Financial planning is a scary concept and often seems like a herculean task, but all rational adults have to undertake this responsibility in their life. Whenever the thought of retirement pops up, the most common worry is “outliving their savings” and not being able to afford basic financial needs to sustain themselves independently. Studies have shown that more than 80% of financially stable urban Indians have not laid the foundation of financial planning for retirement. However, do not panic looking at these statistics if you have not yet thought of your financial planning for retirement, there are tons of options available to remedy that. That is exactly what we’ll cover in this article, hoping it enables you to live with a secure financial future.
Table of contents
- What is financial planning for retirement and its importance for seniors?
- Here is a checklist of important factors to consider while doing financial planning for retirement
- Best Investment Options for Seniors doing Financial Planning for Retirement
What is financial planning for retirement and its importance for seniors?
Financial planning means arranging one’s finances, involving a series of concrete and detailed pre-existing schemes. These act as a guide for a secure financial future and help you achieve your financial goals. This planning helps map out your income, expenses, or investments to achieve strategic goals for you or your business.
Some of the benefits that come with planning your finances are:
- It increases your savings.
- You get to enjoy a better standard of living.
- You are far better prepared for any emergencies that might come up in your later life.
- You’re relaxed and less likely to get anxious with situations involving money.
Here is a checklist of important factors to consider while doing financial planning for retirement
- You must have a pre-existing set of ideas and vision of what you are trying to achieve financially. For better understanding, you can take the help of a financial advisor.
- Do your research and study the data you gather. This data can include your objectives in finance, your income data over the years, investment tracking and returns, etc.
- Once you’ve successfully gathered the said data, analyse it to understand your financial situation. This helps track your ideal options of investments.
- Next up, chart out your plan of action for your finances. Start conceptualising your course and set realistic goals.
- Now what remains is putting your course of action in motion. Create a monthly checklist to help you with the future course of action, get it done sequentially and on time.
- Monitoring your plans regularly helps you keep things on track. You can always discuss this with your friends and financial advisors that can guide you better as time goes on.
- Stay up to date with the latest national and international financial news.
Best Investment Options for Seniors doing Financial Planning for Retirement
Here are some Investment options that you can research before you invest your hard-earned savings:
Senior Citizens’ Savings Scheme (SCSS)
The Senior Citizen Scheme is introduced keeping the financial health of the elderly in mind, you can access them quite easily through your banks and your nearby post offices. This scheme requires having a five-year tenure that can, later on, be extended to three years after the scheme matures. This scheme comes with a standard ROI of 8.6% per annum; you can break this scheme payment to every quarter of the year and is taxable. The SCSS doesn’t lock in your money so that you don’t feel controlled or get the obligation to commit to it even though you don’t want to. So you are free to take out your money any time you want. As of now, you can deposit up to 15 lakh INR and can open multiple accounts under your name.
Post Office Monthly Income Scheme (POMIS)
This is a monthly paid scheme and has a 7.8% per annum ROI. You can invest up to 9 lakhs INR and have the option to either open a single or a joint account. However, this scheme doesn’t come with any tax benefits. The annual interest directly gets transferred to your savings account.
Fixed Deposits for seniors
FDs are considered the safest and most profitable alternative considered in the elderly demographic, seniors tend to feel the most comfortable and at peace with this option, as they consider it a safe low-risk option.
Although FDs are proven to get lower returns in comparison to other options, FDs aren’t the ideal alternative as they can’t keep up with the market inflation. They also don’t provide any tax benefits.
National Pension System
National Pension System allows senior citizens to get an ensured outcome to their investments by introducing and teaching them about equity and debts funds. The government of India initiated and introduced this system in 2004. This system gives you an option to take out your desired amount from your monthly salary and invest in said funds. Any person, from 18 to 70 years old (including NRIs), can start this pretty early on.
National Savings Certificates (NSC)
The first thing you need to know about NSCs is that this alternative offers an ROI of 8% fixed for 5 years. You can get to know more about NSCs through your nearest post offices as they are the ones that issue these. NSCs make sure your annual interest is reinvested till the 5 years and given back to you at the end with your invested money. Whatever savings you get from this alternative are tax exempted.
Pensions and Employee Provident Fund (EPF)
This alternative is within easy access for the individuals whose firms offer these long-term benefits. To put it simply, the firm in question deducts around 10-12% of the monthly salary of the employee and this is saved in an Employee’s provident fund (EPF) account. This cut will gain interest over time and gets to a significant amount by the time the person retires. They receive a certain amount every month; this amount will increase every year to match the inflation prices.
Public Provident Fund
Public Provident Fund (PPF) is another alternative that can be accessed at select few designated post offices and a select few banks under the public sector domain. A PPF account can be opened by literally anyone. The savings for each account can go up to 70,000 INR annually while receiving an ROI of 8%. However, you’re not supposed to withdraw the amount for about 15 years as it is a long-term investment and tends to provide high returns over time; this alternative is quite popular for retirement savings.
Another long-term retirement plan is an insurance plan, it is vital that you start an insurance plan early on in your work life as you tend to receive quite a generous amount once you retire at the standard age of retirement. This amount can be turned into an annuity, much like pensions. An annuity allows you to break down the total amount you are going to receive into monthly payments after you retire, allowing you to get a steady income every month. An annuity is a product of the insurance company, thus making it easier to claim and get the total amount in one go.
The ideal financial investment for senior citizens varies from person to person. Some do it for personal gains; some do it for their kids or grandkids, and based on the said needs, one needs to pick out what investing option will get them where they need to be. Ideally, the outcome of these investments needs to be in perfect harmony with their financial revenue and financial growth.
We hope this article gives you the right data, information, and confidence boost required for your financial planning for retirement, such that you and your loved ones never have to worry about expenses and monetary issues ever again.
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Frequently Asked Questions
Although it is not an absolute must to get a personal financial advisor, having one can greatly help your wealth management and investments.
`At the end of the day, it comes down to the personal preference of the individuals, if they want an advisor that can counsel them on their wealth management. It is however key that you make sure your advisors follow all the legally bound obligations and the set standards so that their advice is always in your best interest.
The 5 percent rule suggests the percentage of the amount that a retired person can withdraw from their funds each year. Previously, it was the 4 percent rule. It is now an outdated rule, as all the experts and the creator of the 4 percent rule think that 5 percent is the better course of action in today’s day and age.
This rule helps us maintain a steady amount of income while maintaining our savings.
The course of action to ideally plan out your finances are given below –
Keep in mind what age you want to retire at
Start as soon as possible to achieve said goal
Determine your Retirement Corpus
Calculate how much value your savings can get you in the future
List down your unwanted and useless expenses and try cutting down on them
Create your ideal finance portfolio
Monitor your plans and investments regularly.