Worried about post-retirement life? Here's how to plan it

All about retirement: Worried about your post-retirement life? As the life expectancy is on the rise in India, planning for retirement has become more crucial than ever.

The current life expectancy in India for 2024 stands at 70.62 years, which was 62.28 years in 2000 that reflects an increase of 13.4 per cent according to the data by MacroTrends.

When you decide to invest in a retirement plan, it means setting money apart every month. Depending on your current situation, that might seem like a stretch.

Why you need a retirement plan

"You do need a retirement plan that takes into consideration future increases in the cost of living, as inflation can erode your savings over time. Moreover, proper planning helps in keeping up one's standard of living by ensuring that the retirement fund provides a replacement for regular income and keeps up with inflation," said Swati Saxena, Founder & CEO, 4 Thoughts Finance.

"An early investment will definitely help in building a large corpus to support family goals or to leave behind a legacy for loved ones or a charitable cause. Last, but not least, an emergency fund within the retirement plan readies one for unexpected events like medical emergencies without punching a hole in the long-term financial security," Saxena added.

Diverse retirement plans to consider

Immediate Annuity Plans

Immediate annuity plans provide regular monthly returns after investing a lump sum, where the first installments are due within a year. This option is perfect for those nearing retirement, providing them with a steady income stream to help cover immediate financial needs.

Immediate annuity plans in India in 2024 allow multiple choices in securing a steady income in retirement. You may start getting regular returns as early as next month if you are 60 years old and put in a one-time investment. Other top plans, according to PolicyBazaar, are the Max Life Smart Guaranteed Pension Plan, HDFC Life New Immediate Annuity, Tata AIA Saral Pension, Bajaj Allianz Guaranteed Pension Goal, ICICI Pru Guaranteed Pension Plan, Tata AIA Fortune Guarantee Pension, and Kotak Life Lifetime Income Plan.

These plans provide you with a lifelong guaranteed income, insulation from market changes, and can be customized to your requirements. Some of the benefits that come with these policies are predictable payments, no market risk involved, and possible tax savings up to Rs 1.5 lakh under Section 80CCC. Notably, these policies have lower liquidity, which means that once purchased, it is hard to get your money back, and customisation options are fixed once purchased.

Deferred Annuity Plans

In contrast, there are small, regular payments to be made in the case of deferred annuity plans over time to build up a huge corpus for retirement. The annuity payouts kick in at a later date, thus making it flexible for long-term planning.

A deferred annuity is basically an investment where you put money in now and start taking payments later. It grows tax-free until you take your money out. There are different types:

Fixed Deferred Annuity: This is an investment device that has a guaranteed return—a fixed return, very much similar to a savings account.

Variable Deferred Annuity: The money is used to buy things like stocks and bonds. Variable deferred annuity returns are variable, as everything depends on the performance of the investments made in your portfolio.

Indexed-Deferred Annuity: This type of annuity is probably the most complex among other types. It combines fixed returns with the possibility of higher earnings based on a market index.

Longevity Annuity: It pays over the rest of your life; however, it only starts at an older age.
You can add more money to it while it grows; later, you will have the option to withdraw from it or turn it into steady pay. However, you might be hit with taxes, penalties, and fees for withdrawing early, before age 59.5.

Government-sponsored pension plans

There are a number of pension schemes sponsored by the government that help elderly people in India. An interest rate of 7.60 per cent is available under SCSS. It has a five-year tenure, which can be extended to three years. This scheme applies to citizens above 60 or to those who have retired between the age bracket of 55-60 years.

Under the Pradhan Mantri Vaya Vandana Yojana, a fixed return of 7.4 per cent for ten years has been declared with monthly to yearly pension payment options, and loans are permissible up to 75 per cent of the purchase price after three years of purchase.

The NPS by PFRDA incorporates both Tier-I and Tier-II accounts, which come with varying tax benefits and conditions for withdrawal.

Atal Pension Yojana targets the unorganized sector and correlates pension with contribution. The spouse shall be provided for in case of death; also, the nominee shall get the advantage in case of the death of the spouse or the subscriber. Varishtha Pension Bima Yojana is for people above the age of 60 years, offering guaranteed returns with much flexibility in payment options.

Advantages of retirement planning

It is important to have a comprehensive retirement plan that will cater to growing medical expenses with age, supplementing health insurance, and saving toward emergencies.

"The retirement plans also offer tax benefits such as deductions up to Rs 1.5 lakh available under Section 80C of the Income Tax Act. Proper retirement planning reduces financial stress and allows retirees to focus on enjoying retirement without worrying about money," said Arpit Suri, CA and personal finance expert.

Steps to plan  retirement

Here are the steps outlined by experts from HDFC Life to plan retirement:

Retirement date fixing

State the age at which you would like to retire, thinking in terms of your aspirations and financial needs to meet that kind of lifestyle.

Setting objectives after retirement

Mention what you want to do during your retirement years, travelling, hobbies, and any other such plans that you have nursed.

Expenses post-retirement

Note down your current spending patterns and take into account the factor of inflation while projecting the extent to which the expenses will rise.

Estimating costs of retirement

Calculate the total amount of money required to fund your envisioned retirement lifestyle, including the expenses for regular living and special objectives.

Emergency planning

Manage retirement's unexpected expenses through another emergency fund.

Inflate the account

Inflate your retirement corpus so that the purchasing power is retained.

See savings so far  

Check for gaps in existing savings and investments.

Calculate monthly savings

The amount to be invested every month to build up the retirement corpus.

Investment avenues

Choose investment avenues as per the risk tolerance and retirement goals.

Sources of income

You can opt for regular payments or a lump-sum distribution depending on your needs and personal preference.