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How to Plan for Retirement? Research Team | Posted On Friday, August 14,2009, 07:06 PM

How to Plan for Retirement?



Plan for Retirement

Retirement is one of the important life events many of us will ever experience. From both a personal and financial viewpoint, realizing a comfortable retirement is an extremely wide procedure that takes sensible planning and years of perseverance. Even once it is reached; managing your retirement is an ongoing responsibility that carries well into one's golden years. In this article we will discuss few things about retirement planning that will help you in making proper decision on your retirement planning.

Factors to be considered while Planning for your Retirement

Following are the major factors to be considered while opting for a retirement plan.

  • Current Age

  • Age of retirement

  • Years after retirement

  • Annual income at retirement age

  • Rate of return on retirement corpus

  • Inflation rate

Current Age

Your current age is an important factor that affects the retirement planning. If your current age is below thirty, you have enough time to contribute to your retirement. At the same time if it is above thirty the gap between retirement and your current age is less. So it is better to start investing as early as possible. The early you start the premium/ contribution will be less and wise versa.

Age of retirement

Age of retirement is the age which you are planning to retirement. The difference between age of retirement and your current age is the period during that you can invest for your retirement. You can choose the retirement age as you wish. It can be 50, 55, 60, anything.

Investment Period = Retirement AgeCurrent Age

Years after retirement

Life expectancy is the expected period of your life. The difference between retirement age and expected life is the period during which the company has to pay your annuity. If the years after retirement are more, you need to pay more premium/ contribution. For example;


Retirement Age

Expected life

Years after retirement









In the above given example Arjun will line more years compared to Gautham. So normally the premium imposed on Arjun will be more than that of Gautham.


Annual income at retirement age

While going with a retirement plan you should consider your income at the time of retirement (no doubt it will be more than your present income) because as the income increases your standard of living also will increase. So try to choose an annuity that will help you to continue your life with same standard of living.

Rate of return on retirement corpus

Before investing in a retirement plan, consider the rate of return provided by the plan. Because investing in a place that is not able to generate decent returns will not help you to continue the same standard of living after retirement.  

Inflation rate

Inflation is the factor that decreases the value of money. So be smart enough to choose an investment that provides you more returns to cover the threat from inflation.

Retirement Planning Schemes

Following are some of the major investments that will help you in making sufficient money support at the time of retirement.

Traditional Pension Plans

These are the oldest forms of Insurance Plans available. It guarantees you a specific amount of money for life upon your Retirement. These plans won't invest your money in the aggressive stocks, they are basically less risky investments with average returns.

Unit Linked Pension Plans (ULPP)

In India private insurers started offering Unit Linked Pension Plan (ULPP). It has opened way to an attractive avenue for investors to invest their long-term money in. Though the product is offered by insurers generally there is no insurance cover in an ULPP. ULPP is very much an investment product, competing on costs, benefits and returns with Mutual Funds, deposits, share portfolios, and so on. In the accumulation phase, the amounts invested go towards purchase of units, at prevailing market rates. At retirement, the policyholder is provided with a certain portion of the accumulated fund as a lump sum payment. The remaining amount will be used to purchase an Annuity scheme to provide regular monthly income after retirement.

See Also: Types Of Unit Linked Insurance Plans

Systematic Investment Plans (SIP)

SIP is an investment choice that is currently available only with Mutual funds. Under a SIP option an investor commits making a regular (monthly) investment in a particular mutual fund/deposit. SIP is an easy and time pleased investment plan for accumulation of wealth in a disciplined manner over long term period.

Public Provident Fund

Public Provident Fund is generally known as PPF. PPF is a long-term, government-backed small Savings scheme of the Central government started with the aim of providing old age income security to the workers in the unorganized sector and self-employed individuals. Any individual (salaried or non-salaried) can open a PPF account. PPF will help you to make a good money back up at the time of retirement

See Also: Public Provident Fund

Provident Fund (PF)

Provident fund is a scheme by the Government of India by which a fixed percentage is deducted from your salary and a fixed percentage is added by the company. This sum is kept in an account, which accumulates and is then received back after retirement. The accumulated amount together with the interest is paid to the employee at the time of his retirement or resignation, in case of death of the employee the accumulated balance is paid to his legal heirs.

Financial Planning: How much pension do you need at Retirement?

You need to calculate backward to figure out how much money you should invest to receive a particular amount of regular income in the future. First, ask yourself when you wish to retire. Then, what kind of income do you need to maintain your present standard of living. If you think you need Rs 10,000 a month (pre-tax) if you were to retire today, assuming a 6% inflation rate, you would need Rs 17,908 after 10 years, Rs 23,965 after 15 and Rs 32,071 after 20 years. If you assume less inflation rate of, say, 4%, the required amounts would be Rs 14,802, Rs 18,009 and Rs 21,911 after 10, 15 and 20 years of saving.

Future Need

From the below given table you figure out very clearly the future need of money, assuming that your present need is 10,000 and the inflation rate at 6% and 4%.


Current Need

After 10 Years

After 15 Years

After 20 Years











If you really concerned about your future, you need to talk to your Pension Plan advisor and figure out what you need to put away every year to achieve your targeted pension income. We have to, of course, assume that taxation will be indexed to inflation - in which case your post-tax income 20 years from now will be similar in real terms to what it is today for a pension income of Rs 10,000 per month.

5 simple steps to arrive at an ideal retirement plan

Below given are five simple steps to keep in mind while choosing retirement plan.

Step 1: Decide how much income you require to live happily in your post-retirement years. Remember to take into account factors like increased medical expenditure, vacations, gifts for family, etc.

Step 2: Find out how much you need to save regularly, starting from today. You can use retirement calculator to determine the retirement amount you need.

Step 3: Select the right retirement plan that allows you to meet your post-retirement requirements. Preferably invest in plans which can provide you with potentially higher returns in the long run.

Step 4: Start saving now so you have time on your side and can enjoy the power of compounding. The sooner you are starting the higher your savings will be.

Step 5: Invest a fixed amount every month for your post-retirement years. Systematically investment will help you to multiply tour investments multifold.

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