If you are in a government or private job, you will have a fixed retirement age set by law. However, for the self-employed, there is no specific retirement age. They can continue working as long as their health or the body permits. Regardless of when they retire, starting early for a retirement fund will allow one to accumulate the required money without hurry. They will have room to readjust their investment strategy for maximum benefit and consider investing in some critical investment tools.
Here are some investment tools individuals can explore for financial security in retirement.
Employees’ Provident Fund (EPF) And Public Provident Fund (PPF):
Organised sector employees benefit from employees’ provident funds (EPF) created by their employers as per law. The employee and the employer contribute 12 percent of the employee’s basic salary and dearness allowance towards EPF. When they retire at 60, they will have a modest corpus for old age. On the other hand, the public provident fund (PPF) is open for anyone with a 15-year lock-in and can be opened in a post office or a bank. It offers 7.1 percent interest, compounded and credited annually. At maturity, it can be renewed in blocks of five years.
National Pension System (NPS):
The National Pension System (NPS) is a retirement savings which is one of the critical investment tools until 60. Premature withdrawal is allowed only in certain circumstances. Those aged 18 to 70 can open the account. Non-resident Indians can also open the account, but persons of Indian origin (PIO) and Hindu undivided families (HUF) are not eligible to open the account. It allows one to withdraw up to 60 percent of the accumulated money at retirement, and the remaining 40 percent must be invested in an annuity plan. However, the subscriber can also withdraw the 60 percent through a systematic lumpsum withdrawal (SLW) plan and earn a regular income until age 75.
Post-Office Small Saving Schemes:
Post office small savings schemes include term deposits, monthly income schemes, national saving certificates (NSC), and Kisan Vikas Patra (KVP). These schemes are not exclusively for retirement but can be useful tools for guaranteed returns. The NSC is a five-year guaranteed return option. It currently offers 7.7 percent, compounded annually and payable on maturity. Similarly, KVP offers 7.5 percent. However, one advantage of investing in long-term schemes is that people usually avoid closing them at the slightest financial crunch, ensuring continuous fund accumulation. One may also consider term deposits for liquidity.
Sovereign government bonds offer guaranteed returns. If you are 2-3 decades away from retirement, these bonds could be effective for growth and diversification. One can invest in government bonds through brokerage firms, mutual funds houses, banks, post offices, or the RBI retail direct platform.
Traditionally used to store value, gold can be invested in various forms, like digital gold, gold mutual funds, gold exchange-traded funds (ETFs), Sovereign gold bonds (SGBs), and traditional gold jewelry. While other forms do not guarantee a return, SGB offers guaranteed interest of 2.5 per cent per annum, and capital gains are tax exempted on maturity. Unlike gold mutual funds and ETFs, SGBs are issued for eight years but can be sold prematurely in the secondary market. One may choose any instrument based on one’s preference.
Mutual funds are riskier instruments. They don’t guarantee any return. However, they have the potential to generate better long-term returns. While one is young and still earning, the systematic investment plan (SIP) in mutual funds can instill investing discipline and add significant value to the corpus in the long term, but the fixed income plan may not. So, even if it’s a small amount, starting early would compound the benefits enormously.
Senior Citizen Savings Scheme (SCSS):
The senior citizen savings scheme is not for those planning for retirement but for those who are retired and more than 60 years of age. The enhanced limit of Rs 30 lakh per account and a higher rate of 8.2 per cent compared to other fixed-income schemes, with a quarterly payment option, makes it attractive. As per the latest changes in rules, the account opened for five years initially can be extended in blocks of three years unlimited times, creating a source of regular cash flow.
While all these instruments help save and grow money, starting early and investing consistently can help you achieve your goals.