How to Choose the Best Retirement Investments for Your Portfolio?

Meet the changing requirements of your retirement portfolio with sound retirement planning. Choose from the best pension plans in India and retirement policy plans to create a balanced and smart portfolio.

The word "retirement" means different things to different people. For those who are tired of the 9-to-5 grind, retirement signifies an end to daily struggles. It represents the beginning of the golden years of your life when you can sit back and watch the news without worrying about getting to work, enjoy afternoon siestas, and a well-earned break from worrying about the nitty-gritty details of life. For others, it could mean much-anticipated travel dreams turning into reality, a time to spend surrounded with friends, family, and serenity.

However, without proper retirement planning, all of these beautiful dreams could quickly turn into a nightmare. Once you retire, your professional income ceases. Even if you continue working as a consultant, you can no longer bank on a fixed amount of money hitting your account every month. If your dream is to enjoy a blissful and comfortable life post-retirement, retirement planning can make this dream come true.

Retirement planning involves setting goals for your retired life and building a portfolio of investments to achieve these goals. As such, a retirement portfolio is a basket of investments that contain all the fruits of your retirement planning.

Retirement Planning Steps

Retirement planning need not be challenging. Follow these simple yet essential steps to get it right.

Step 1: Goal-setting

Before choosing the best instruments to add to your portfolio, it is essential to understand your retirement needs. Set your retirement goals by listing your financial milestones and requirements. Divide these goals into short and long-term ones. Depending on how much time you have to achieve these goals, you can choose financial instruments that offer you returns at specific times.

Consider that you hope to build a corpus that you can invest in a single-premium immediate annuity retirement policy in the next 15 years. To achieve this goal, you can begin investing small amounts consistently in a financial instrument that puts the power of compounding to work for you. You can then use the compounded corpus created to fund your immediate annuity pension plans in India.

Step 2: Assess your financial status

Your retirement planning has to take into account your age, career trajectory, and current investments. Even if you have not put aside any money for retirement, there is no need to worry. Start today. Start with whatever you have. Small amounts invested consistently over a long period can help you generate the wealth you need to live a peaceful retired life.

Retirement plans in India offer you the perfect opportunity to save in a disciplined manner. Choose from monthly, quarterly, half yearly or yearly frequencies to pay premiums for pension plans in India, and rest easy knowing that your retired life is being secured with every payment you make.

Step 3: Calculate future needs

Before you choose one investment option over another, calculate how much you will need to live comfortably after your retirement. Consider your liabilities, income, projected expenses, emergency funds for potential medical expenses, and inflation rate.

If done right, retirement planning can help you get as accurate a number as possible from this calculation. Once you have this number, you can reverse engineer to understand how much you need to save today and what kind of investments you need to make to secure your future.

Step 4: Find the best investments

Market-linked investment options such as stocks and mutual funds present the potential of earning higher returns but are subject to the market's volatility. Fixed-income investment options such as PPF, bank fixed deposits, and pension plans in India offer a moderate rate of return with little to no risk. Non-financial products such as real estate and gold are other potential investment avenues.

Some pension plans in India also feature an insurance component, so you have the peace of mind that your life is covered against death and unfortunate eventualities such as accidents, permanent and total disability, and diagnosis of critical illnesses. While selecting the best instruments for your retirement portfolio, keep your risk profile, age, and income in mind.

Step 5: Choose how you will use your retirement fund

Those who are used to making a fixed salary every month might find the loss of this security difficult to handle in their retired years. Pension plans in India that help you accrue a sufficient retirement bonus and offer monthly annuity payments is likely to be the best investment options for them.

On the other hand, you may enjoy the freedom of having a corpus that you can use as you see fit or get fixed income at frequent intervals. Whatever your preference, there are pension and annuity plans in India to suit your specific needs.

Types of Retirement Portfolios

While retirement planning, you need to decide which type of retirement portfolio will serve you well. Each type takes into account your age and risk appetite to help you arrive at the correct investing strategy and retirement plans in India for you.

Growth

If you start retirement planning early in your career, you have a significantly longer time horizon, and you can afford to have an aggressive risk appetite. At this time, a growth portfolio that invests in market-linked instruments may be a better idea for you. Invest in ULIP pension plans in India and choose to allocate your assets to equity growth funds that present higher risk but historically-better long-term returns.

Balanced

A balanced retirement portfolio is perfect for those in their mid-life with established careers. Such a portfolio creates avenues for growth while protecting against the capital market's volatilities with balanced investment strategies. You can create such a portfolio by investing in some high-risk stocks and balancing it with investment in secure bonds. Along with ULIP pension plans in India that divert your money towards balanced funds, you should also opt for guaranteed retirement plans in India.

Income

As you inch closer to your retirement age and once you have retired, your retirement planning shifts towards an income portfolio. At this stage, the focus is on moving your investments away from risk and getting your money ready for withdrawal. Investing in single-premium pension plans in India in addition to secure government bonds helps you create a sustainable retirement plan for your second innings.

Best Investment Options for Retirement Planning

Typically, a retirement portfolio includes cash resources, retirement policy, stocks, bonds, fixed deposits, money market investments, mutual funds, gold deposits, and real estate investments. The asset allocation within the portfolio depends on your retirement planning goals and your risk appetite.

SCSS (Senior Citizens Saving Scheme)

SCSS investment is a necessary retirement planning component for retirees and anyone close to retiring in India. This scheme can be purchased at the post office or an approved bank by any person above the age of 60. SCSS runs for 5 years and can be extended by another 3 years once it reaches maturity. You can invest a maximum of Rs. 15 lakhs in SCSS in multiples of Rs. 1,000, and hold multiple accounts.

The rate of return for SCSS has been higher than what you would gain from an FD or savings bank account. As of the first quarter of 2020-21 (April to June), the interest rate offered on an SCSS account is 7.40%, updated quarterly. Though the returns earned are taxable, an SCSS account offers senior citizens other tax benefits on investments made.

POMIS (Post Office Monthly Income Scheme)

Another secure investment avenue with a 5-year tenure, POMIS, allows a maximum investment of Rs. 4.5 lakhs for individual ownership, and Rs. 9 lakhs for a joint ownership (up to 3 joint holders) account. This government-backed scheme offers monthly interest credits and a relatively higher interest rate. While you do not have to pay any TDS on the interest earned, keep in mind that the investments made in POMIS do not offer any tax benefits. As of April 2020, the POMIS interest rate is fixed at 6.60%.

NPS (National Pension System)

Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), the National Pension System is a government-sponsored retirement policy or pension scheme. Launched in 2004 for government employees, the NPS was opened to everyone in 2009. You can start an NPS account early in life and save consistently while you are still working. This money is invested in a mixed bag of equity funds, corporate bonds, government and liquid funds, and fixed deposits on your behalf. You can choose where the NPS account will invest your money.

PPF (Public Provident Fund)

Over the years, a PPF account has become synonymous with retirement. A PPF account features a long lock-in period of 15 years and offers you the miracle of compounding to help you create a significant retirement corpus. Backed by India's sovereign guarantee and exempted from tax, the money you invest and the interest earned from your PPF account faces zero risks. Keep in mind that the interest rate offered on PPF accounts is not fixed and is subject to the government's review every quarter. Applicable from January 2021, the PPF interest rate is 7.10%.

PMVVY (Pradhan Mantri Vaya Vandana Yojana)

The PMVVY is another government-subsidised retirement policy. This scheme's lock-in period is 10 years, with a maximum purchase price of Rs. 15 lakhs and a maximum monthly pension of Rs. 10,000. PMVVY is a non-linked, non-participating retirement plan that is available only for senior citizens over the age of 60.

Retirement Plans in India

A retirement policy or guaranteed pension plan is an insurance-cum-investment instrument designed to provide the assurance of a monthly pay-out after you retire to cover your financial needs and provide death benefit in case of an unfortunate event. However, the death benefit is usually not very high as most of the invested amount goes towards building the retirement corpus, which fulfils the main purpose of investing in a retirement plan.

Based on the nature of the investment, retirement plans in India include those that are purely savings plans and those that are investment instruments. There are many types of pension plans in India, such as an immediate annuity plan, deferred annuity plan, joint-life annuity plan, and more.

• An immediate annuity plan allows you to pay a single premium and get immediate pay-outs for the rest of your life.
• A deferred annuity plan enables you to build a corpus over a long period and defer the pay-outs such that they start on a chosen date in the future.
• One of the types of pension insurance plans is the Joint Life annuity plan, which continues paying a pension amount to your spouse/partner for their whole life after the primary annuitant's death.

IndiaFirst Life features a menu of the best pension plans in India. The IndiaFirst Guaranteed Retirement Plan is a non-linked, participating, deferred endowment retirement policy that supports early starters build an assured retirement pool and secure their second innings.

The IndiaFirst Life Guaranteed Annuity Plan is a non-linked, non-participating individual annuity plan that offers you a plethora of options to choose plan. The plan offers lifetime income assurance under 12 different annuity options.

Non-financial products

Non-financial alternatives such as gold and real estate could also form a part of your retirement portfolio. The home you live in is not an investment you can use during your retired years, but a second home or investment made to gain rental returns can be considered an investment. Keep in mind that real estate is a non-liquid asset.

For most Indians, buying gold is a form of investment. However, gold jewellery is saddled with making and breaking charges. For investment needs, you can choose to buy gold coins, paper gold such as gold ETFs or sovereign gold bonds, and gold mutual funds.

Conclusion

When it comes to creating the ideal retirement portfolio to meet your needs, both market-linked and fixed-income investments have a specific contribution to make. Use your resources to create a judicious medley of investment instruments while considering your risk profile, time horizon, and tax liabilities.