Retirement planning and wealth management: Essential factors to meet your financial goals

Retirement planning in simple terms refers to the creation of financial resources for golden years. Old age comes with various challenges like lower income after retirement or a certain age, increasing cost of living and growing expenses, especially on health. Without a regular income or reduced income it could be difficult for many to meet the monthly expenditures after retirement.

We must plan early to sail through these challenges in our twilight years. Effective retirement planning is a must in present circumstances to live the autumn of life happily.

Retirement planning is an essential part of a carefully devised wealth management strategy. A wealth management strategy should be planned keeping your financial goals in mind, which could help you build a corpus fund over the years. Such a strategy needs right actions and timely decisions to achieve financial goals.

Retirement planning and wealth management

Retirement planning is a process of setting goals for your golden years, identifying investment options, putting aside funds and managing risks to meet those goals. Managing assets and minimising risks should also be taken into account while planning your wealth management strategy.

Wealth management plays a key role in achieving the desired corpus to easily meet your retirement goals. It refers to financial planning, investment strategies and minimising liabilities for creating a pool of assets. Also, a mix of assets such as PPF, EPF, NPS, bonds, debt MFs, equity MFs and index funds can provide stable income in twilight years.

Wealth management tools for retirement

You can create a diverse portfolio of assets that provides stable income with minimum risks as well as keep up with rising costs in twilight years. Several options such as the National Pension System (NPS), Retirement Annuity Plans and Senior Citizen Saving Schemes can provide income security in old age. It is advisable to allocate funds in a mix of assets such as ultra-secure PPF, EPF, annuity plans and riskier assets like mutual funds and ELSS to achieve retirement goals.

National Pension System (NPS)

The NPS is the easiest retirement planning tool. Any individual between 18 to 70 years old can start investing in NPS for future planning. The biggest attraction is tax benefits of up to ₹ 2 lakh. Also, NPS provides options for investors to have low, moderate to high risk in investment through equity investment, corporate and government bonds.

Annuity plans

There are several annuity plans, including deferred and immediate annuity schemes, offered by financial entities to create a retirement corpus. Returns and tax benefits vary as per the individual plan offered by each entity. Annuity schemes should be a part of your retirement planning as they offer regular monthly or period payouts after retirement.

SIP in equity mutual funds

Systematic investment plans (SIPs) in mutual funds or any equity-linked savings instruments are considered relatively riskier compared to traditional savings avenues. However, such investments could offer higher returns. Proper allocation of funds in these investment options can generate handsome returns and help achieve the desired retirement corpus for maintaining the lifestyle in the golden age.

If started early at the age of 25-30 years, SIPs in equity MFs and debt MFs can generate handsome returns. With proper risk management and asset allocation, investment returns can easily beat those from safe bets like FDs. There are a host of retirement MFs such as ICICI Prudential Retirement Fund - Pure Equity Plan, HDFC Retirement Savings Fund - Equity Plan, UTI Retirement Fund and Nippon India Retirement Fund Wealth Creation Scheme, which an investor can pick.

It is advisable to go through returns provided by these schemes in past years before subscribing.

Index Funds

Index funds give good returns in the long term, usually 20 years and must be considered in retirement planning tools. For example Nifty next 50 since its inception in 1996 has given 19% annualised returns. SIPs in index funds are a good option.

To Sum up

Retirement planning should be done with a holistic approach. While taking too much risk can hurt future returns, going over-defensive with safe bets would not produce optimal results for financial resources. Retirement planning and wealth management depend on a key factor— the amount of money you will need in future. The entire strategy is developed according to your retirement income goal. The financial goal for your retirement years could change depending on multiple factors. Though you can begin investing at any stage of your service years, it’s best to start early. Early investments could be helpful in building wealth for golden years, even before your retirement.