What is the best retirement plan where we can invest? Alas, this simple question does not have a one line answer!
Moreover, if we really want to plan for our retirement >20 years from now, it’s a good idea to spend an hour or so rather than come to a hasty decision. In fact when you are planning for retirement, you are also, in a single stroke, managing your personal finance. Because retirement investments takes into account your financial goals, income, spending and savings. So it is a good idea to spend some quality time on this.
So, let’s start with figuring out your retirement funds, how much every month will you need after factoring inflation and how long will the funds keep going.
(you may like to spend time with this retirement planner, these sheets and calculators)
After you have an idea about your retirement needs, you also figure out how much to invest. And depending on what your income is, you make the decision for savings too. So, in a way, your retirement planning is a complete management of your money too!
Now it’s time to weigh the various options available. The common investments options are:
- Pension products from Insurance companies,
- Mutual Funds and
- Post Office investments.
- PPF.
Before we proceed, it’s important to consider three out of four parameters of investing. i.e. 1) Growth, 2) Security and 3) Expenses (leaving out liquidity, which has to come much later!)
The pension products from the Insurance companies have a high cost structure as they pay a decent amount to their Agents. The Insurance companies have to follow guidelines from IRDA to invest your money which is generally in safe investments (Other than ULIPS where investor bear the investment risk). This affects the returns and the average return can be pegged at around 6% as of now.
ULIP Pension products can give higher returns though the investor bears that risk. But the cost structure of ULIP pension funds is higher than Mutual Funds.
Mutual Funds offer better returns and again they are subject to market risks. But over a long time frame, the returns are really good.
Post Office monthly accounts offer interest @ 8% per annum, payable monthly.
Now, coming back to the question about the best retirement plan, the answer would be a combination of the following products:
Mutual Funds, Public Provident Fund, fixed deposit (FD) and fixed maturity plan (FMP), etc to build the retirement fund while you are young and can take risks.
As the fund grows, the investments can be deployed in avenues like FDs, senior citizens scheme, Post Office Monthly Income Scheme, MF investments with a systematic withdrawal option, FMPs in the dividend distribution mode and monthly income plans, etc to get periodic returns.
Essentially it’s like bat like Sehwag first and then let Sachin take you to the winning post!
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Ranjan, your mentioned investment option has majority of Debt instruments. Please read my thought below:
1. Retirement plan should start as early as possible.
2. Investments should depends on age, risk profile and term.
3. Balancing the portfolio time to time is must.
4. Selecting a savings account which give compounded interest rate facility is excellent. Yes, PPF is the better candidate in both way of saving tax and work as savings account too..
5. Remembering the point of don’t dip into your savings, PPF work best because of its 15 year lock in period.
6. In the sense of mutual fund, I agree with good diversified one. But, selecting a good index ETF will provide the facility of growing your money with economy and time. RCA method is best for buying ETF and SIP is better for MF.
7. A good ULIP with a long term focus would be best for such purpose. It should be a retirement plan without insurance, good fund performance and low costs.
Seek your reply if I am wrong..
Sherin
http://investinternals.blogspot.com
I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Kate
http://educationonline-101.com
Gr8 tips to newbies like me thanks….I will be visiting your blog often..
Suman
http://pesit08.blogspot.com
Ranjan,
how come real estate as an asset class has been left out. I believe its an inflation defensive asset in the long term, irrespective of the mess that is going around now.
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good tips for retirement planning, one more option is national pension plan started on 1st May 09
khalid
@Khalid
Yes, The NPS is the best one now. Need to post about it soon!
When making a financial planning retirement, do some independent research and analysis first; do not be swayed by what other people’s investment moves. Keep in mind that not all financial planning retirement packages are created equal; each plan has its own pros and cons. So, it is best that you know what will work on you when you make your very own financial planning retirement.
Retirement is a frightening thought for many as they wonder how they will survive. One source of comfort is your own home. The equity in your home could be a major asset, especially if you have paid the mortgage down and especially if you’ve paid it off. If you’re approaching retirement, there are two ways to take advantage of your home’s equity. First, you can use a “reverse mortgage” which allows the lender to make monthly payments to you from the equity. Second, you can “trade down.” Trading down means selling your home and replacing it with a smaller, less expensive home, and then keeping the extra as retirement.
Very nice article on retirement planning. Keep posting more of it….