Investing in mutual funds during your working years and utilizing a systematic withdrawal plan (SWP) after retirement can provide a steady income stream. The National Pension System (NPS) allows for retirement savings with contributions during working years. Annuity plans and guaranteed income plans offer stability in income flow, but have varying methods of operation.
For those without a pension, retirement planning is crucial as monthly expenses continue after retirement. With life expectancy on the rise, building a retirement corpus is more important than ever. Here are some investment options to consider for building your retirement fund.
Voluntary Provident Fund
Employers typically deduct a mandatory 12% from your basic salary for the Employees’ Provident Fund (EPF). However, you have the option to contribute more through a voluntary provident fund (VPF). This offers significant advantages as contributions come from pre-tax income and can potentially yield an 8.15% interest rate.
Mutual Funds
Mutual funds, including retirement-specific options, can be used to build a retirement corpus. By investing in mutual funds and utilizing SWP after retirement, you can convert your accumulated fund into a steady income source while potentially benefiting from investment growth.
National Pension System (NPS)
NPS offers a way to save for retirement, allowing contributions during working years for a post-retirement fund. Subscribers are required to allocate a minimum of 40% of their NPS corpus to purchase an annuity from a life insurance company upon reaching the age of 60.
Annuities and Guaranteed Income Plans
Annuity plans and guaranteed income plans provide stable income flow, with annuity plans involving lump sum or periodic payments in exchange for regular payments, and guaranteed income plans offering fixed payouts regardless of market fluctuations.
Furthermore, both annuities and guaranteed income plans provide tax benefits and low returns. The choice of investments will depend on individual circumstances, requirements, and risk tolerance.
It is important to diversify income after retirement, with each source generating 20-25% of the total requirement. Overall, retirement planning is crucial for ensuring financial stability in the later years.
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