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What is a Retirement Plan?

Retirement plan:

A retired life means you have all the time in the World to catch up on hobbies and interests you have missed due to a busy working schedule.

A retired life is meaningless without money to spend. A good retired life means you have to worry about spending time and not money.

When should you start planning for retirement?

Retirement planning should start as early in life as possible. The earlier you start planning for retirement more will be your corpus and greater will be the money you have to spend. Start your retirement planning in your late twenties or early thirties so that you will have a sufficiently large pension for your retirement.

How does inflation affect your retirement corpus?

Inflation is the general rise in costs of goods and services over time. Inflation eats up your savings and investments leaving you with very less money at retirement. Your investments should give you a return higher than the rate of inflation. Inflation has steadily been rising with time and you have to take up investments which give you returns higher than the rate of inflation.

Which investments should you take to give you good returns over inflation?

If you are a risk taker

An investment in ELSS gives a great return over time. Since equity linked savings schemes have a lock in of 3 years you cannot touch your money for this time.

This means your money grows by default and you will have good returns over time.

ELSS also has tax benefits where your taxable salary is deductible under Section 80 C up to INR 1.5 Lakhs .You can invest in ELSS and avail these tax benefits.

You can also invest in the NPS (new pension scheme) where you can choose the active or the auto choice. Your money is invested in equities up to 50% in the NPS.

If you are risk averse you can take up a higher proportion of investments in fixed income securities and Government bonds in the new pension scheme.

How much money do you require at retirement?

You have the expense protection method where you calculate/estimate your annual expenses or the monthly expenses just before retirement. This amount is then adjusted for inflation.

You can then estimate how much money you require at retirement to lead the same life style you are living today.

The last option:

If you have your own house you can consider a reverse mortgage especially if you live in a metro. There is no income proof necessary for a reverse mortgage. You can get up to a maximum of INR 50000 a month depending in the state of the house and its age.

You need to be above 60 years and the house should be in your own name. You have to be residing in the house. The house should be free of encumbrances/mortgage. The residual life of the house should not be less than 20 years.

You can also get a lump sum amount of not more than 50% of the eligible amount (value of the house) but not more than INR 15 Lakhs for a sudden medical emergency.

The amount you get as a monthly payout is not taxed. After you die your children/heirs redeem the house (clear the mortgage) by paying all dues else the house is sold by the bank and the money after clearing the dues is paid to your heirs.

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