Everyone looks forward to the day when they can bid farewell to the workforce and enjoy the freedom of retirement. From travelling to pursuing new hobbies, a steady stream of income in your retired years is the key to a worry-free life. Retirement planning is the cornerstone of building an adequate corpus for a financially secured post-retirement life.
Most people wonder how to save for retirement and secure an adequate corpus. But before diving into retirement savings, it is essential to identify your retirement goals and then formulate a framework for income and expenses. You must first calculate your current monthly expenses and then project them into the future. This will help you estimate expenses during the post-retirement years and understand how much your corpus needs to grow.
Savings estimates come next. You need to estimate how much monthly savings is required to build a sufficient corpus by retirement that can support your lifestyle and meet your retirement objectives. If you are wondering how you can save for retirement, here is the list of strategies and tips you can implement to build your retirement corpus:
1. Save 1% more
Increasing your savings and retirement contributions to 15% at once can be a challenging task. Instead, experts recommend increasing the amount you contribute to retirement savings by just 1% every year until you reach the 15% mark. For instance, if you saved Rs. 2,00,000 last year, try saving Rs. 2,02,000 this year. Annually increasing your savings by 1% increases your retirement nest's size over time. Moreover, a nominal 1% savings increment allows you to grow your retirement corpus without feeling the pinch immediately.
2. Redirect your raise
Salary increments and raises offer one of the ways to save money for retirement. Once you receive a bonus, redirect the difference in your pay cheque to your retirement fund. Adjusting your contributions to retirement savings plans like the National Pension Scheme (NPS) or Public Provident Fund (PPF) helps boost retirement funds without reducing your take-home pay.
3. Undertake voluntary savings
Voluntary savings bring flexibility and personalisation to your retirement planning journey. By carefully selecting investment options like PPF, NPS, fixed deposits, or pension plans from insurance companies, you can tailor your approach to meet specific retirement objectives.
4. Reallocate windfalls
Invest your windfall gains prudently to pave the path for a secured retirement. Deposit your windfall gains like tax refunds, lottery winnings, or inheritance into low-risk investment vehicles like fixed deposits (FDs) to keep your funds secured while earning interest income. Perfect for risk-averse investors, financial institutions like Bajaj Finance offers one of the highest interest rates of up to 8.65% p. a. on their FD and flexible investment tenures to help you strategically plan your retirement.
5. Manage your provident fund contributions
For salaried employees, the payout from EPF after retirement serves as one of the key sources of financial security. Employee Provident Fund (EPF) offers higher interest rates than other traditional savings instruments, helping you build a sizable retirement corpus. Remember to transfer your EPF account from your previous employer to your current one during a job change to avoid losing your EPF benefits. You can also make extra contributions over and above the 12% EPF limit into a Voluntary Provident Fund (VPF) account to enjoy higher retirement savings and EEE (Exempt-Exempt-Exempt) tax benefits.
6. Claim tax breaks
Invest in tax-saving schemes like NPS to take advantage of tax deductions on your contributions. Both the National Pension System (NPS) and 5-year tax-saver FDs qualify for tax deductions up to Rs. 1.5 lakh under section 80(C) of the Income Tax Act. Parking your funds in tax-saving instruments helps reduce your taxable income while leveraging market-linked growth and compounding principles to grow your retirement corpus.
7. Diversify your investments
When it comes to retirement planning and savings, every successful investor knows the value of diversifying investments. Curate a mix of market-linked and fixed return investments to balance out the risk-to-return ratios. You can tap into the market’s growth potential with equities, mutual funds, and bonds while safeguarding your portfolio from volatility with low-risk investments like fixed deposit.
8. Avoid penalties
Premature withdrawal norms vary from one investment instrument to the next. As a prudent investor, you must be mindful of penalties and charges associated with premature withdrawals of your investment vehicle. For instance, early withdrawals from your PPF account are permitted after 5 years under certain conditions. However, doing so results in a 1% penalty on the interest rate applicable to the account, reducing your total payout.
9. Eliminate unnecessary expenses
Carefully assess your budget to find expenses you can reduce or eliminate completely. This may include different things for different people. For some, it may mean reducing dining out frequencies, while for others it may be about cutting down on their multiple subscription services. Cost-cutting on non-essential spends can help you save a significant amount, which can be redirected to your retirement savings.
10. Automate saving
An automatic savings mandate is a great way to start retirement planning, especially for those wondering ‘how do I save for retirement?’ Linking your saving and retirement accounts ensures funds are automatically transferred when you receive your salary. Similarly, you can also opt for a sweep-in facility with your fixed deposit to transfer excess funds from your savings account into an FD account. Automating savings helps ensure consistent contributions before you can spend the money on a purchase.
Conclusion
Many people think retirement is too far away to worry about now. But wise investors understand the importance of starting retirement planning early. If you want a comfortable retirement and to maintain your lifestyle, it is crucial to think about saving for retirement sooner rather than later.
Calculate your expected investment returns with the help of our investment calculators
Investment Calculator |
||||
