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Planning for retirement usually starts between the ages of 30 and 40. Even though a courtesy pension awaits after retirement due to compulsory PF deductions from the salary, the EPF amount that accumulates is often insufficient for post-retirement living expenses. Hence, there is a need to invest elsewhere to ensure optimal retirement savings.
This strategy includes investing in a Public Provident Fund (PPF) account, applying for the Senior Citizen Savings Scheme (SCSS), and employing a Systematic Withdrawal Plan (SWP) in mutual funds. The investor may opt for either SCSS or SWP.
Effective Steps for Planning Retirement Ensure these Steps are Effective
It is advisable to commence retirement savings somewhere between 35 to 40 years of age. Consistently putting aside a mere 5,000 each month can aid one in significantly building a post-retirement investment portfolio.
Let’s consider the investor is at the age of 45 years for practical calculations:
Step 1: Start Off With PPF Investment For the First 15 Years
Annual Investment: Rs 5000 Monthly Contribution which equals to Rs 60000 per annum.
Invesment period: 15 years
Maturity Amount (after 15 years of investment): 25,23,284 (Cumulative Investment: 9,0000; Total PPF Returns: 5,13,642)Using and maintaining a PPF account provides guaranteed returns achieved alongside tax exemption wraps by the government enabling stable growth further complemented by the essential risk-free feature upon which any PPF account rests.
Step 2: After Retirement Supplementary Income Streams
Option 1: Senior Citizen’s Saving Scheme (SCSS)
Investment Amount: Rs 30 lakh (maximum permissible)
Interest Rate: 8.2 percent
Quarterly Income: Rs 61,500 (approx.)
Total Amount (5 years) : Rs 42,30,000 Maturity (Total Returns) : Rs 12,30,000 SCSS provides returns and regular quarterly income.
Option 2: Systematic Withdrawal Plan (SWP)
Investment Amount: Rs 80 lakh
Estimated Annual Returns: 12 percent (Approx.)
Monthly Income: Rs 10,000 (approx.)
Maturity Amount 5 years : Rs 1.41 crore (estimation) One of the most attractive features of SWP is potentially higher returns compared to others, but, unlike SCSS, SWP is dependent on market conditions.
Choosing Between SCSS and SWP MEC list To ensure we have all bases covered, the fundamental factors that need to be taken into consideration are value drives, constraints, competitive advantages, tradeoffs, and Non-Market Factors/Reputational Concerns. A good SCSS or SWP selection should meet these topics of concern.
In planning these choices, estimates indicate SCSS stands out for investors seeking guaranteed returns, while SWP has greater appeal for risk takers willing to contend with market volatility.
