement planning.
In addition the time factor can really do magic to your asset value compounding, so better start as soon as possible.
Know more about compounding effect
What’s in it for you?
- Retirement planning definition and Importance
- Different types of Retirement planning
- Benefits of retirement planning
- Different Pension schemes in India
- Tax regulations on retirement benefits in India
Retirement planning definition and Importance:
Retirement planning is the preparation and estimation of future rising costs of essential goods and health care and achievement of your personal long term as well as short term goals.
You need to understand the more you delaying retirement planning the more you have to work till your 60s when there you would have no energy and time to restructure you life.
So the best time is the present time.
Now the following will help you to understand the importance of retirement planning specifically retirement planning in India where the standard of lifestyle is very low for the same reason of no planning and preparation.
- Volatility of market where your job isn’t secured enough
- Rising medical expenses after retirement
- Uncertainty of future circumstances
- Rising inflation rate
Above said problems may come late but you will have to definitely face them that would tear down your all resources of income
Different types of retirement planning:
Now I hope you understand the retirement planning and its importance; so let’s get deep into it about its types.
Types are mainly three types;
- Under your total control
- You have some control over these
- You have least control on these
Under your total control:
This category of retirement planning included your asset management, Debt and your daily business and luxury expenses.
Obviously you can decide when to flip real estate or gold or vehicles purchases according to your intention behind the selling and buying of these assets.
Similarly how much loan to be taken and how much interest are you capable of paying to the creditor is under your control.
Your expenses on goods and services your are purchasing is also under your control according to your of living below your means. This type of planning is generally very much successful and you must do it.
You have some control over these:
This category includes your income sources and amount of income you are getting in present as well as in future.
It is beneficial for the longevity of your career growth and your health condition.
You should know that your biggest asset in life is your time and health. If both act together you can do magic in life.
Time gives you the compounding effect of money and asset appreciation and health will help you to sustain longer in your professional career to develop multiple sources of income for the post retirement benefits.
Both health and time are somehow partially under your control, if you take care of your physical and mental health.
Do proper utilization of your time productively towards your career growth then trust me you will never regret the efforts you are making now for the betterment of your health and productivity in time.
You have least control on these:
This category of retirement planning includes your return based investments and the taxation provision of Government to its people.
First understand return based investments, these are your equity investments, mutual funds and any market related investments.
As the market’s volatility is out of anyone’s control you can’t predict the future in these investments.
But somehow if you analyze everything carefully to reach your desired returns you have the control over your homework on investment distributions and yes risk is there from very fast.
As Mark Zukerberg said,
“The biggest risk is not taking any risk.”
So it is okay that these investment returns are out of your control but at the sometime this investments will be one of the factors that will make you retire early.
Now the taxation provisions, this is fully out of your control as you can’t change the tax rates published by the Government of India
Though you can avail some deductions and tax benefits by your investment and actions in certain provisions stated under different section in the Income tax Act, 1961.
know more about tax system
Benefits of retirement planning:
If you plan your retirement early it will help in the long term benefits you will enjoy after your retirement.
The more resources of income you have the early retire you will, so planning will give you overview at which income level you want to retire.
So following are the benefits of a retirement to make you understand it better;
Above all said are surely the advantage you would have while planning.
To achieve Financial freedom you need to know Personal finance.
Different pension schemes on retirement in India:
Pension schemes are generally primary source cash inflow in post retirement period. In India Pension schemes are somehow two types. That is Employees’ pension scheme (EPS) and National pension scheme (NPS).
Employees’’ Pension Scheme:
The employees have been employed for at least 10 years are eligible for this scheme. They can enrol into this scheme. Premature withdrawal after 50 years of age attracts a reduced rate of benefits.
An individual can defer his pension for 2 years to 60 years from the age of 58 years to receive an additional rate of 4% for each year.
However Form 10D is filled to receive a monthly pension after the age of 58. and Form 10C can be used to claim the EPS certificate.
If the member of the scheme is dead before the maturity period then widow wife and children can avail the benefits.
National Pension scheme:
Every citizen of India in the age group of 18-60 can avail this scheme. It matures at the age of 60 years. An individual can partially withdraw up to 25% after 3 years of account opening.
The account holder can invest in Equity, government bond, corporate bond etc. An individual can claim tax benefits up to 2Lakhs per annum.
Tax regulation on retirement Benefits In India:
Tax burden on retirement benefits are mainly on these types i.e. Pensions, Gratuity, and Voluntary Retirement schemes etc.
Private employees are liable to get exemption up to one third of their pension however Govt. employees are exempted as usual.
If you are getting a gratuity after your retirement then you are liable to pay tax only if you are a private sector employee.
For instance If your gratuity amount exceeds 10Lakh then 15 days of salary for each year of salary is exempted rest is taxable.
Government employees certainly are exempted from this.
Voluntary retirement schemes:
Firstly it is exempted up to 5Lakh if exceeds then last 3 months of average salary multiplied by number years of service is tax free.
It is only applicable if your minimum years of service are 10 or more and you are more than of 40 year of age.
Know more about Indian tax system
Lastly retirement planning is very much of a necessity these days where the inflation and economic factors will make you keep upgrading your current situation or else it would be a troublesome world for you to survive a better life.
Moreover this decision save your taxes and get you the better suited plans for yourself only.
You can plan your retirement by opting different pension schemes and invest in assets and equity etc.
It is an organized overview of your goals and post retirement resources of income to be generated.
You can analyze the eligibility criteria and maturity benefits upon which you can decide your best suitable plan for yourself.
It is required for the post retirement period to support you financially for different expenses.
Get invested in the better schemes for long term to take advantage of the compounding effect on money.
First analyze your long term goals and post retirement desires to get an overview of your retirement planning.