How to Plan for Retirement in Your 40s?

Are you someone in your 40s, pretty busy managing EMIs, school fees, career moves and ageing parents? It may seem too early to think about retirement planning in your 40s. This may be due to multiple reasons, such as late starts, changing priorities, etc. However, the fact is that the best time to start your retirement planning is in your 40s, as you have a higher income and clearer goals. In this blog post, we take you through why retirement planning in your 40s is critical and the 5 best retirement plans for your 40s.  

Why Retirement Planning in Your 40s Is Critical?

Many people think that 20s or 30s are the right time to start retirement planning. Though it is true, 40s are never too late to make real progress. However, the first step in retirement planning in your 40s is to understand your current financial position. Once you do that, it is pretty easy to redirect resources with precision and purpose. Now let’s check the 3 top reasons why retirement planning in your 40s is critical.

1. Peak Earning Potential

Being in your 40s, now you will be going through your peak earning years. At this point, there are several advantages such as professional experience, promotions, and even additional income streams that work in your favour. Thus, with more financial capacity than ever, this is the best time to invest for your retirement years. Moreover, with a higher disposable income, this is the perfect opportunity for you to increase contributions to retirement plans.

2. Clear Financial Goals

Now, in your 40s, you have more clarity about your lifestyle requirements, including education expenses, housing plans, and the ideal retirement setting. Thus it is quite important to understand your current financial situation which will help you redirect resources with intention and precision.

3. Compound Growth Advantage

There is still 15-20 years left for your retirement. If you invest consistently, it is a wonderful opportunity to make the power of compound interest work in your favour. For example, if you invest Rs. 15,000 every month at 10% annual returns for 20 years, it will grow into a whopping sum of more than Rs.1 crore.

5 Investment Products To Plan For Retirement In Your 40s

Still not able to decide which is the ideal product for you to invest in? No worries. For retirement planning in your 40s, here are the 5 investment products that best suit your requirements.

1. National Pension Scheme

 To start with, the National Pension Scheme, popularly known as NPS is an ideal investment option for people like you. To keep it simple, it is a government scheme where you invest your money and get returns after your retirement. Here you invest a certain amount every year which is invested in equity, debt or government bonds. In NPS, you can choose one of the 2 options.

i.) Auto choice

ii) Active choice

If you opt for auto choice, the funds will be managed by a fund manager. On the other hand, in active choice, the funds will be managed by you. With an investment horizon of a few decades, NPS is a good option to multiply your money over a period of time. Here you also get a tax benefit of Rs.50,000.

2. Mutual Funds

Mutual funds 6% of household savings in India. Surprised? Systematic Investment Plans, popularly known as SIPs have become the favourite choice for many. With an option of investing a fixed sum regularly, SIPs offer the magic of small sums growing to a huge amount in the long run. If you are ready to invest for the long term, mutual funds offer returns in the range of 12-20%. As you approach your retirement years, you can switch from equity funds to debt funds.

3. Public Provident Fund (PPF)

A risk-free investment option, PPF helps you save on tax even while you earn interest on your investment. The main features of PPF are:

• Offers returns at the rate of 7.6% a year
• Returns are tax free
• Option of investing between Rs 500 and Rs 1.5 lakh
• Eligible for a tax benefit of Rs 1.5 lakh under Section 80C of the IT Act

However, keep in mind that PPF comes with a lock-in period of 15 years.

4. Annuity Plan

The best part of an annuity plan is that it offers a specific amount each month in addition to the interest on your invested amount. If you start investing now, you can receive the returns after your retirement. With a fixed amount every month, an annuity plan ensures high liquidity.

5. Insurance

Are you yet to take an insurance policy? If the answer is ‘yes’, it’s high time to invest in a term plan as well as medical insurance.

i) Term plan

In your absence, a term plan will prove to be a saviour for your family members. With no financial struggle, they can continue their existing lifestyle. Buy a term insurance as early as possible, as you can enjoy the benefit of a higher coverage amount, just by paying a low premium.

iii) Medical insurance

Research shows that 98% of people in India aged 55 years and above have no health insurance coverage to fall back upon. Shocked? If you have not set aside enough money to meet an unexpected medical emergency or hospitalization, you can even go through a financial crunch during times of a medical emergency. Thus, at the earliest, buy a medical insurance plan that covers all such expenses.

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Key Takeaways

• The first step in retirement planning in your 40s is to have proper awareness about your present financial position.
• Retirement planning in your 40s is critical as you will be at the peak of your earning potential, you will be having clear financial goals and there is still time to make compound growth advantage work in your favour.
• The 5 best investment products you can think of are NPS, mutual funds, PPF, annuity plan and insurance
• It is quite essential to buy both term insurance and medical insurance

Parting Words

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