As a person nears the age of 60, retirement occupies the numero uno position in thoughts. No meetings, no conferences, no commuting to workplace, no deadlines, just all the time in the world to enjoy life with family and friends. An inviting thought indeed, but, the joy of infinite time at your disposal comes at a price. The security of earning a monthly salary can no longer be savoured. You may be in for some unpleasant surprises if you do not have a sound retirement plan in place.
What to plan for
Each individual has a dream, which was shelved in the work days due to lack of time.
What is your dream? Maybe you would like to live in a beautiful house in the suburbs with a separate room to house your musical instruments. Maybe a garden is what you want. You may want to travel and enjoy varied cultures or you may just want to spend quality time with your grandchildren. Post-retirement days could provide the perfect opportunity to fulfil those dreams. All this costs money though. There are times when you want to gift something to your children or grandchildren, especially on their birthdays or weddings. No individual would like to feel the pinch of cash shortage on these occasions.
Our twilight years are our golden years. While planning for it, it would be pertinent to note that financial health is as important for peace of mind as physical health. Even when we are in service, the skyrocketing price index throws us off balance sometimes. When a person retires, he does not retire from life.
How to plan
Ask yourself a few questions. Will our current household expenses change? Will you be paying more for health care? Do you intend to indulge in more travel? Do you have an expensive hobby? Will your commuting expenses change? The answers will help you evaluate the amount that you need to invest in order to ensure financial independence via returns in your retirement years.
A salaried person can expect to receive arrears of salary, leave encashment, bonus, gratuity, pension and annuity from the employer at the time of retirement. This may add up to a good sum. Now calculate the further investment necessary for you to maintain the same, if not better, lifestyle post-retirement. The first thing one has to keep in mind while investing is, start early and do not put all your eggs in one basket.
- Life insurance: Life insurance is a must and should not be compromised, as this scheme will protect the interests of your family after you.
- Pension plans: In addition, most financial experts recommend purchasing a pension plan. These plans offer tax benefits and could be a regular-premium, unit-linked policy or a scheme in which a lump sum can be paid rather than annual premium.
- Health insurance schemes: A major concern in the post-retirement period is the expenditure on healthcare. The most popular health insurance scheme is the regular mediclaim policy that takes care of major hospital expenses of a retiree. One can also look at investing in the long-term retirement mediclaim policy, which is like a pension. You can buy it now, when your earning is on, in order to take care of your health expenses later. Other good policies include those that cover hospital expenses for major ailments such as renal failure, cerebral or vascular strokes, and open-and close-heart surgery.
- Monthly income schemes: Youngsters can go for an equity-based, date-oriented systematic investment plan. You invest a thousand rupees or two a month, which over a long period can translate into 20-30 lakh rupees or more depending on market rates, but does not actually create a dent in your resources.
- Real estate: Real estate has been and most probably will be the biggest money-spinner. Investing in real estate, especially when you are young and have a steady income, ensures that you have a roof over your head at any point of time.
- Gold: Gold has been a traditional form of investment amongst Indians. Gold is the best emergency investment option as it is very easy to liquidate and its value is appreciating at a faster rate than bank deposit rates.
- Stock market: Investing in the stock market is a recent trend and can be an investment option only if you have extra funds in hand after investing in all the above-suggested investment instruments. Even then, it is wise to invest in the shares of blue-chip companies, which give assured dividends and stock appreciation in the long term. Avoid day-trading as it can be at best termed gambling or speculation.
- Art: Investing in works of art is a relatively new trend. One can consider investing in paintings by well-known artists. The appreciation in value for such pieces of art has been in the excess of 30 per cent per year in recent years.
Tax exemption for seniors
The tax exemption for senior citizens [for income tax purposes, the age is 65] is Rs 1.95 lakh at present, plus Rs 1 lakh common for all under section 80C of the Income Tax Act, aggregating to Rs 2.95 lakh.
What can pensioners invest in?
Pensioners who have parked their funds in the traditional Bank Fixed Deposits and Post Office Monthly Income Schemes have seen their returns collapsing in recent times from 12 per cent to 8 per cent.
Reverse mortgage, a loan against your house that you do not have to pay back for as long as you live in that house, could be another option for pensioners. Very popular in the western countries, the plan allows for the value of your house to be unlocked while you continue to live there. At the same time, you increase your fund inflow when the income from your job has ceased and the returns from your investments have dwindled.
So, whatever be your age, decide to make your retirement investment plan with full commitment. Take the help of a good financial advisor. Remember, nobody knows your personal needs better than you do. So, review and prioritise your goals from time to time and choose a plan which will save you from retirement blues.