Keywords – how to save income tax, retirement planning in India
Shiza and Neelima were sisters who sat across from each other.
Shiza said, “Neelima, heard about retirement planning?”
Neelima, the younger sister was a little carefree and replied, “Retirement? This is for the oldies and ages away. Why fret about it now?”
Shiza chuckled, “The sooner we start, the better it will be.”
Thus, they began discussing top tips about how to save income tax when preparing a retirement plan –
Invest in health insurance
Shiza emphasised the significance of health policy as an essential constituent of their retirement planning. By stepwise investing in a holistic health cover, they eyed to safeguard themselves from considerable healthcare expenses during retirement, protecting their financial living.
The sisters decided to establish and maintain an emergency fund. This emergency net would protect them from unexpected expenses, ensuring they would not need to dip into their savings for retirement for unexpected conditions, thus safeguarding the integrity of the long-term strategy.
Understand your expenses
Both identified the requirement to track and comprehend their existing expenditures meticulously. By understanding their current financial commitments, they could make better estimates regarding the funds needed for their future and maintain an actual retirement plan.
Acknowledging the compounding effect, Shiza and Neelima decided to begin their investment early. This decision would allow them to leverage the benefits of compounding, enhancing the potential of growth of their investments and offering a pragmatic base for their retirement portfolio.
Avail tax benefits
Shiza mentioned the available tax benefits for retirement, emphasising the significance of making the most out of them. By choosing their investments to line up with tax-saving opportunities, they could maximise their thorough returns and considerably lower their tax liabilities, contributing to an efficient retirement plan.
Systematic investment plan (SIP)
The sisters committed to investing regularly through SIPs, adopting a disciplined approach to wealth creation. This systematic investment strategy would allow for consistent contributions over time, harnessing the power of regular investments for long-term financial growth.
Shiza and Neelima discussed the diversification strategy, disseminating their investments throughout distinct asset classes. This approach aimed at lowering the risk by neglecting overdependence on a single investment. Diversification could potentially increase returns while meeting the effect of market fluctuations on the thorough portfolio.
Employee provident fund (EPF)
Factoring in the long-term security offered by this investment option, both decided to enhance their contribution to this option. This would allow a steady and reliable income source during retirement, including a layer of monetary stability to their thorough retirement strategy.
National pension scheme (NPS)
Shiza in detail explained the NPS advantages, especially its benefits for tax savings. By adding NPS into their retirement strategy, they could optimise their tax outgo while forming a robust and government-supported pension fund.
Learn financial literacy
Aim to enhance financial knowledge for better decision-making. Continuously educate oneself on financial matters to make informed choices regarding investments and financial planning.
Public provident fund (PPF)
Neelima suggested investing in PPF, attracted by its tax-free returns. This move aimed to create a tax-efficient component in their portfolio, providing a stable avenue for wealth accumulation with favourable taxation benefits.
Prioritise debt clearance before retirement to ensure a stress-free financial life. Paying your loans and credit card dues lowers financial burdens and permits a comfortable retirement.
Real estate investment
Factor in the real estate pros and cons as part of the portfolio for retirement. Assess potential rental income, property appreciation and the linked responsibilities to decide if real estate lines up with long-term goals.
Delaying social security
Delaying withdrawals can lead to enhanced monthly benefits, offering a more considerable income during the time of retirement.
Calculate retirement corpus
Emphasise the calculation of the required retirement corpus. Consider lifestyle expectations, expected inflation rates, and other factors to determine the amount needed for a comfortable retirement.
Explore part-time work options during retirement for additional income and mental stimulation. Engaging in work post-retirement can contribute positively to both financial and emotional well-being.
Plan for longevity
Factor in the possibility of living longer than expected. Plan for an extended retirement by ensuring that financial resources are sufficient to cover a potentially longer lifespan.
Review investments regularly
Stress the importance of regularly reviewing and adjusting investments. Market conditions and personal financial goals may change, requiring adjustments to ensure the continued effectiveness of the retirement portfolio.
Consider the practicality of downsizing living arrangements. Evaluate the benefits of a smaller home in terms of reduced expenses and maintenance, freeing up funds for other retirement needs.
Create a will
Decide to form a will to make sure assets are distributed as per wishes. A well-created will endows clarity on the asset distribution, avoiding considerable complications for dependent ones.
Avoid emotional investing
Warn against making decisions for investment-based emotions instead of logic. Emotional investing can result in impulsive decisions that might not align with the financial goals having long-term duration.
Form a realistic budget to stay within your means. Track expenses and income, identifying areas where adjustments can be performed. A disciplined budget contributes towards effective financial planning.
Long-term care insurance
Explore long-term care insurance policy for health-linked expenditures. Long-term care insurance can offer financial help in the scenario of healthcare conditions that need extended care.
Consider inflation while estimating future expenditures. Make financial adjustments to account for inflation on living expenditures for post-retirement years.
While planning out is important, it is equally important to make the most out of life. Balancing the future and present strategies and planning permits a fulfilling journey.
After their discussion was over, Neelima said, “Shiza, I never thought that retirement planning in India could be this practical.”
Shiza replied, “It is not about being fancy, it is about being smart. Let’s start the preparation for golden years smartly.”
And the sisters began their journey towards securing a stress-free and comfortable retirement, with a pragmatic plan that would stand the test of time.