When it comes to retirement planning, a lot of questions come to our mind. What is the right time to start investing? How much should I invest? How and where to invest? Etc. There are many factors affecting your investment planning decisions and it is important to evaluate each of them before jumping to conclusions and taking investment decisions which could lend you into financial troubles.

When to start? If you are thinking that you will take care of the retirement planning once you are done with your children’s education or say once you get your dream home; of course these goals are important but make no mistake, they can be achieved with the borrowings but no one would lend you money to get you through your retirement.

So if you are still thinking about when to start planning for retirement, we’d recommend you to stop thinking and start doing right away. One more thing to be kept in mind is that the normal investments in the EPF and PPF to utilize the tax deduction limits are not going to cut you any slack. You will actually have to estimate your retirement spending on monthly basis and based on that you’ll have to determine the amount that is to be invested if you are to start from today. So be sure to start early.

How much to invest? This is something which you can determine based on your average monthly cost of living. Say for an example if your monthly expense is 30,000, and you plan to retire after 30 years. If we are to assume annual inflation rate of 6 Pct, you will need 1.80 lakh every month to get you through the retirement. Not to forget that with the increasing age, the medical expenses and other health care expenses will tend to increase.

So you have to plan accordingly and determine the amount which will be required during the retirement so that you can come up with your investment amount right now. It is advisable to go aggressive and invest higher during the age of 20-30 years. Because usually during this time, the responsibilities have not yet increased and as a result you tend to save more during this time. However while doing so, make sure that investment amount is unachievable considering your current lifestyle because otherwise you will find your hands in the cookie jar when have been saving them for the right occasion. I mean you wouldn’t want to spend money from your corpus which you have built for the retirement.

How and where to invest? During the early stages of life, your risk appetite is high and so is the ideal amount which is to be invested for retirement planning. You may invest up to 80 pct of the total amount in the equity mutual funds or common stocks of the companies and remaining 20 pct you may invest in you EPF, PPF, fixed deposits or debt funds etc. These equity oriented investments would fetch you higher returns and thus would help you achieve your retirement goals easily. As you grow old, the emphasis on equity comes down and that of debt goes up since your risk appetite will reduce. There would not be any sudden rise in your incomes and you would be making the investments from your stable and constant incomes.

Let’s focus on some of the products which could help you achieve your investment goals.

If you are salaried, the contribution towards Employee’s Provident Fund (EPF) would constitute a part of your early retirement savings. An employee can also contribute towards the Voluntary Provident Fund. The Public Provident Funds (PPF) is one of the most common ways of investment but it does not make up for the most crucial component of the retirement savings. It is also not the best in terms of returns on investment.

Government has also declared benefits for the investments in National Pension Funds (NPS). It is compulsory for Government employees however it is voluntary for the private sector employees

Mutual Funds are by far the best products due to the verities of investment schemes available to suite your profile. Not to forget the best of the advantages including the high rate of return, low cost, tax deductions and exemption from long term capital gains  upon maturity.

Credits: Anand Satyapanthi- Certified Chartered Accountant, Co-founder at Quicko.com

Read Also:

Indian Banking, Securities Firms To Spend 499 Bn

Moody's Raises Indian Banks' Outlook to Stable