Planning for Retirement: Know How To Build Corpus Which Lasts Longer?

Any individual who is currently working will retire when they grow old and most of them will have a goal to ensure that they will have sufficient financial resources that will maintain or upgrade their lifestyle post-retirement. If you have any hobbies like travelling then you will have to work harder to save more during the initial years of work life. How much an individual saves will mainly depend on how you prefer to spend during your retired life.

With the sharp rise in inflation rates and depleting interest rates, the traditional forms of investment are it fixed deposits or National Pension Scheme is unlikely to build the required corpus with which an individual can spend the rest of his life hassle free (financially) after retiring.

Some of the experts say that a working individual should save enough so that their retirement income should be in the range of 70% to 80% of their existing earning income. The present generation working-class people are opting for early retirement (before 60 years) and hence it is better to start saving for your old age early right at the time you begin your career.

Let's first understand the meaning of retirement and its features.

What is Retirement?

The term retirement refers to the time of life when one opts to permanently leave their respective workforce. In India, the retirement age for individuals working in the government sector is fixed at 60 years and even most of the private companies have also aligned the age of superannuation to the one fixed by the Central and State governments. But in case of some of the private sectors, the age of retirement can be extended solely at the discretion of the company.

The rise in the life expectancy level of individuals in India has paved the way for building a big yet sufficient retirement corpus for the working class. As per the survey reports of 2016, the healthy life expectancy in India for those who are aged 60 years are expected to live in good health and was estimated at 12.9 - 12.5 years for males and 13.3 in case of females.

As per the report from the UN Population Fund, the average life expectancy at birth in India has progressed to 69 years in 2019 from the previous record of 60 years in 1994. The lifespans of individuals who stay in urban centres are even more owing to the availability of modern medical facilities who have easier access to it. Having enough money saved for retirement is a crucial concern which most of the people face today.

Key Takeaways of Retirement Corpus

• The main aim of retirement planning is to ensure that an individual will have enough resources to maintain or to improve their standard of living during their retired years.
• Analyst's estimate than individuals will require 70% - 80% of their pre-retirement income, post-retirement.
• One should evaluate where the things stand currently and should chalk out a plan, if any additional savings are required.
• Building a diversified portfolio, investing strictly will help you to achieve your desired long term goals.

Let's take a sneak peek to understand how to build a retirement corpus which will last longer?

Secure Conservative Plan

Under the Secure Conservative Plan, the retirement corpus is obtained mainly from the pension plan and fixed income deposits which are considered as a traditional form of investment and are risk-free, most suited for risk-averse investors.

Some of the schemes which will fall under this plan include Senior Citizens Savings Scheme which offers an interest rate of 8.6% per annum, PM Vaya Vandana Yojana comes with an interest rate of 10% per annum.

Pros

• It is safe from the turbulent markets which keep on fluctuating.
• Income will not fluctuate due to changes made to interest rates.
• Gives a guaranteed return on investment.

Cons

• This plan does not match the rising inflation rates which keep on growing annually.
• These plans come with pre-tax returns, the tax factor will further eat away your returns.
• Interest rates are subject to change. If the interest rates are reduced in future and the resulting maturity amount, if reinvested will fetch meagre returns.

Balanced Plan with Some Risk Factor

As per the balanced plan with some risk factor, the investor should go in for a mix of market-linked securities, equity and fixed income options.

Gone are the days, when mere parking your funds in fixed deposits used to fetch you a lucrative interest rate of 13% per annum. With the falling interest rates every year, most of the banks in India are offering a mere 6% of interest per annum on term deposits which will make it difficult for a working-class individual to meet both the ends and the situation will be even worse for those who are retired.

As the sayings go "Don't put all your Eggs in One Basket", it is better to build a retirement corpus by spreading your funds in different portfolios which will realize your the desired financial goal at ease.

Go for a plan which will have a mix of Bank FDs which will fetch 6% interest per annum, Senior Citizen's Savings Scheme with 8.6% yearly interest, Debt Funds (systematic withdrawal) with offers 8% returns, equity-based hybrid funds with 12% returns.

Pros

• Longer you hold on for equity funds, the higher the returns it will earn.
• A mix of debt funds and fixed deposits will erase the risk factor.
• Income can be personalized by increasing the monthly withdrawal limit to your account to counter rising inflation rate.
• The risk factor is low.
• Tax-efficient in nature compared to the Secure Conservative Plan.

Cons

• The risk factor is present both in the equities and debt fund and hence pick schemes after careful evaluation.
• Interest income is fully taxable and the tax factor will eat into returns.
• One should have some basic knowledge about mutual funds before parking your funds.

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About the Author

Archana is a Content Writer at GoodReturns. She has been writing articles related to investment planning and personal finance for more than two years.