Synopsis: In this guide, we highlight the best 7 tips that will help you navigate the complexities of retirement planning while paving the way for a financially secure future. 

In the realm of personal finance, nothing beats the importance of an effective retirement plan. With this evolving Indian economic landscape, it becomes even more important to future-proof the twilight years of your life when incomes run low and making lifestyle compromises is out of the question. 

With 23% of Indians unsure about how to plan for their terminal years and 37% not even initiating their retirement planning, the odds are stacked against them spending their golden years in comfort. Matters are complicated further when we consider the rise in life expectancy and inflation that could eat into our retirement corpus rapidly. 

So, before you join the group of 86% of Indians aged over 50 who regret not planning for their retirement timely, let’s delve into the world of retirement savings, demystifying all that makes it complicated. Below, we summarize the top 7 retirement planning tips that will help you build your roadmap to a future that is self-fulfilling and financially secure. 

Future-Proof Financial Freedom: 7 Best Retirement Planning Tips 

According to the 2nd IRIS report, 70% of Indians continue to feel optimistic about their twilight years, despite over 33% likely falling short on funds within 5 years of their retirement—it grows to over 80% when we look at a 10-year horizon. While over 68% of Indians believe they have enough wealth or are hopeful of being taken care of by their kids, inflation and the advent of the nuclear family structure can be of concern. 

Tip 1: Start early retirement planning to enjoy the compounding advantage 

You know it, we know it, and yet a fair majority don’t plan for their retirement timely. While a Sambodhi survey found that people believe retirement should start in their late 20s, only 73% of urban dwellers had done so, with the numbers shrinking to 60% for rural respondents. 

The crux remains, the earlier, the better, especially when you factor in the power of compounding. To illustrate, if a 25-year-old individual A starts saving and investing Rs. 1.5 lakh every year for 35 years and a 30-year-old individual B invests the same amount but only for 30 years (till retirement), their retirement corpus would amount to Rs. 3.01 crore and Rs. 1.99 crore, respectively, at an 8% return. 

This shows that the initial gap of Rs. 5 lakh grows to over Rs. 1 crore over time. These numbers would be graver if we further accounted for the periodic increase in the savings rate and the impact of the sequence of returns risk—basically, the risk of your savings portfolio experiencing a bear market. 

Tip 2: Raise investments as income grows 

A typical retirement planning tip is to save and invest at least 15% of your income every year to meet your retirement goals easily. However, the quantum of investment should be raised further as income grows, even more so when experiencing windfall gains. The final objective is to grow your retirement savings to an amount that is 8-11 times your salary post-retirement.  

Tip 3: Factor in your medical expenses 

Surprisingly, more than wealth, it is their health that nudges people to save for retirement, with 40% of Indians hopeful of leading a healthy retired life. And yet, not even half of them follow fitness activities. Besides, with life expectancy improving—it was 70.19 in 2022 and is expected to rise to 82 by 2100—medical expenses are bound to skyrocket. 

Consequently, buying health coverage early on makes ardent sense, as it is economical due to lower premiums. The amount can be determined based on your family’s medical history, including genetic disorders, and expected treatment costs. 

Tip 4: Account for inflation protection 

Another retirement planning tip is to choose retirement investment strategies and investment options that result in the portfolio’s CAGR return exceeding the average inflation rate. Typically, your asset allocation for retirement portfolio must involve some equity or inflation-adjusted funds that generate higher returns. Having said that, you must also remain cognizant of the fact that your expenses will not rise in sync with inflation at all times; after all, CPI is only a representation of an average basket of goods, and our needs evolve over time. 

Tip 5: Reduce your debt burden 

Aim to be debt-free by the time you retire. This includes all EMI payments for home loans, car loans, education loans, and business loans. You should also minimize credit card payments, particularly if you have the tendency to run up unpaid dues that attract high-interest payments, damaging your financial hygiene. 

Tip 6: Buy life insurance 

Life insurance products are essential to ensure your family doesn’t suffer through a severe cash crunch if such an unfortunate event comes to pass. Even though 69% of Indians believe life insurance to be the most ideal retirement product, few take on life plans in their early working years. Typically, the sum assured should be 10 times your annual income. 

Tip 7: Choose your investments wisely  

Generally, your investment style would vary significantly across the years, with the pre-retirement phase requiring more aggressive investments that eventually taper down to more secure investments such as debt funds and other liquid options. 

Some may even prefer portfolios with annuity plans that provide periodic returns instead of lump sum amounts, while other high-income earners may look for tax-saving options. 

Some of the best investment options for your retirement portfolio are as follows: 

1. National Pension System (NPS): It is open to all Indian citizens, aged 18-60, and offers several fund options. After retirement, investors can withdraw a lump sum at periodic intervals, with the remaining amount paid out as a monthly annuity. It entails tax advantages under Section 80C. 

2. Mutual Funds (MFs) for retirement: Equity-oriented schemes and diversified mutual funds are excellent for capital appreciation. Index funds are a great alternative if you favor schemes with low expense ratios. Exposure to debt funds can be taken on for added liquidity. Based on your risk appetite, start with 60-80% equity allocation and bring it down to 30-40% in later years. SIP is the most preferred choice among the current lot of employees for retirement planning. With no minimum investment requirement, SIP offers affordability and flexibility to suit different investment capacities. 

3. Public Provident Fund (PPF): Like NPS, PPF investments offer tax benefits under 80C. Individuals can invest up to Rs. 1.5 lakh per year, subject to a lock-in period of 15 years. 

4. Bank Deposits: Recurring deposits are a traditional method of saving for retirement. However, fixed deposits offer better returns, provided you can set aside the sum for a certain period of time. 

5. Post Office Monthly Income Scheme (POMIS): The Post Office Monthly Income Scheme (POMIS) is a reliable investment option offered by the Post Office of India. It provides investors with a guaranteed regular monthly income, making it an attractive choice for those seeking stable returns. With a minimum investment of Rs 1,000 and maximum investment limits of up to 4.5 lakh for a single account and nine lakh for a joint account, POMIS offers flexibility to meet various investment capacities. The scheme has a tenure of five years, ensuring a secure and predictable income stream for investors. 

Additionally, you can diversify your retirement portfolio by including real estate, gold, ELSS, pension plans, and other investments. 

Bottom Line: Save Now for a Secure Future 

Retirement planning doesn’t end with choosing your investments and allocations and calling it a day. It is an ongoing process that requires regular monitoring of your investments. Even after retirement, one must be careful with withdrawals, sticking to the 4% rule (limiting your spending to 4% of the retirement corpus per year).