How Much Should You Contribute To Your Retirement?

Individuals have various options in the market where they can invest their savings towards retirement. These options include retirement plans, mutual funds, ULIPs, NPS, and PPF. Retirement plans and ULIPs are something you must be familiar with, for more understanding of NPS and PPF and how much to invest in such schemes, read this article.

Best Retirement Planning Options

The following are some of the plans or options which helps in planning for retirement-

• National Pension System (NPS)

The NPS is a government-initiated retirement scheme. Under which, you have to contribute a minimum of INR 6,000 a year in a Tier-I account and a Tier-II account. The money in the Tier-I account is not allowed to be withdrawn till retirement. However, there are no limits on Tier-II withdrawals. You require an active Tier-I account to open a Tier-II account.

• Public Provident Funds and Employee Provident Funds

 The Public Provident Fund (PPF) is a government scheme under which you receive an 8% annual return. The minimum investment is INR 500 in a year while the maximum is INR 70,000. The money is locked for 15 years. Individuals are allowed to extend the account for more than 15 years in a lot of 5 years and withdraw up to 50% of the funds after the 7th year.

You may also like to read:- Retirement Planning Guide For Working Women 

How Much Should You Contribute To Your Retirement?

As you reach near retirement, you must increase your exposure to less risky investments as the number of working years is less and you need to safeguard the corpus you have built from the volatility of the equity markets. Therefore, you need to maintain your portfolio as you surpass different age groups. There are no strict terms and conditions as an investment portfolio is a function of one's risk-taking appetite, existing investments, income, expenses and financial goals. Below is the list of certain age groups, where how much savings is required for each group is mentioned. 

• Age 18-25 years

You are beginning your career, you have no huge liabilities and dependents. However, your income is less, so are the expenses. You have a certain time on hand and can afford high exposure to risk i.e equities. Ideal portfolio should have 85% equity, 10% debt and 5% gold.

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• Age 26-35 years

Your income substantially increases alongside with your liabilities. You are still far away from retirement and can have high exposure to equities. Since you have more liabilities now, you should focus on increasing fixed income investments for a cover against the volatility in equity markets. You should have equity, debt and gold in the ratio of  70:20:10 respectively.

• Age 36-45 years

During this age,  your liabilities increase more than income. Hence, higher allocation to debt is needed. Equities can still consist of 60% of your portfolio but you should opt for large-cap stocks and equity funds. Debts and gold can be 35% and 5% respectively for required corpus. 

• 46-55 years

You are 5-15 years from retirement i.e you are closer to retirement than you think and need to protect the corpus from market volatility. Under this situation, a 50:50 debt-equity mix.

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Also Read:- Benefits of Purchasing Retirement Plans 

Conclusion 

Retirement is an important milestone in your life and planning your finances for that is a long process which should not be left for the later stages of your life. You must plan ahead for the percentage or ratio of your premium which has to be allocated among different investment options. Planning to retire and maintain your portfolio on its basis is one of the key steps in effective retirement planning. 

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.