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Thursday, September 29, 2022

How To Plan Your Retirement In India – Importance of Retirement Planning

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Retirement Planning | How to Plan & Invest For Your Retirement

Retirement, despite it may seem far away when we are in our twenties and thirties, necessitates a great deal of personal and financial planning. In this blog, we’ll look at how to create a sensible and effective retirement plan.

Why is it necessary to prepare for retirement?

Retirement planning is necessary to ensure that we live the life we wish and dream of after we retire. When we reach retirement age, we want enough money to last us through our retirement years and, more importantly, to allow us to pursue our ambitions. 

The Benefits of Getting a Head Start on Retirement Planning

Because we follow a set of goals, we frequently postpone retirement planning. Purchasing a car at the age of 25 is, for example, more important than retirement planning and so on. Just like you shouldn’t wait for a contingency to get yourself insured, you mustn’t wait till your 40s to start your retirement planning. Because you will have fewer years till retirement, you will need to invest a large sum of money to obtain the required funds. Furthermore, as you get older, your liabilities and duties expand, making it more difficult to invest the essential amount.

Investing for Retirement: A Step-by-Step Guide

The idea is to invest in asset types that have the potential to outperform inflation while still being compatible with your risk tolerance. Equity is one such asset class. Apart from direct stock purchases, there are two ways to invest in equity:

  • Mutual Funds of Stocks

    Equity mutual funds are an excellent investing option for long-term goals such as retirement. That’s because, in the long run, equities have always outperformed other asset classes in terms of wealth creation. 
  • National Pension Scheme (NPS)

    The National Pension System is another investing option that is primarily focused on retirement planning (NPS). It is a Government of India-sponsored pension accumulation investment scheme that allows individuals between the ages of 18 and 65 to participate. The PFRDA (Pension Fund Regulatory and Development Authority) regulates NPS, which is administered by government-approved pension fund managers.

Your money is invested in a variety of asset classes through NPS, including equity, government/corporate bonds, and alternative investments. You can either choose your own asset allocation using NPS Active Choice or use NPS Auto Choice, which follows an age-based asset allocation model, depending on your risk appetite.

NPS not only assists you in saving for retirement, but it also assists you in saving taxes. You can claim up to Rs 2 lakh in deductions through NPS under various provisions of the Income Tax Act, 1961, resulting in tax savings of up to Rs 62,400. It also qualifies for EEE, which means there is no tax on the money invested, no tax on the returns you receive, and no tax on the maturity amount.

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