December 11, 2018

Savings needed after retirement fulfilling variety of needs – not to be solely dependent on pension

In the year of 2016, the averages age of around 22% people is above 65. Due to developed medical treatment in medicine and surgery, our average age has increased and it is expected that it will increase further on coming days. Hence it must be remembered that we will stay alive more in compare to the people of last generations which may lead the necessity of arrangement of food, financial stability, and medical treatment for those excess number of days of staying alive.

It was a time when there were lot of opportunities government jobs where pension is confirmed after retirement, except some PSUs. The interest was good in banks and post offices. Lifestyle was simple. As a result a retired person can easily run the family of retired life.  Even those who were the salaried personnel but not at all the pension holders, had depended on interest with certainty of good interest rate. Now there is a change where only 10% of the working people are working in government organizations. The non-government employees are not always secured in their jobs. There is almost no pension and also no certainty of increasing the salary. Due to inflation, increasing family commitments in terms of bearing the high priced child education and higher education, increasing electricity and phone bills, increasing salary of maid servants and cooks, increasing medical premium, salary of driver if any, marriage etc., most of the employees of private sectors, even the employees of government sectors are unable to accumulate the need-based amount in the provident fund.

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Therefore we need to create our own pension fund despite of not having pension facilities in the organizations where they are presently working. In ordinary parlance we need to search how much maximum return we can fetch after investing our money. The problem is our needs and preference changes with increase of salary and with promotion in working life. But the planning of accumulation of money for retirement life goes backward. On the other hand our responsibilities and commitments increases with the increase of age. The risk taking ability becomes reduced.  Therefore, whatever the salary may be, it is necessary to grow a continuous saving. We need to diversify or spread our investments in different projects, investment and savings schemes. We need to consider all expenditures which we must bear after our retirements except child education which is expected to be completed before your retirement. Now we need to know how we can calculate the amount at the time of our retirement. You can estimate accordingly.

  1. What is your current expenditure to run the family? Consider all above mentioned expenditures except the education of children and monthly installment payment of house building loan which should not be considered because these needs may not exist at the time of retirement.
  2. Calculate the regular expenditures with the consideration of inflation of each definite year.
  3. Add the expenditures of future medical treatment of you and other members in your family to the list of expenditures.
  4. Assume that you will stay alive for 90 years almost.
  5. Now see how much money may come from your savings at the time of your retirement. That is why, before going for any investment kindly check the net rate of return after tax rate and rate of inflation. We need to accumulate fund of 30 years of post -retirement. That fund should be kept in an Annuity based scheme or Monthly Income Scheme (MIS), Fixed deposit so that a fixed need based monthly amount can be arranged.

Besides considering Public Provident Fund, Term deposits we must think about risk bearing investments like shares , mutual fund to plan your savings properly otherwise we cannot cope up with the inflation and decrease in interest rates. Only savings are not good enough, besides that long-term wealth generation is desperately needed. Even we can see the dream of investing our minor savings at a regular or continuous interval to prepare a noticeable and need-based, perhaps big fund.

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One part of our savings can be deposited in a regular fixed income schemes like small saving schemes of post offices, fixed deposit schemes of banks. The advantage is that we will come to know in advance, the future value or increased value of our investment. Remaining parts of our savings can be deposited either in an equity fund or in a combined fund of debt and equity under systematic investment plan (SIP) for a long time in order to accumulate wealth. At the time of service provident fund is always there, still we can keep money in a scheme like NPS where the opportunity is good to accumulate fund since withdrawal amount is 40% tax free. This is the way we can diversify our fund in order to manage the risk under this condition that if we get a low return one scheme , the same will be offset by the higher return from the another scheme.

Now a days NPS is a very good scheme where our money will be invested to shares, government debentures, corporate bonds, bank deposit schemes etc. The investment decision can be made by the investors and 60% money can be withdrawn at the age of 60. The rest amount will be for buying the annuity which will give pension. We must start accumulating our fund or wealth from the earliest age as far as possible.

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About Suvendu Narayan Roy 36 Articles
Author and Faculty member of Finance Analyst -Financial and Political Reputed Article writer Director - Knowgen Educational Services Pvt.. Ltd Co-editor JCBR, a cross functional business research journal