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Retirement Plan in India – 7 Step Guide

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Retirement Plan in India
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A smooth sailing retirement is a dream we all share. You finally get to settle into this period, having retired from all your responsibilities to enjoy your golden years with much-needed peace of mind.

It is possible only if you’ve planned for your retirement and made systematic investments over the years leading up to it. Retirement planning aims to build a corpus that lets you continue living the way you always have while having enough money to pay for unforeseen expenses and even fulfil some of your post-retirement life goals. But, of course, all of this is made possible with wise investing.

The Best Approach to Retirement Planning in India

Retirement planning for many fails because they start the process too late in life. Ideally, you should start your retirement planning process from the day you receive your first paycheck. 

Another reason why many Indians do not have enough savings in their sunset years is that they’ve either invested too little or not in the sound financial assets that will deliver returns in the long run. Many cannot save or invest only with an idea to safeguard their savings. Traditional assets may protect your savings but will not help your money grow. 

You must clearly understand that the objective of retirement planning in India is to have an adequate corpus that will allow you to sustain the same lifestyle you have now, considering inflation in the future. Therefore, making an early start is your best bet to prepare for your sunset years. 

Step by Step Guide to Planning Your Retirement

Look at our 7-step guide to your retirement planning in India.

Step 1: Decide When You Want to Retire

The most common retirement age in India is 60 years, but it may vary depending on the individual, company, and industry. Besides the legal retirement age, there is also the concept of voluntary retirement, wherein you can voluntarily retire before you reach your designated retirement age at the company where you work. 

Deciding at what age you wish to retire is the first concrete step toward your retirement planning. It is crucial because the steady inflow of income will cease when you opt for retirement. Not, In addition, notryone is eligible for a pension, so you must have enough savings and investments to take care of your life post-retirement for you and your family. 

Step 2: Create a Contingency Fund

Don’t let unexpected expenses derail your savings or empty your pocket! As they say, precaution is better than a cure, so planning for unplanned medical emergencies is more manageable than scrambling for money when the event occurs.

But, on the other hand, such sudden events could empty your savings and ruin your financial plans. So, it is a good idea to have funds devoted to such contingencies, which may or may not occur.

Step 3: Don’t forget, Start Retirement Planning Early

For most Indians, retirement planning is something they do when they’re almost at the end of their career. The approach should be exactly the opposite. 

You must invest ample time in your retirement planning in India. It should begin the day you start generating income. The earlier you start, the greater the opportunity to compound your wealth. It will help you create the corpus of funds needed to live your life comfortably after retirement.

The following table depicts how important it is to start early Investment Amount: INR 1, 00,000 yearly estimated @ 10% p.a. return. 

Starting age 25 35 45
Retirement Age 60 60 60
Years to Retire 35 25 15
Total investment 35,00, 000 25,00, 000 15,00,000
Retirement corpus 2,71,02,437 98,34,705 31,77,248

Step 4: Decide How Much Money You Need To Live Comfortably After Retirement

The rule in retirement planning is to smartly calculate the corpus you would need to ensure that your retirement years are smooth sailing. You first must set a target, keeping specific calculations and estimations in mind. 

Key factors you must consider are your expected age of retirement, your probable life expectancy, an average of your monthly expenses, healthcare, and a possible inflation rate. Remember, you must also account for the rate of return on expected investment pre-and post-retirement. All these parameters are essential when you define the figure for your retirement corpus. 

Step 5: Spread Your Asset Allocations Invest In Equity Too

It is common for people to invest in a single asset class when they are retirement planning in India. It could be fixed deposits, public provident funds, bonds, or equities. Investing in one asset class is a mistake when it means securing your financial future. The goal should be spreading your funds across several asset classes that offer varying returns. 

The idea is to build an investment portfolio with conservative assets such as fixed deposits that build the foundation for wealth creation and minimize risk. Don’t forget to include a robust healthcare plan to insure against existing conditions. Also, consider adding a critical illness that can cover you against any terminal diseases in the future. 

While doing all this, ensure you also invest in the right stocks for the long term and mutual funds that allow your funds to compound faster by offering higher returns. Invest according to your risk appetite and consider the number of years that you have to achieve your future life goals. 

Step 6: Track and Review your Plan Periodically

Ideally, you should have a schedule to track your investment asset performance across the board on a half-yearly, at the most, on an annual basis. Anything over that timeline is not acceptable. 

This periodic monitoring of your corpus is integral to the retirement planning process. It allows you to check what you have saved during that period and, in the future, is your plan suitable to help you meet your goals. If not, you can incorporate any changes in income, expenses, retirement age and fluctuations in the market into your retirement plan.  

Step 7: Avoid Breaking Your Retirement Corpus

One of the most important things you can do is avoid using funds from the retirement corpus. For instance, if you switch jobs, do not withdraw your PF balance; instead, transfer the balance to your next employer’s PF account. Moreover, every time you withdraw your PF, you save that much less, and your retirement corpus decreases too. You will also have to pay taxes if you remove your PF amount before 5 years.

The Bottom Line

Retirement planning in India ensures you save enough to gift yourself a stress-free and financially stable retirement. Moreover, you get peace of mind knowing that you have a solid corpus readily accessible to manage your financial expenses satisfactorily in your golden years.


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