With the YOLO mantra on their lips, Gen X is busy living it to the hilt without sparing a thought for the future. However, with better medical facilities, better immunization and nutrition, coupled with prevention and treatment of infectious diseases, statistics released by the Union ministry of health and family welfare show that life expectancy in India has gone up by five years. Yes, the good news is that one is going to live more, but the worrisome news is that few of the Gen-X people have saved enough money for retirement. Over the recent years, the earning capacity has increased, thereby raising the spending power of individuals. However, with the expansion of income, people have upsized to bigger houses, added on material comforts and bought increasingly more expensive gadgets, but have not outsourced the treasures to a storage unit for the future. Here are a few ways to save up for those days when one would not be earning any more.
Steps toward Saving
- Make adjustments in the buying habits by buying only things that you need. Stay away from supposed ‘money-saver products’ and services which are only going to make you spend unnecessarily by luring you with deals. While buying a certain item, weigh its convenience against the expenditure you are making. Do not buy anything that is a burden on budget.
- Learn to save more with increase in earning capacity.
- Pay yourself first. Every time you receive a pay-check, set aside a certain amount for yourself and this will be the corpus which is going to pay for you when you retire.
- Buy a health insurance that covers you till you are at least 75 years. The premium for the same is much lesser while you are young and healthy.
- Savings are of three kinds: an emergency fund, short term purchases and long term goals. Keep the first two easily accessible, while savings for long term goals should be an investment which cannot be easily broken at your whim.
- Borrow for education, but save for retirement and while you are saving remember to save 20 times your current expenditure, keeping in mind the inflation.
- Live well. But while you live well, set aside an amount to live well when you retire too.
- If you are already on the threshold of retirement, begin downsizing. An independent house once the kids have moved out is of no use. You do not need to sit on such a big capital investment just for the sake of the yearly visit of your children. Move to a smaller house and invest the difference to protect your future.
Retirement Plans in India
- NPS: New Pension Scheme or NPS with an annual return of 10% is a mandatory scheme for government employees, but open to the private sector employees too. It is one of the best retirement plans as the fund managers of this scheme can also take recourse to equity and equity-related instruments which prove helpful in the long run.
- EPF: The Employee’s Provident Fund is a very popular retirement saving scheme. The EPF offers a rate of return of 8.5% p.a. EPF offers deduction up to 1 lakh. Also, the good part is that interest from EPF is tax free. So is the case with withdrawal if there is 5 years of unhindered service.
- Equities: Returns from equity like Stocks and Mutual Funds remain unmatched. However, keep the long-term picture, spanning over a period of not less than 10 years in mind, while investing in equities. In case the equity is not performing well, you have the option to sell, cut your losses and reinvest. Mutual funds come with the option of monthly SIP so that you can invest in a planned way for your retirement. Take note that equity-related products are free of tax after a year of investment.
- ETF: Exchange traded funds or ETF’s in India, is done either through Index or through Gold. While Index ETF trails the index, the Gold ETF invests in gold. It is by buying gold units each month that one can purchase units of ETF. These are also a good option for accumulating corpus for retirement.
- Bonds: In the case of bonds, a company or government takes a loan from you and gives you a certain interest in lieu of the the loan. These bonds span over 10-15 years and offer heightened interest rates of 10-12% p.a. A few examples of the same include IIFCL tax free bonds, HUDCO bonds, inflation bonds, etc.
- Monthly Income Schemes: Popularly referred to as Monthly Income Schemes (MIS), in this system, you need to invest a hefty sum and this amount is invested in various instruments for you from which you get a steady monthly income. Post office and various mutual funds provide this scheme. The post office offers to its customers an interest of 8.4% p.a and the maturity period is 5 years.
- SCSS: The Senior Citizens Saving Scheme (SCSS) is the safest bet for the elderly and one can open an account in any nationalized bank or in the post office. The interest rate under this scheme is 9.2% p.a. and it has a maturity period of 5 years.
- Reverse Mortgage: Under this scheme, you mortgage your house with a certain bank. As per the value of the house and the term of the pledge, the bank will pay you a certain amount of money which acts like a regular source of income. The income that one receives from the house property under this scheme is exempted from tax.
- Pension Plans: Similar to SCSS and MIS, under this scheme, insurance companies and mutual funds step in. Once you invest a lump sum amount, you are provided with monthly income. Charges from insurance company provided pension or annuity plans are usually higher than mutual fund provided ones.
- Liquid Funds and FD’s: Liquid funds and fixed deposits of different terms can be availed from the corpus that you have set aside for emergency. While the money is easily accessible for use unlike the aforesaid plans, the amount also earns an interest instead of just sitting there.
Retirement planning is imperative if one wants to achieve financial independence. Once the retirement age and lifestyle has been assessed, through prudence and saving practices one needs to start allocating a certain amount of money towards old age. A financially-sound retirement will spell a quality life even in the ripe old age, when one will have both the time and money to follow one’s dreams one has been postponing all life long.
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