Retirement planning is an essential aspect of financial planning, as it helps ensure that individuals have sufficient financial resources to live a comfortable life after they retire from work. With increasing life expectancy and inflation, it has become more important than ever to start planning for retirement as early as possible.

Retirement is often associated with old age which is not necessarily the case in today’s time. Retirement in today’s time means ability to follow one’s passion without worrying of means to support that passion and all other liabilities in life financially. For someone this passion could be following a hobby which is not generating any revenue while for others it could be one which does not. For some this retirement comes later in life while for some it comes much earlier. A person’s view of retirement often indicates the foundation needed to develop their retirement plan. There may be different approaches to retirement.

In this blog, we will discuss the steps involved in planning for retirement in India and the financial instruments available for retirement planning.

Step 1: Identify when you want to retire

The very first step is to identify when you want to retire. The ‘when’ in here is not necessarily your age as in earlier days but could also be the financial position that you would want to retire at. For this, you need to assess your current financial status. This includes evaluating your current expenses, income, debts, assets, and savings. You should also consider your future financial needs, including the cost of living, healthcare expenses, and inflation.

Step 2 : Determine Your Retirement Goals

Once you have assessed your financial status, the next step is to determine your retirement goals. This includes determining how much you need to save for retirement, the lifestyle you want to maintain during retirement, and all the known and unknown future liabilities.

Step 3 : Calculate Your Retirement Fund Requirements

Based on your retirement goals, you can calculate the amount you need to save for retirement. You can use online calculators or consult with a financial advisor to determine the amount you need to save each month to reach your retirement goals.

Step 4 : Evaluate Your Investment Options

Once you have determined the amount you need to save for retirement, the next step is to evaluate your investment options. There are several financial instruments available in India that individuals can use to plan for their retirement, including Provident Fund, National Pension System, Employee Provident Fund, Fixed Deposits, Equity-Linked Saving Schemes, and Annuity Plans.

It is essential to consider factors such as risk tolerance, investment goals, and personal financial circumstances when choosing the right financial instrument for retirement planning.

There are various financial instruments available in India that individuals can use to plan for their retirement. Some of the most popular options include:

• Direct Equity : This instrument as a mode of retirement planning has started to gain popularity lately. It’s a risky form of investment directly into company stocks and needs to be well researched. However, with a proper risk managed allocation and following a good investing framework, this option has hands down beaten all other instruments in returns over a long time horizon.

• Mutual Funds (MF) : MF’s are of many types in the market but can be broadly classified in two major streams : Equity and Debt. Equity MF’s have been known to give higher rate of return as compared to Debt MF but also have higher risk rating as compared to Debt. A risk managed allocation of a mixture of these two is a popular way to have MF for retirement planning.

• Provident Fund (PF) : It is a mandatory savings scheme for employees in India, and both the employer and employee contribute towards it. The interest earned on the amount saved in PF is tax-free and can be used to provide a steady stream of income during retirement.

• National Pension System (NPS) : The NPS is a government-sponsored pension scheme that provides a regular stream of income to individuals after retirement. It offers a combination of equity and debt investments and provides tax benefits.

• Employee Provident Fund (EPF) : The EPF is a savings scheme for employees in India that is similar to the PF. The employer and employee both contribute to the fund, and the interest earned on the savings is tax-free.

• Fixed Deposits (FDs) : FDs are a popular investment option for individuals looking for a steady stream of income after retirement. They offer a fixed rate of interest and are considered to be a low-risk investment option.

• Equity-Linked Saving Schemes (ELSS) : ELSS is a type of mutual fund that invests primarily in equities but has a lock-in period and tax benefits. While they are considered to be high-risk investments, they offer the potential for higher returns over the long term.

• Annuity Plans : Annuity plans are insurance-based retirement planning products that provide a regular stream of income to individuals after retirement. They offer a fixed rate of return and provide a safety net for individuals during their retirement years.

Step 5 : Start Investing Regularly

Once you have chosen the right financial instrument for retirement planning, the next step is to start investing regularly. You should make sure to invest a portion of your income each month in your chosen retirement plan. Additionally, you should also consider increasing your investments as your income increases over time.

Step 6: Review Your Investments Regularly

It is essential to review your investments regularly to ensure that they are aligned with your retirement goals and to make any necessary adjustments. This includes reviewing the performance of your investments, evaluating your risk tolerance, and making any changes to your investment strategy as needed.

In conclusion, retirement planning is a critical aspect of financial planning, and individuals should start planning for their retirement as early as possible. By following the steps outlined above, individuals can ensure that they have sufficient financial resources to live a comfortable life after they retire from work. Additionally, it is essential to seek professional financial advice when planning for retirement, as this can help ensure that individuals make informed investment decisions and achieve their retirement goals.