Retirement Planning: What is Meaning, Process & How to Plan in India

Discover the importance of retirement planning in India. Explore the meaning, benefits, and step-by-step process of effective retirement planning. Learn how to plan for a secure financial future with our comprehensive guide.
Retirement Planning
3 mins
7 February 2024

As the old age goes, "Failing to plan is planning to fail." This proverb holds, especially when it comes to financial retirement planning in India. Retirement is an inevitable phase of life, and it is essential to plan and prepare for it early on to ensure a financially stable and stress-free future.

What is Retirement Planning?

Retirement planning refers to the process of setting financial goals and creating a roadmap to achieve them leading to your retirement. It involves assessing your current financial situation, estimating future expenses, and formulating a strategy to build a sufficient corpus for a comfortable retirement. The primary objective of retirement planning is to maintain the same standard of living even after retirement and achieve financial independence.

How Retirement Planning Works

In simple terms, retirement planning means getting ready for life after you stop working and not just in terms of money but in all aspects of life.

The non-financial parts include decisions like how you want to spend your time, where you want to live, and when you want to stop working completely.

The focus on retirement planning changes at different times in life.

  • In the early working years, it's about saving enough money.
  • In the middle of your career, it might also include setting specific income or asset and taking actions to achieve them.
  • Once you're at retirement age, you transition from saving to what planners call the distribution phase. You are not putting money into your retirement accounts anymore. Instead, the savings you've built up over the years start paying you back.

Importance of Retirement Planning

Retirement planning is of paramount importance for several reasons. First and foremost, it provides a sense of financial security during your post-employment years, which can span several decades. By planning, you reduce the risk of running out of funds or becoming dependent on others for financial support.

Moreover, inflation can erode the purchasing power of your savings over time. Retirement planning considers the impact of inflation and ensures that your funds grow at a rate that outpaces inflation, safeguarding your future purchasing power.

Furthermore, retirement planning allows you to fulfil your aspirations and dreams during retirement. Whether it is travelling the world, pursuing hobbies, or spending quality time with family, a well-thought-out retirement plan empowers you to lead a fulfilling and enjoyable life even after leaving the workforce.

Reasons to Plan for Your Retirement

Retirement planning is crucial for several reasons, and Fixed Deposits can play a significant role in your retirement strategy:

  • Financial Security: Retirement planning, which includes investing in Fixed Deposits, provides financial security in your post-working years. Fixed Deposits offer a safe and stable investment option, ensuring that a portion of your savings grows steadily over time.
  • Regular Income: Fixed Deposits generate fixed interest income at regular intervals, making them an excellent choice to create a consistent income stream during retirement. You can opt for periodic interest payouts to cover living expenses.
  • Safety of Capital: Fixed Deposits are low-risk investments as they guarantee the principal amount along with the interest earned. This assurance helps preserve your hard-earned money.
  • Diversification: Retirement planning often involves diversifying your investments. Fixed Deposits can be a part of a diversified portfolio, balancing higher-risk investments like stocks or mutual funds.
  • Liquidity: Fixed Deposits offer various tenures, allowing you to choose when your funds mature. This flexibility helps you plan for various financial needs during your retirement years.
  • Emergency Fund: In addition to retirement savings, Fixed Deposits can serve as a reliable emergency fund. They are readily accessible when unexpected expenses arise.
  • Tax Benefits: Certain Fixed Deposit schemes, like tax-saving FDs, offer tax deductions under Section 80C of the Income Tax Act, helping you save on taxes.
  • Financial Freedom: Effective retirement planning, including Fixed Deposits, grants you financial freedom in your later years. It allows you to pursue hobbies, travel, and enjoy life without worrying about your financial well-being.
  • Peace of Mind: Knowing that you have a portion of your retirement savings in secure Fixed Deposits brings peace of mind. You can count on these investments to meet your financial needs when you need them most.

Pro tip

Enjoy higher interest rate with Bajaj Finance Digital FD. Unlock returns of up to 8.85% p.a. by investing for 42 months via our website and app.

Types of Retirement Plans in India

In India, several retirement plans cater to different financial needs and risk appetites. Some of the common types of retirement plans include

  1. Fixed Deposit: Fixed deposit is one of the best assets for retirement planning as it has flexible interest payout which acts as a regular income for senior citizens post-retirement. Moreover, the FD corpus can be used as an emergency fund. Generally, FD also has special rates for senior citizens, for example, the Bajaj Finance FD gives 0.25% p.a. additional interest rate in case of senior citizens.

  2. Mutual FundsMutual funds provide a diverse portfolio of assets. Investors can make regular contributions through choices like Systematic Investment Plans (SIPs), encouraging disciplined retirement saving. One can create a solid and trustworthy financial foundation for a comfortable retirement by matching mutual funds with retirement objectives.

  3. Employee Provident Fund (EPF): A mandatory contribution for salaried individuals, where both the employer and employee contribute a part of the salary towards a retirement fund.

  4. Public Provident Fund (PPF): A government-backed savings scheme with a lock-in period of 15 years, offering tax benefits and competitive interest rates.

  5. National Pension System (NPS): A voluntary contribution-based pension scheme with both equity and debt investment options, providing flexibility and potential for higher returns.

  6. Pension Plans from Insurance Companies: These are insurance-cum-investment products that provide regular payouts during retirement.

Benefits of Planning for Your Retirement through Bajaj Finance FD

Bajaj Finance Fixed Deposits offer a range of advantages that make them an ideal choice for retirement planning in India. Here are some key pointers to consider:

  1. Attractive Interest Rates: Bajaj Finance FDs offer competitive interest rates, which means your investment grows faster, leading to a larger corpus at maturity. For a special tenure of 44 months, the Bajaj Finance FD pays a lucrative interest rate of up to 8.60% p.a.

  2. Stability and Safety: Bajaj Finance is a reputable and trusted financial institution that ensures that your investments are safe and secure. Our FDs have one of the highest [ICRA]AAA(Stable) and CRISIL AAA/STABLE ratings ensuring that your money is safe with us.

  3. Flexible Tenures: Bajaj Finance allows you to choose from a wide range of FD tenures, enabling you to align your investment horizon with your retirement goals. You can choose between 12 – 60 months and also delve into the special tenures for higher rates.

  4. Regular Income Option: You have the option to receive periodic interest payouts, providing a reliable income stream during your retirement years. You can choose monthly, quarterly, half-yearly, and yearly interest payout options. You also have the option of full payout (interest + principal) at the end of the tenure (maturity).

  5. Loan Against FD: In case of emergencies, Bajaj Finance allows you to avail a loan against your FD, ensuring you do not have to break your investment prematurely. For cumulative deposit, loan of up 75% of your invested amount and 60% of your FD in case of non-cumulative FD

A Step-by-Step Guide to Planning Your Retirement

  1. Assess Current Financial Situation: Start by evaluating your current income, expenses, savings, and investments. This assessment will give you a clear picture of your financial standing.

  2. Set Retirement Goals: Define your retirement goals and estimate the corpus you would need to achieve those goals. Consider factors like inflation and life expectancy while setting the target amount.

  3. Choose Suitable Retirement Plans: Research and select retirement plans that align with your risk tolerance and financial goals. A diversified portfolio can offer a balance between safety and growth.

  4. Start Early and Save Regularly: Time is a crucial factor in retirement planning. The earlier you start saving, the longer your investments have to grow and compound. Regular contributions ensure consistent progress toward your retirement goals.

  5. Avail Tax Benefits: Make use of tax-saving retirement instruments like EPF, PPF, and NPS to maximise your savings and reduce your tax liability. You can also invest in ELSS plans to save taxes and get a good return that can be later saved as an emergency fund.

Factors to Remember While Planning for Retirement

  • Psychological Myopia: Psychological myopia refers to the human tendency to focus on short-term desires and needs at the expense of long-term financial security. Overcoming this short-sightedness is essential for retirement planning. Understand that saving and investing for retirement is more important than immediate gratification.
  • Life Expectancy: One crucial factor is your life expectancy. As people live longer, you must consider how many years you'll need to support yourself after retirement. Ensure your savings and investments can sustain you for an extended period.
  • Retirement Age: Your chosen retirement age is a significant determinant of how much you need to save. If you retire early, you'll need more savings to maintain your lifestyle. Delaying retirement can help your nest egg last longer.
  • Rising Healthcare Costs: Healthcare expenses tend to increase with age. Be prepared for potential medical bills during retirement by factoring in higher healthcare costs into your plan. Consider health insurance and other medical provisions.
  • Calculate Your Investments for Retirement: Calculate how much you need to save and invest for retirement. Consider your current expenses, expected inflation, and the lifestyle you desire. Consulting with a financial advisor can help you determine an accurate savings goal.
  • Earning More, Spending More: As your income increases, avoid the temptation of increasing your spending at the same rate. Dedicate a significant portion of your increased earnings to retirement savings to ensure you maintain your desired lifestyle after retirement.
  • The Past is No Indication of the Future: Past investment returns may not predict future performance. While historical data can provide insights, remember that the financial landscape is ever-changing. Diversify your investments to mitigate potential risks.
  • Return on Investment: Consider the types of investments you choose. Riskier investments may yield higher returns, but they also carry more significant potential for loss. Conservative investments, like Fixed Deposits or bonds, are safer but may offer lower returns. Find a balance between risk and return that aligns with your risk tolerance and retirement goals.

When Should You Start Retirement Planning?

The ideal time to begin retirement planning is as early as possible. Starting early gives you the advantage of compounding, where your money earns returns on both the principal amount and the accumulated interest over time. This snowball effect significantly boosts your retirement corpus.

However, even if you have not started early, it's never too late to begin. The most important thing is to act and make a conscious effort to save and invest regularly toward your retirement goals.

In conclusion, retirement planning is a crucial aspect of your financial journey, especially in India, where social security systems may not provide adequate support during retirement. By understanding the importance of retirement planning, exploring various investment options like Bajaj Finance FDs, and following a step-by-step approach, you can secure your future and enjoy a financially independent retirement.

Remember, the key to a comfortable retirement lies in your ability to plan and act wisely. Start planning now to cherish your golden years with financial freedom and peace of mind.

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Frequently asked questions

What is the Digital FD offered by Bajaj Finance?

Bajaj Finance has launched a new FD type called "Bajaj Finance Digital FD" for a period of 42 months. Bajaj Finance is providing one of the highest interest rates of up to 8.85% p.a. for senior citizens and for the customers below the age of 60 they are providing up to 8.60% p.a. The Digital FD can be booked and managed only through the Bajaj Finserv website or app.

How much do you need to retire?

The amount you need for retirement depends on your lifestyle, expenses, and expected lifespan. It's essential to calculate these factors, considering inflation, to determine a suitable retirement fund.

How do I determine my long-term financial goals?

To identify long-term financial goals, envision the kind of retirement you desire and work backward. Consider your desired lifestyle, estimated expenses, and any major expenses like children's education or buying a home.

Should I save for retirement or other major life expenses first?

It's crucial to strike a balance. While saving for retirement is essential, consider other financial goals, like buying a home or children's education. Prioritise based on your timeline, but don't neglect retirement savings.

What happens if someone passes away before withdrawing retirement benefits?

If a person passes away before withdrawing retirement benefits, the funds typically go to the beneficiary designated by the account holder. Different rules apply based on the retirement account type and the beneficiary's relationship to the deceased.

What is the 4% rule in retirement planning?

The 4% rule in retirement planning suggests withdrawing 4% of your savings in the first year of retirement. After that, each year, you can adjust the withdrawal a bit to keep up with inflation.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.