Investment Plans for Retirement: Securing Your Future Financially

National Pension Scheme (NPS)

NPS falls under the scope of the Pension Fund Regulatory and Development Authority (PFRDA) and the central government. It is a voluntary retirement scheme launched by the central government. Whether you are from the government, private, or unorganised sector, NPS is open to everyone.

Below has details of the scheme:

Types of Plans:

• Tier 1 (default)

• Tier 2 (Voluntary)

Entry Age:

• Minimum: 18 years

• Maximum: 65 years

Pension Starts:

• At 60 years of age

Minimum Annuity Investment:

• 40% of the corpus

Minimum Account Opening Contributions:

• ₹500 for Tier 1

• ₹1000 for Tier 2

Minimum Annual Contributions:

• ₹500 for Tier 1

• ₹250 for Tier 2

Maximum Annual Contributions:

• No cap

Maximum Withdrawal:

• 60% at retirement (those with ₹5 lakh and below corpus can withdraw the entire amount without annuity purchase)

• No withdrawal limitation for Tier 2 account

Tax Benefits:

• Up to ₹2 lakhs under Section 80C and 80CCD of the Income Tax Act of 1961 for Tier 1 account

• Up to ₹1.5 lakhs in Tier 2 account (only for government employees)

Annual Returns:

• 9-12%

Premature Exit:

• 80% to be invested in an annuity (100% lump-sum withdrawal if the total amount is below ₹2.5 lakhs)

Eligibility:

• Indians

• Non-Resident Indians

Note: Armed forces are not eligible for the National Pension Scheme, and Central Government employees who have joined the service after 1st January 2004 are mandatory covered under NPS.

Public Provident Fund (PPF)

If you are looking for a long-term investment plan, PPF can be the one. It is a government-initiated scheme and every year, the Finance Ministry sets the interest rate.

Here are the highlighting details of the scheme:

Eligibility:

• Only Indians

Investment Amount per Annum:

• Minimum: ₹500

• Maximum: ₹1.5 lakhs

Current Interest Rate:

• 7.1%

Lock-in Period:

• 15 years (can be extended for 5 more years)

Returns:

• Guaranteed and risk-free

Partial Withdrawal:

• From the 5th investment year

How to Open?

• Post Offices

• Nationalised Banks

Tax Benefits:

• Up to ₹1.5 lakhs under Section 80C of the Income Tax Act of 1961
• Interest received and maturity amount are tax-free

Mutual Funds

Mutual funds have become a popular choice for investment. Whether you are planning for retirement or corpus building, mutual funds can be a consideration. These are market-linked investment plans where fund houses collect capital from various investors to invest in different types of securities. So, the potential for risks and rewards is high. You may withdraw funds at any time, as mutual funds usually have no lock-in period.

Depending on the type of mutual fund, the interest rate may differ and is also affected by market conditions. Mutual funds are also subject to tax implications. Short-term capital gains are taxed at 20% (15% for those purchased before 23rd July 2024). Long-term capital gains are taxed at 12.5% if the gains exceed ₹1.25 lakhs (10% for those purchased before 23rd July 2024).

Fixed Deposit

Fixed deposits have been one of the safest investment plans. If you have a lump-sum amount and you want to save it for retirement, fixed deposits can be a good choice. It offers guaranteed and fixed returns as these are not market-linked securities. The tenure may range from 7 days to 10+ years.

Atal Pension Yojana

In the Union Budget of 2015-16, the Finance Minister of India launched Atal Pension Yojana, a type of national pension scheme in India. The plan replaced Swavalamban Yojana and is especially targeting the unorganised and poor sections of society. Here are the details of the plan:

Eligibility:

Indians

Age:

• Minimum: 18 years
• Maximum: 40 years

Minimum Contribution Tenure:

• 20 years

Requirements:

• A mobile number

• Linked bank account with Aadhaar number

Monthly Contribution:

• Depends on age and chosen plan

Pension Starts:

• 60 years of age

• To the spouse if the subscriber dies

• To the nominee if the spouse dies

Tax Benefits:

• 10% exemption on gross income (up to ₹1.5 lakhs) under Section 80CCD of the Income Tax Act of 1961.

Note: Early withdrawals are not permitted under APY. Only applicable if the subscriber passes away!

Annuity Plans

Annuity plans are typically offered by insurance companies. It is an agreement between the subscriber and the insurance company where the subscriber pays a lump-sum premium and the insurance company pays regular income for a fixed tenure. Usually, people planning their retirement go for annuity plans.

It can be of two types: immediate annuity and deferred annuity plans. For those seeking immediate income after a premium payout, an immediate annuity is good. In a deferred annuity, the income payout begins after a specific tenure. Until withdrawn, earnings are tax-free. Some may also offer death cover.

Senior Citizens Savings Scheme

As a part of the post office savings scheme, SCSS was introduced in 2004. It is one of the ideal investment plans for people planning their retirement. With a minimum deposit of ₹1000, you may open a joint or individual account. The maximum deposit is ₹30 lakhs. The scheme is for 5 years, extendable up to 3 more years. Premature closure may attract penalties.

The interest rate for the current quarter is 8.2% per annum. Under Section 80C of the Income Tax Act of 1961, you may claim tax benefits up to ₹1.5 lakhs. Senior citizens need to pay TDS if the total SCSS interest exceeds ₹50,000 in a year, while others have to pay TDS on interest exceeding ₹10,000 p.a..

Conclusion

Early retirement planning gives you sufficient time for accumulation and growth. However, the best time is now. So, start planning today for a financially sound retirement. At Jio Insurance Broking, we make the selection easier for you with numerous options available. Make sure to consider your monthly expenses, savings requirements, tax implications, and inflation rate to choose the right investment plan for retirement!