Retirement planning is a crucial part of managing your finances and preparing for future expenses. To be self-sufficient and maintain your current lifestyle after you turn 60 years of age, you need an action plan to begin saving. By allotting your money and investing in financial instruments, the required corpus can be easily generated. But what should you do to continue saving for your retirement plan during a pandemic? When your income is cut short and various financial avenues are giving fewer returns, you have to think wisely so as to come out stronger. So, let’s understand how you can effectively continue your retirement planning during COVID-19 and the best investment options available.
To maintain your retirement plan even during the pandemic, you need to first review your goals. If you are still away from your retirement age, you can recover from the setback of the pandemic. But if you are closer to the age of 60, your plan has to be readjusted. You can opt to delay your retirement by a couple of years to accumulate the desired capital or decrease your corpus goal.
Along with reviewing your retirement plan, you should also revisit your investment strategy. The scheme you designed before COVID-19 will not be applicable after COVID-19 due to decrease in income as well as lower returns amidst market decline. You can try and look for ways to restore your income by taking up extra work to get back on track. This would make sure your essential needs are taken care of and your debt is being paid. Then, you have to assess your investments based on the economic conditions and opt for financial instruments to help achieve your goal. It would also be recommended to cut down some unnecessary expenses and reduce your debt.
If you are set to retire in the next 10 years, you need to evaluate your financial investments to make modifications accordingly. But if you haven’t started accumulating a corpus for your retirement, you need to begin immediately. You can start by estimating your expenses and the remaining tenure of your debts. During the current situation, savings can be done by reducing expenses. After the pandemic when the market stabilises, you will have to find suitable investment avenues that can give the required corpus in the upcoming years.
You still have a lot of time to generate your retirement capital and can easily take advantage of the ongoing market conditions. As the valuation of stocks is low, you can grab this opportunity to purchase valuable company shares. But you should not rush with investing a large sum as the market is still volatile. After COVID-19, you can examine your financial standings to decide if you need to adjust your retirement plan.
Here are some of the best investment options that you can opt for to accumulate your retirement capital:
NPS or National Pension System is a government-sponsored scheme to enable employees to accumulate a corpus for their retirement. It was only open to government employees in 2004 but later in 2009, it was made accessible for everyone. This scheme is an opportunity for employees working in private sectors to create a retirement capital. Most individuals working in the government sector have a fixed pension system which cannot be said for other individuals. You can contribute money to your NPS account during your employment. On turning 60, you can withdraw 60% of the corpus as tax-free and the remaining is utilised in purchasing annuities for post-retirement income.
You can enjoy tax advantages under Section 80C of the Income Tax Act, 1961. A maximum cap of INR 1,50,000 is set for claiming income tax benefits.
Mutual funds are financial vehicles used to invest in securities like stocks, money-market instruments, bonds, etc. The money accumulated from every investor is then collectively invested by the fund manager. With their expertise and research skills, the manager invests the capital in various financial avenues to earn good returns. There are two modes of investing in mutual funds, Systemic Investment Plan (SIP) and lumpsum. You can invest a fixed amount on a regular basis with SIP whereas lumpsum is a one-time investment. When comparing the two modes, there are several benefits of investing via SIP in mutual funds. It allows you to enjoy Rupee Cost Averaging as well as compounding of returns earned on the principal amount. By contributing regularly in mutual funds, you also learn discipline and patience. With the ongoing pandemic, the Net Asset Values (NAVs) are low, thus, you can take advantage of this to stock up on quality shares.
Gold Exchange Traded Fund or ETF is a commodity ETF which primarily invests in gold. They act like individual stocks and are traded similarly on the exchange. The fund deals in gold derivative contracts which are backed by gold. Thus, by investing in gold ETF and trading it, you won't own any gold but will earn the profit in cash. This kind of investment option gives you a chance to gain exposure to the movement of price of gold and also broaden your financial portfolio. It can also be used to gain protection from the volatility of the market. The tax levied on gold ETF is similar to the tax charged on selling or purchase of physical gold.
In conclusion
Even with the market decline and lower returns, you should hold onto your financial investments to continue your retirement goals. After the situation stabilises, you can reassess your plans and set your goals accordingly to collect the required retirement corpus. But until then, it is advised to not liquidate your investments as it will result in higher losses.
Start your investment journey today - Open a Demat account with us!