Why PF won’t be enough for your retirement life goals

Retirement can be one of the most crucial aspects of your life. As a working professional, you might aim for a comfortable retirement while you get to pursue your retirement life goals at the same time. During your active working years, you might keep aside a specific proportion of your money towards retirement. Moreover, you might park your hard-earned savings into trusted investment instruments such as the Provident Fund (PF) for the growth of your money.

PFs are government-backed plans that can help you to accumulate your retirement savings. Moreover, it is a risk-free instrument, which is why many of you might prefer PFs over other investment tools such Unit Linked Insurance Plan (ULIP), Equity Linked Savings Scheme (ELSS), and so forth. Although PF can be a safe bet for retirement, it might not be enough to provide for your retirement life goals such as traveling, starting a new venture, pursuing sports activities, etc.

Before you choose to invest in PFs for your retirement, let’s go through these top four reasons mentioned below that suggest you should opt out of PF investment:

1. The money that you contribute towards your PF account can be capped at Rs. 1,50,000. If you plan to save more, you might not be able to accumulate substantial wealth.
2. The applicable rate of interest can be 8.5% under PFs. Moreover, the tenure of 15 years might not be enough to receive returns that can combat the impacts of inflation.
3. You might not be able to liquidate your money in times of an emergency or an unfortunate event.
4. A PF account might not allow you to invest jointly with your spouse and children.

The drawbacks of PF investment might fail to provide you with a stress-free retirement period. It’s good to own a PF account, but it’s not the wise solution to depend on it completely for your retirement. If you wish to save more for your retirement, you should identify the amount of money you might need in the future after the flow of your professional income stops. As an aspiring retiree, you should use a retirement calculator to determine your corpus.

Before you calculate the retirement corpus, you should evaluate your budget and list down your current expenses, debts, and earnings. Typically, you should include the following expenses while calculating your retirement corpus:

• Monthly expenses such as utility bills, commute, maintenance, grocery, and so on.
• Periodic expenses such as home renovation, car repairs, trip expenses, and so forth.
• Long-term expenses such as purchasing a new home, fulfilling your child’s educational needs, planning your child’s dream wedding, etc.
• Medical expenses such as hospital bills, health insurance premium, etc.

After you consider your expenses and financial goals, you should purchase a retirement pension plan to generate wealth. Since there are several options in the market, you might be unable to understand which plan can match your requirements. Therefore, let’s go through these top five things you should look for in a retirement pension plan at the time of purchase:

1. Premium payment frequency

There can be retirement plans in India, such as unit-linked pension plans that allow you to pay the premium quarterly, monthly, half-yearly, or annually based on your convenience.

2. Risk tolerance

When you purchase a pension plan, you should be able to diversify your portfolio to secure your invested capital from market volatility.

3. Returns

Returns can be an essential part of your retirement pension plan. If you wish to obtain high returns, you should purchase non-traditional plans such as the Unit Linked Insurance Plan (ULIP). A ULIP plan can allow you to receive returns based on your risk appetite and market performance.

4. Tax-saving benefits

A retirement plan can allow you to claim deductions that can reduce your tax liability.

To conclude, your retirement period should be able to provide you with the peace of mind that you require after rigorously working throughout your life. With a PF account, you might not be able to lead the desired life after your retirement. Therefore, invest in the right type of retirement plans in India to ensure that you get to fulfil your life goals as well as meet your routine needs.

Rudolph Davies