Retirement is not the end of your life….It’s just the beginning. It’s the time to pursue dreams and hobbies and catch up on everything you have missed in life. To enjoy a happy retired life….You Need Money. You can’t wait till retirement to save money. You need to start saving and collecting the money…. NOW.
So when do you start saving and investing for retirement? Do you wait till you are 40? Your retirement planning begins on the first day of your first job. Over 87% of our citizens, either don’t save for retirement or they don’t save enough for retirement. Do you want to be one of these citizens?
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If you are looking to buy your dream home and stay in it (not for an investment), demonetization has given you an excellent opportunity. With property prices falling and banks cutting home loan rates, this is the time to buy your dream home. A house costs lakhs of rupees, which you may not be able to afford at a young age. A home loan gives you the opportunity, not only to own a home at a young age but also get tax benefits.
With a home loan, you learn the saving habit…After all paying home loan EMI’s in time is not easy. It requires discipline and respect for money. You can always rent your home and earn rental income.
You love your children and take very good care of them. Your children also love you and would take care of you after retirement. But why depend on them? Why not use your property as a support in retirement? Just avail Reverse Mortgage.
Reverse mortgage is the exact opposite of a home loan. In a home loan, you borrow money, to buy your home and repay in EMI’s. In reverse mortgage, you pledge your home with the bank for either a lump sum or fixed amounts, just like a regular salary.
To get the benefit of reverse mortgage, you must be over 60 years and reside on the property. The title of your home must be clear and marketable with no mortgage on the property. You get up to 60-70% of the value of the property in reverse mortgage. In case of medical emergency you can also avail a lump sum (up to 50% of your eligibility). You and your spouse can live on this property, as long as you are alive or choose to sell the house. Your children then repay the borrowed amount with interest and claim the property.
You might not like the idea of pledging your house or forcing your children to repay a reverse mortgage loan. Tradition demands you transfer an asset (your home) to your kids, free of any loan or mortgage. Avail reverse mortgage only if your children do not take care of you or pay your expenses.
You want to invest money to enjoy a happy retirement, but don’t know, how and where to invest. New pension scheme, popularly called NPS, can help you save for retirement. You can start your contributions towards the NPS, from the age of 18 years, right till the age of 60 years, which is the maturity of the scheme.
NPS is a Government approved pension scheme which helps you save for retirement. You have two options here, active and auto. In active option you have the liberty to set your exposure to stock markets and can choose to invest up to 50% in stock markets, where as in auto option fund manager invests as per the guidelines set by PFRDA. The rest of the investments is made in corporate and Government bonds. NPS charges very low fees, which makes it a good retirement investment.
If you invest in equity at a young age, your money grows with time. An investment in equity has historically proven to yield better returns if you stay invested for the long term. As maturity draws near, most of your money is shifted from stock market and invested in fixed income instruments like corporate and government bonds.
You can withdraw 60% of the amount which accumulates at maturity. The remaining 40% has to be compulsorily invested in an annuity plan. If you withdraw from the NPS before 60 years, 80% of your NPS corpus is compulsorily invested in annuity. An annuity is an insurance product, which gives you steady income in retirement.
See Also: Best Pension Plans in India
If you are young and want to invest for retirement, ELSS (Equity Linked Savings Scheme) is an excellent investment. ELSS invests most of your money in stock market. An investment in stock market is expected to yield better returns over the long term. But, people say investment in stock market is risky? Won’t you lose money?
Let’s say you are willing to keep aside, INR 2000 each month. The loss of this money may not really bother you. You might have spent it anyway. Now, you invest this money in an ELSS through an SIP. SIP is nothing but a way of investing small amounts regularly in Mutual Fund schemes. Just wait for 25 or 30 years. You could have lakhs/crores of rupees at retirement.
A young person must invest in equity across his working life, preferably in ELSS. Not only do you get returns which beat inflation (you are forced to stay invested for at least 3 years), you also save on tax. The money you withdraw at maturity (after 3 years) is tax free. Invest in ELSS for retirement, not just for the tax benefit. Just a year before you retire, you can invest portion of ELSS in an immediate annuity plan which gives you a pension for life.
Our citizens love to invest in the Public Provident Fund, popularly called PPF, for retirement. PPF with a maturity term of 15 years, makes sure you are a long term investor and this will help you create corpus for your retirement. The money you invest is safe and PPF currently pays an interest of 8% a year. Although Government is decreasing interest rates gradually, PPF is still an attractive destination owing to its tax efficient structure.
For an investment to be good for retirement, it has to give returns much above inflation. PPF combined with tax benefits, is just the right investment tool for a happy retirement.
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