Where to Put Your Retirement Funds
As you approach retirement, you enter a new phase of financial planning, guided by new goals, anxieties and ambitions. The rise in life expectancy has made it even more important to plan well for retirement, so that you have enough money to lead a long, comfortable retired life.
Jul 2022
4 mins read
Share:
As you update your financial plans, it’s important to identify the most suitable investment avenues for retirement. You have a variety of options, from annuities to the National Pension Scheme to the Senior Citizens’ Saving Scheme and the Post Office Monthly Income Scheme.
But first, you must ensure you have life and health insurance to stop adverse health events draining your savings. Once that is in place, you can turn to investment planning to help you accumulate a considerable corpus as well as earn regular returns at periodic intervals. This will help you meet your household and essential expenses as well as fund your leisure activities.
If you’re unsure how much to save, first estimate your life expectancy, because your retirement funds will have to last at least that long. You should ideally plan for a decent income for at least 30 years after retirement, and factor in taxes, inflation and household and major expenses as you finalise your plan.
Here are some options to consider as you seek to fulfil your long-term financial planning goals:
Annuity Plans – These plans offer you a fixed income either for your lifetime or for a specified period. You can use annuity plans as a retirement corpus, because they guarantee a fixed income and protect you from the draining of funds. By offering pay-outs for life, they also save you the hassle of reinvesting money.
There are several kinds of annuity plans available to you:
• Immediate Annuity Pension Plan – A one-time lump-sum contribution is converted into a continuous, guaranteed stream of income for a certain period (even as few as 5 years) or for your lifetime. Withdrawals can begin within a year. This helps you effectively earn a pension within a year of depositing the premium, and is therefore ideal if you’re retiring soon.
• Deferred Annuity Pension Plan – This option allows you to customise the timeframe, and is ideal for accumulating a retirement corpus in a fixed period.
• Certain Annuity Pension Plan – This option gives guaranteed income payments for a chosen period of time. Your beneficiary will receive the balance of these payments in the event of your demise before the end of the period. No payments are made after the end of this term.
• Life Annuity Pension Plan – With these plans, a series of payments are made at fixed intervals while the purchaser or annuitant is alive. Life annuities are offered in exchange for a lump sum (single-payment annuity) or a series of regular payments (flexible payment annuity) before the onset of the annuity.
• Life ULIP Plan – A Unit Linked Insurance Plan (ULIP) combines life insurance and investments in equities and bonds. For this option, you have to make regular premium payments, some of which go towards providing life insurance cover for you.
• Pension Plan with Cover – Pension plans with cover provide an assured life cover in the event of the demise of the policyholder during the policy term.
• Pension Plan without Cover – Pension plans without cover pay out the corpus amount (accumulated till date) to the nominees of the policyholder, in the event of their demise during the policy term. There is no other cover involved.
● National Pension Scheme (NPS) – This is a voluntary retirement scheme that can help build your retirement corpus for non-government employees. It is open to any Indian citizen aged between 18-70 (you can even start an NPS at 60 and maintain it till 70). Once you turn 60, you can withdraw 60% of the fund, either in full or in part. The rest of the fund can be used to buy an annuity. Withdrawal before 60 years is allowed with certain restrictions. There are 2 types of NPS funds:
• Tier I, which is compulsorily opened once you start investing in NPS. For this type of fund, you can withdraw only once you reach 60. Partial withdrawals are allowed under certain terms and conditions.
• Tier II funds operate more like savings accounts and have no restrictions on withdrawals.
There are also three different types of asset classes under NPS :
• Asset Class E (equity instruments)
• Asset Class C (fixed income instruments except for government securities)
• Asset Class G (government securities)
• Asset Class A (alternative investment funds – AIFs)
Based on your investment type, these can be further classified into Active and Auto funds. Active funds can be allocated to any of the four asset class types (for seniors, the Asset Class E allocation is lower). Here’s how the equity allocation looks:
Equity Allocation Matrix for Active Choices
| Age (years) | Max. Equity Allocation |
| Upto 50 | 75% |
| 51 | 72.50% |
| 52 | 70% |
| 53 | 67.50% |
| 54 | 65% |
| 55 | 62.50% |
| 56 | 60% |
| 57 | 57.50% |
| 58 | 55% |
| 59 | 52.50% |
| 60 & Above | 50% |
Auto funds decide the asset allocation based on age, with further investments based on a classification of aggressive, moderate and conservative.
Placing your retirement funds in the right schemes can help you maximize your returns and transform your retired life. Begin this new chapter of investment planning today with the help of a financial expert and set yourself up for a long, fulfilling retired life.
Source:
Share:
PGIM India Asset Management Private Limited
(CIN - U74900MH2008FTC187029)
Toll Free Number: 1800 266 7446
Email: care@pgimindia.co.in
This is an Investor Education and Awareness Initiative by PGIM India Mutual Fund.
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindiamf.com/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindiamf.com/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
The information contained herein is provided by PGIM India Asset Management Private Limited (the AMC)
on the basis of publicly available information, internally developed data and other third-party
sources believed to be reliable. However, the AMC cannot guarantee the accuracy of such information,
assure its completeness, or warrant such information will not be changed. The information contained
herein is current as of the date of issuance* (or such earlier date as referenced herein) and is
subject to change without notice. The AMC has no obligation to update any or all of such
information; nor does the AMC make any express or implied warranties or representations
as to its completeness or accuracy. There can be no assurance that any forecast made
herein will be actually realized. These materials do not take into account individual
investor's objectives, needs or circumstances or the suitability of any securities,
financial instruments or investment strategies described herein for particular investor. Hence,
each investor is advised to consult his or her own professional investment / tax advisor / consultant for advice in this regard.
The information contained herein is provided on the basis of and subject to the explanations, caveats and warnings set out elsewhere herein.
The views of the Fund Manager should not be construed as an advice and investors must make their own investment decisions regarding investment/ disinvestment in securities market and/or suitability of
the fund based on their specific investment objectives and financial positions and using such independent advisors as they believe necessary.
