BOMBAY, 22 April — My friend, working in a cushy government job in India, is already dreaming about retirement. She is nowhere near retirement, she is just 35 years old. Oh, the luxury of not living life by the clock, reading books, watching mundane television serials, going out for long walks, she is already looking forward to it! Retirement does seem enticing but if the future phase of our lives needs to be peaceful, one ingredient which will make this retirement from being a nightmare into one of the most fruitful periods of our lives is money or Vitamin M. When the bones have become weary and tired and the mind is not as agile as it used to be, along with popping in an adequate amount of multi-vitamin pills, Vitamin M is indispensable.
So how does one continue to stay at home and still earn money, comfortable money to live an easy, independent life? Hence it is very necessary to plan for retirement. Yes, just as marriages and kids and their education is planned, retirement also needs to be planned. Planning for your retired years largely means determining how much money you need to live comfortably when you finally hang up your boots. Retirement planning also helps you weigh your options and identify the best ways to save for retirement, given your financial situation and your capacity for risk. With advances made in medical technology, life spans have gone up and now after retirement, one has to think of living for another 15-20 years without a job but still continuing to earn.
Moreover in today’s time, with changing values, depending on children in old age is no longer a viable proposition. And what happens in the eventuality of health ailments old age? It’s never too early to start planning for your retirement. In fact, the sooner you begin the better your chance of having a secure, stress-free old age. Because the sooner you start investing, the more your investments will benefit from the power of compounding and tax-deferred growth.
Compounding simply means that, over time, the interest you earn on your original investment also earns money. The longer you let your money grow, the more powerful the effect of compounding.
So what does one do help the retirement money grow? Invest in schemes in which the dividend/interest can be reinvested and which is available only at maturity. This will help you save for your long-term needs and your savings will benefit from a tax-deferred growth i.e. your investment is only taxed at maturity, when you withdraw. Develop the habit of investing on a regular basis, perhaps monthly or quarterly. And remember, the longer your money stays invested, the better the effect of compounding. One more golden rule to keep in mind is that avoid the temptation to break the deposit for less-than-urgent needs as it will dilute the effect of compounding. And what are the various options available for retirement? There is the hugely popular Life Insurance Corporations (LIC) pension plan New Jeevan Suraksha-I that covers the risk of both an early death and a longer life span than you expect to live.
Then there is also Unit Trust of India’s (UTI) Retirement Benefit plan (RBP). This is a mutual fund scheme that enables investors to plan their retirement by saving early and regularly. Any resident or non-resident individual in the age group of 18 to 52 years can join the plan. If you join before you’re 52, your investment will mature when you are 58. Those between the ages of 53 and 58 can also join the scheme, but their investments will have a five-year lock-in period from the date they first invest.
There is also the hugely popular 8 percent Reserve Bank of India Relief Bond which is gives fixed and regular returns but more significantly the returns are tax-free. The maximum investment has been capped at Rs.2 lakh per year. The 8 percent RBI Relief Bonds, as the name implies, earn interest at the rate of 8 percent per annum (with effect from March 1, 2002). You can either opt to receive half-yearly interest payments or to get the entire amount at maturity, compounded at half-yearly rests.
Another retirement investment tool is fixed deposits, be it in banks or good, solid companies. They are the middle-path investments with adequate returns and adequate liquidity. Your important concern after retirement is the safety of your principal and getting regular, fixed returns. Some companies carry various options of interest payments like monthly, quarterly, half-yearly or even yearly interest. Choose the option that suits you.
And last but not the least life insurance ought to be an integral component of your retirement plan. The primary aim of life insurance is to ensure that your loved ones do not find themselves in dire straits on your death. A good life insurance plan is one that provides for your family’s short- and long-term financial needs. And along with this, as old age also brings along with it, ailments and disease, medical insurance is a must. One should take a serious look at Mediclaim which is an insurance cover that takes care of medical expenses following hospitalization due to a disease, accident or surgical procedure. Anyone between five and 75 years of age can seek cover under Mediclaim. The minimum insurance cover you can take is Rs.15,000 and the maximum, Rs.5 lakh.
One never realizes when age catches up. But unless you save for the future, in this race, age will catch up with you with all its agonies, making retirement a curse