There's a popular saying, "Retirement is when you stop living at work and start working at living." Retirement is fun only if you have money to enjoy it. Otherwise, it can be a nightmare. How will you spend days after days without income? It's difficult to get a job in old age and why would you want to put in hard work, after you are 60?
Actually, it's really simple. You have to invest money when you are working, to enjoy retirement. There are plenty of investments for retirement, but you have to choose the right investment. An investment which meets your retirement goals is the right investment.
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Why must you plan for retirement? It's simple. Inflation, the general rise in the prices of goods and services each year, eats up most of what you earn. If you are struggling to pay bills today, how will you survive retirement?
National Pension Scheme popularly called NPS, encourages you to save and invest across your working life for retirement. Let's say you invest in NPS at the age of 30 and stay invested till 60. NPS allows you to invest up to 50% in equity, giving you an excellent chance to get sufficient money at retirement.
NPS is very good if you want to save for retirement, but are not comfortable making investment decisions.
NPS offers you 2 choices:
1. Active choice: You invest up to a maximum of 50% in equities and the rest in Corporate Bonds and Government Securities.
2. Auto choice: If you are not comfortable making investment decisions, pick the auto choice. Allocation is made on the basis of a predetermined formula depending on your age. Investment is in a mix of equities, Corporate Bonds and Government Securities.
Tax Benefits: If you invest in NPS, there's a maximum tax deduction up to Rs 1.5 Lakhs a year, under Section 80C. You get an additional Rs 50,000 deduction a year, under Section 80CCD(1B).
Withdrawal: You can withdraw 60% of the accumulated amount on retirement at the age of 60. The remaining 40%, must be compulsorily invested in an annuity plan. The annuity plan gives you pension after retirement.
NPS encourages you to save for retirement and get a regular income after retirement.
If you are a salaried employee, an amount of 12% is compulsorily deducted from your basic salary. This amount is contributed to an EPF account in your name. The employer also makes an equal contribution. The money is managed by the EPFO. A small portion of your employer's contribution goes to an account in your name called EPS (Employee Pension Scheme).
EPF offered an interest of 8.65% a year for FY 2017. This is higher than the interest offered on PPF and FDs. This makes EPF an excellent investment for retirement.
EPFO started investing your EPF money in equities in 2015. In FY 2015-16, the EPFO invested 5% of the annual incremental corpus in equities. It was increased to 10% of the incremental corpus for FY 2016-17 and 15% for FY 2017-18. This is a whopping Rs 18,000 Crores in equities.
EPFO invests money in stocks via ETFs (Exchange Traded Funds). You will soon see part of your retirement corpus in ETF units and the non-equity corpus will earn interest.
EPFO invests 85% in debt and 15% in equity. You earn interest on the debt investment and the equity investment grows with time, giving you money for retirement. Don't withdraw EPF but transfer it when you change jobs.
You can invest in an annuity plan for pension in retirement. You invest a lump-sum or regular amounts of money during the accumulation phase of the annuity plan. You get regular payments for a pre-specified time period (say after retirement) or as long as you live. Be Wise, Get Rich.
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