Don’t get stumped, be ready to face the retirement challenge: Here are the key considerations

• Follow

When we are young we remain busy doing nine to five jobs to maintain a good standard of living. We forget about retirement, but the reality strikes when we are near the 60s and cannot work any longer. Therefore, for leading a peaceful and comfortable retirement it is essential to start planning and investing towards it. Here are five key areas that will help you chart out your retirement planning.

Steady Income

It is important to invest your retirement benefits in avenues that offer you assured as well as the highest returns so that you do not compromise on living standards even after retirement. One of the good retirement schemes is Pradhan Mantri Vaya Vandana Yojana (PMVVY). It pays out a pension at the assured rate of 7.4%. The scheme is designed specifically for senior citizens who are above the age of 60 years and is for a fixed period of 10 years. One can invest a maximum of up to Rs 15 lakh in the policy. On the minimum investment of Rs 1.62 lakh, it offers a monthly pension of Rs 1,000. Similarly, on the maximum purchase price of Rs 15 lakh, it offers a monthly pension of Rs 9,250. For more such schemes, read here.

Health Insurance

As you grow old, the chances of falling sick increases. It is, therefore, advisable to buy a basic health insurance policy when you are young and premiums are low. If you have already crossed 60 and do not have a health insurance policy, then you can go for senior citizen health plans. The only catch is while general health insurance policies have lifetime renewability, a senior citizen can generally be renewed till 75-80 years of age.

Tax Planning

If a person falls in a higher tax bracket, it makes sense to advise to invest your money which gives you tax benefits. For example, you get a deduction of Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961 for the amount invested under the Senior Citizen Savings Scheme. Similarly, Systematic Withdrawal Plans or SWPs are very tax efficient as you pay tax only on gain and not on the whole amount withdrawn. Suppose you invest Rs 10 lakh in a 5% FD. Assuming you fall in the highest tax bracket, you would need to pay a tax of about Rs 15,000 on the interest amount of Rs 50,000. Now, if instead of FD you start an SWP, then your tax bill would get reduced, considerably. Assuming returns are the same and you withdraw Rs 50,000 every year from the debt fund, you would have to pay taxes on the capital gain part only which would be Rs2,500 (Rs 50,000-52,500). The tax amount would work out to only Rs 750.

Readjusting your portfolio

As you grow old, you need to ease up on the risk. You might have been an aggressive investor in earning years but post-retirement you need to go conservative as you cannot afford to lose your nest egg. It is advisable to move from equities to investment avenues that give you stable and guaranteed returns. It is also advisable to sit with your financial planner and channel your retirement benefits at the right place so that you do not live under the fear of living out your savings.

Estate Planning

Estate planning is a systematic way to deal with the management of property and transfer of legacy to the next generation. Through estate planning, you can ensure a smooth transition of assets without any bitterness in relationships which we usually see when the head of the family passes away and the property gets distributed among siblings. Some of the popular ways of estate planning are by writing out a will or creating trust.