The Ultimate Guide To Retirement Planning Investment In India 2022 & Beyond

Retirement planning should be a critical part of every individual’s financial planning. While it’s a common norm to save a part of the income every month, parking the money in the right retirement planning investments is equally important.

The word retirement invokes mixed feelings to many. For some, retirement is a relaxing time when they can finally enjoy the rewards of their hard work and to some, retirement is a dreaded period of financial uncertainty. What’s the difference between these scenarios? Efficient retirement planning and the lack of it. 

The Simplest Retirement Planning Guide 

What is retirement planning? In simple terms, retirement planning refers to strategically investing a part of your earnings into wealth-generating assets to create a retirement corpus fund that will help you maintain your lifestyle and meet expenses. 

Once you retire, you bid adieu to your job responsibilities and the income stops. So, to live worry-free, it is advisable to start planning as early as possible. Another step that you should take to optimize your retirement planning is to keep a track of your expenses. This will help you save more and predict unforeseen expenses according to the inflation rate. 

Inflation is an ever-ticking bomb that will chase you throughout your life. One way to stay ahead of it and spend the rest of your retirement life without fretting about not having enough savings is by having a concrete pre-retirement plan. 

What is pre-retirement planning?

As the term suggests, pre-retirement planning refers to planning way ahead by setting definitive financial goals and predicting how much money you will need post-retirement. There are several advantages to pre-retirement planning. Several retirement plans offer tax rebates, you will not have to sell your assets to increase the available money post-retirement, and alternative investments like real estate assets offer better returns than a savings bank account. 

What are the investment options for retirement planning?

For efficient retirement planning, it is crucial to understand all the available investment options. The first thing you should look for is complete diversification of funds to different asset classes. NPS, National Pension Scheme is an ideal option for that as even people with less experience can manage it. Public Provident is another low-risk investment option offered by the Indian government. For a tenure of 15 years, you can invest as little as INR 500 or a maximum of INR 15,0000 per year. The liquidity is quite low with a lock-in period of 5 years. To earn stable passive income, you can also invest in real estate. Through fractional ownership offered by wealth-tech platforms like Assetmonk, you can invest in commercial assets, co-living spaces, and warehouses without having to empty your bank account. This type of investment offers maximum returns. While these are only three of the options available to you, read this article to know about the rest. 

Let’s compare the options: Real Estate vs Cryptocurrency 

Like it or hate it, everyone is talking about cryptocurrencies. Some belief in the potential of these digital currencies while some pay attention to their extreme volatility. For your retirement planning clarity, let us compare cryptocurrencies with real estate investments, most volatile with least volatile. 

Real estate investments are expensive compared to cryptocurrencies. But with concepts like fractional ownership, once inaccessible real estate assets are becoming affordable and accessible to a regular investor. 

To buy cryptocurrencies, you just need to create an account with your chosen crypto-app. To make real estate investments, you will need some assistance from professionals to do all the paperwork. But these days, with the advent of wealth-tech platforms like Assetmonk, the complicated paperwork associated with real estate transactions and the job of due diligence will be taken by experts. 

While cryptocurrencies might be easier to invest in, they are highly risky. More than the stock market, the crypto market is volatile and poses malware and hacking risks. Comparatively, the risk factor with real estate investments is extremely low because they are tangible financial assets. 

Let us also compare Commercial Real Estate with Residential Real Estate 

Commercial assets are strictly used for business purposes whereas residential assets are used for housing. While both of them earn rental income, there are differences in the number of returns you can earn amongst other things. Commercial assets are leased for longer durations than residential properties. This means commercial properties can hold tenants longer and have low vacancy periods, ensuring stable rental income.

At the same time, residential properties can increase their annual rental costs after every year. This doesn’t hold true with commercial assets as business leases often have fixed yearly rents. To completely understand the differences and make a smart choice, read this detailed article. 

What makes real estate assets a crucial part of retirement planning investments?

There are five reasons to include real estate investments in your portfolio. 

1. For long-term investments, real estate properties scale up to higher values while being less risky and volatile. 
2. Investing in multiple properties will help you mitigate risk and diversify your portfolio, ensuring smooth cash flow. 
3. If the real estate market witnesses a dip, it’s always a temporary phase. The industry is highly elastic and rarely sees setbacks. 
4. Out of all the returns, capital returns will let you earn the most. The property’s worth will increase over time and when you decide to sell it, you will be entitled to higher profit margins.
5. Lastly, real estate investors can take advantage of several tax benefits during the purchase of the property. If you opt for a home loan, you can save on tax on the principal amount up to INR 1 lakh per anum. If it’s a joint property, investors can claim a tax rebate of up to INR 2 lakhs. 

Features of a profitable rental property 

You now know that real estate assets fetch high returns in the form of rental returns and capital appreciation. Rental income is the monthly cash flow that can become your passive income. You can choose to spend the amount for your daily living expenses or re-invest it elsewhere. So, what should you look for in a profitable rental property?

1. Demand: You should ensure that the property gets located in an area that attracts good tenants. 
2. Neighborhood: If you buy a residential property, it must surround essentials like good schools, supermarkets, shopping complexes, etc. 
3. Tax variation: Property tax differs from area to area. No doubt it is advisable to pay high taxes if the demand of the area compensates for it. But you should not pay high property tax for a low-demanding locality. 
4. Development: It is wise to ask for all the details regarding any future developments in the area before closing the deal for a residential property. A rapidly developing area will increase the value of the property. 
5. Rental Income: If rental income is your bread and butter now or post-retirement, ensure that the rental property will be lucrative in the future to rent it out to produce passive income.
6. Educational institutions: If you want to invest in family-sized rental properties, having top-quality schools nearby can help you find decent renters. It can help you raise the value of your house and the rental revenue it provides.
7. Amenities: The rental income of a rental property unit might also increase based on the facilities nearby and how simple it is to obtain them. Tenants in Bangalore, Chennai, and Hyderabad want to rent near the airport or their workplace.
8. Management: If you want to invest in rental homes as a side business, you’ll need to hire a manager.
9. Job Market: A rental property situated in an area with many offices will attract many renters. A strong employment market can significantly boost rental revenue since the property is in higher demand right away.
10. Low vacancy rate: One must aim to reduce high vacancy rates because landlords get forced to seek renters. As a result, they lose their trump card. However, low vacancy rates, on the other hand, can enable landlords to boost rents.

But should you solely depend on rental income for retirement?

Rental income is one of the most advantageous types of passive income. Purchasing a home and renting it out for a living generates rental income. However, this is insufficient to cover your post-retirement expenses. It is vital to have a secondary source other than rental revenue from real estate investments for numerous reasons. 

Some of the reasons everyone should have a backup aside rental income for retirement are to counter the everyday risk and uncertainties. It also helps you keep up with inflation. It also helps develop a substantial corpus for a pleasant post-retirement life.

As a result, instead of relying on rental income from real estate investments to cover your post-retirement needs, you could invest in these other investment possibilities. So, investors can put their money into fixed deposits, mutual funds, the national pension system (NPS), dividend investing, and Senior Citizen Savings Scheme (SCSS). Thus, earning additional money for retirement from sources other than rental can enhance your life tremendously. Your extra finances can help to reduce the risk of unexpected costs and uncertainty. There are several benefits to having a secondary source of income, such as lowering the financial risk of relying just on one source of income. Even if it isn’t feasible in a month or two, the tiny amount of extra money you earn each month may help you build up your savings in the long run.

So, where can an NRI investor invest for his retirement?

In today’s world, retirement planning is not an option; it is a need. So these are some of the best NRI retirement plans in which an NRI may invest for maximum rewards.

• Real Estate: The cost of a property in Delhi, Gurgaon, Mumbai, and other cities, whether commercial or residential, is rising faster than ever, making it a moment for all NRIs (Non-Resident Indians) to invest in India. NRIs can also take advantage of the Income Tax exemptions. NRIs can also readily invest in commercial and residential real estate.
• Mutual Funds – As an NRI, you have the option of investing in mutual fund schemes as well as monthly income programs. If one aims to retire soon, it is advisable to evaluate debt and equity before investing in a pension fund. Investing in MIP (Monthly Income Policies) would be ideal for long-term viability.
• National Pension Scheme – As an NRI, you obtain the same insurance and tax benefits as a resident if you invest in the National Pension Scheme. There are no lower or maximum restrictions to the number of contributions made each year under the National Pension Scheme.
• Exchange-Traded Funds (ETFs): ETFs are marketable instruments that follow stock components. As an NRI, one can invest in ETFs with a low transaction fee, and this is one of the simplest ways to gain exposure to Indian equities.
• Gold: Gold investments can get made in a variety of forms, including gold bars, gold ETFs, gold mutual funds, gold deposit schemes, and so on. Gold ETFs have a more transparent price structure and may be bought and traded like any other firm stock.
• New Pension System: An NRI between 18 and 60 can invest in the present NPS (New Pension System). To retire, one would need to invest in a Tier I account. The minimal contribution, in this case, would be 6,000 INR per year.

What are some risks that you could anticipate when planning your retirement? And how can you meet them?

Years of saving and preparation get required for a happy retirement. Here are six unforeseen dangers to plan for and deal with as you prepare for a carefree retirement. 

• Unexpected Medical Bills and Long-Term Care: Our healthcare demands tend to rise as we become older. You can cover these costs in ways, including affordably priced healthcare and long-term care insurance.
• Inflation: Inflation risk is one of the unavoidable yet difficult-to-predict threats. Low inflation rates can be financially burdensome for retirees who live for a period; however, inflationary shocks can cause considerable reductions in retirement corpus. Real estate assets, dividend-paying equities, and inflation-indexed bonds are some strategies to account for inflation in your retirement portfolio.
• Housing Maintenance Expenditures: Most retirees forget to look beyond monthly or yearly home loan payments. Unexpected home repairs, damage caused by external conditions, and interior improvements to facilitate wheelchair access or other medical gadgets throughout the house can be pricey.
• Loss of a spouse: Along with the emotional hardship, abruptly losing a spouse may impair your retirement plan, as you would have expected. The good news is that you may reduce these risks by taking the following steps: – Life insurance, pensions, and other sources of income.
• Longevity: Another risk is outliving your retirement savings. While planning your budget, you may estimate your predicted age based on your present health state; nonetheless, it is vital to save a particular amount of money for a longer expected life duration. You may wish to reduce needless spending while also ensuring that you have a steady source of income for the rest of your life. A lifetime income stream might include a pension, monthly rental income from your homes, monthly dividend payments, or any company revenues, among other things.
• Relocation: To enjoy their golden years of retirement, many individuals contemplate moving to a different city or neighborhood with better facilities, weather, and living culture. Some may even have to sell their current home to purchase a new one in their desired location. In this instance, you must choose the best time to place your house on the market and examine the demand for properties comparable to yours in the years preceding your retirement.

But what can you do if you have a bad retirement plan? And how do you fix it? 

In our elderly years, we’ll need a decent retirement plan as a walking stick. However, most of us fail to constitute such a retirement plan due to many reasons. You ask why? Let us understand better what contributes to a failed retirement plan to help us keep up.

The following are the most common mistakes people make when saving and investing for their post-retirement lives is a tardy start in which most people’s financial goals usually place retirement at the bottom of the list. The second is inflation which most fail to account for inflation in their retirement planning. It has a substantial influence on purchasing power. The third is the withdrawal of EPF Funds, where many people cash out their provident fund account. The fourth is the delay in obtaining health insurance. The fifth is no Emergency or Contingency Fund because failure to establish a high-level emergency fund would only necessitate the deployment of long-term assets to address medical problems. And the last is inadequate savings for early retirement. 

However, fret not! There is still a way to help meet your post-retirement needs. You can save your retirement plan by setting realistic goals, analyzing your risk profile, deferring retirement, and investing in property insurance. Also, read on to see how real estate investments might help you remedy a failed retirement plan.