3 financial products to help you plan your retirement in India
During your sunset years, income generation will be highly limited since you will not be actively involved in as much work as you used to do when still young and employed. It is therefore prudent to start making personal financial plans early enough to ensure that even in your old age you will still have enough cash to pay your monthly bills and meet other regular financial needs that you will have.
In retirement planning, you will have two phases which include the Accumulation Phase and the Distribution Phase. The accumulation phase comes before you retire and it involves pooling together as much funds as possible to be able to sustain your preferred lifestyle after retirement. On the other hand, the distribution phase involves the actual allocation of your available retirement funds to different monthly financial obligations after retirement. The 3 financial products listed below will help you to get well prepared during the accumulation phase in both unconventional and conventional ways.
1. Online trading
Unknown to most retirees in India is the potential of creating passive sources of income both before and after retirement through online trading. This is a new concept, but one that is fast growing in India and across the world. With internet connectivity and a computer or a phone, you can open an online trading account and be a trader in the financial markets globally. CFD trading is the most common financial instrument preferred by most online traders due to the ease of learning how to trade it and potential for high returns.
Under CFD trading, you speculate the price movements of different asset classes such as currencies, commodities, stocks, bonds and indices. You can predict whether the price will go up or down and if the price moves in your predicted direction, the broker pays you the difference between the opening and closing prices. This is one way to grow your retirement fund since all you will need; is to analyze and understand the price movement for your preferred asset class under different market dynamics that you will be trading on.
2. New Pension Scheme
New Pension Scheme or NPS is a government regulated voluntary defined contribution pension system in India which is administered by the Pension Fund Regulatory and Development Authority (PFRDA). Previously meant for government employees only, NPS was opened to all citizens in India as a government initiative to encourage more people to have a pension plan and reduce dependency ratios at old age. With an annualized rate of return of about 10% in the last five years, contributing to your retirement through NPS provides you with a good investment for your money; with returns way above the current inflation rate in India of about 1.86%. In addition, 40% of your contribution to NPS is tax exempt hence ensuring more money remains in your pocket when you start tapping into your retirement package.
3. Employee’s Provident Fund
Employees Provident Fund or EPF is the most popular retirement savings scheme in India especially for the salaried employees. This is due to the fact that every company in India with over 20 employees is required by law to register with the Employees Provident Fund Organization of India (EPFO); which is the government agency that is responsible for managing EPF. Under EPF, both you and your employer contribute 12% of your basic salary to your EPF account which currently is earning about 8.75% interest rate. Again like NPS, the interest rate is way above the current inflation rate and hence a good investment of your money. In terms of tax benefits, your contribution to your EPF account is tax deductible and all themoney you invest and withdraw after the mandatory period of 5 years is exempted from income tax in India.
When planning for your retirement in India, you can choose to go the conventional way using the government provided alternatives to save and grow your retirement package; or choose the unconventional ways such as online trading to amplify the rate at which your retirement savings grow. However, bearing in mind that some government pension schemes such as EPF are mandatory for salaried employees in India; having a combination of both the conventional and the unconventional retirement savings plans will yield the optimum returns for you.