Retirement Planning Guide for Millennials

Table of Contents

1. Why Indian Millennials Need a Different Retirement Approach

2. How Much Should Indian Millennials Save for Retirement?

3. Top Investment Vehicles for Millennial Retirement in India

4. 5 Actionable Retirement Planning Steps for Indian Millennials

5. Balancing Today's Needs with Tomorrow's Security

6. Conclusion

7. FAQs for Indian Millennial Retirement Planning

This guide to retirement planning for millennials in India explains why you need to act now, how much to save, and where to invest wisely.

Why Indian Millennials Need a Different Retirement Approach

Retirement can last 25 to 30 years; during this time, covering regular expenses and higher medical costs without a steady monthly income can be challenging. Therefore, choosing investments that offer a hedge against inflation could shield you from running out of money.

Here are some reasons why millennials' retirement savings in India need a different approach:

• Financial Challenges Unique to Indian Millennials

From rising costs of living to inflation and job insecurity, Indian millennials face unique financial challenges, making effective financial planning essential.

In addition, they often have the responsibility to repay student loans, cover housing costs, and meet family responsibilities; the best way to balance all these liabilities is through a strategic financial plan that allows them to allocate their resources equitably.

• The Advantage of Starting Early in Indian Markets

The most effective retirement planning for millennials in India is to start early and identify their retirement age. Starting early, say, in your 20s and early 30s, will help your funds compound so that you can build a substantial retirement corpus.

The more time you have before retirement, the higher the level of risk your investments can withstand. For example, suppose you have 30 years before retirement. In that case, you can invest a bigger proportion of your earnings towards riskier investments, which could earn higher returns when invested for the long term.

However, if you have 10 years until retirement, you will need more stability over risks.

How Much Should Indian Millennials Save for Retirement?

1. The 15x Rule for Indian Retirement Planning

According to the viral 15:15:15 rule of retirement given by Sarthak Ahuja, a well-known financial advisor, if you invest ₹15,000 per month for 15 years and earn 15% returns each year, you will end up with ₹1 Crore. So, if you start at 25, by 40, you will have accumulated ₹1 Crore.

In addition, financial planners recommend following the 15x final-salary rule, which means your retirement corpus should be at least 15 times your last drawn annual salary. This benchmark helps ensure you can maintain your current lifestyle and comfortably meet post-retirement expenses.

2. Adjusting Your Savings Rate for Different Life Stages

Try to increase your retirement contributions over time as your income grows, since that will ensure your retirement plan has a hedge against inflation and aligns with your lifestyle changes.

Top Investment Vehicles for Millennial Retirement in India

1. Government-Backed Options: EPF, PPF and NPS

The EPF (Employees’ Provident Fund), PPF (Public Provident Fund) and NPS (National Pension Scheme) are all government-backed retirement options that are tax-efficient retirement savings for Indian millennials, but serve different purposes for different contributors.

The EPF is most suitable for salaried employees working in the organised sector; it provides fixed returns. The PPF is ideal for anyone who wants to have a voluntary retirement fund with a fixed interest rate. The NPS is perfect for supplementing retirement savings. It is a market-linked scheme with high risk and the potential for higher returns.

2. Market-Linked Investments: Equity Mutual Funds and ETFs

Market-linked investments such as equity mutual funds and exchange-traded funds (ETFs) have long-term growth potential. Whereas mutual funds are actively managed at net asset value, ETFs offer the flexibility of intraday passively managed trading. These are among the most effective investment options for millennials’ retirement in India, as they combine accessibility, diversification, and strong potential for long-term wealth creation.

3. Traditional Options: Fixed Deposits and Government Bonds

In the context of retirement planning for millennials in India, fixed deposits and government bonds offer stability and predictable returns that align well with Indians who are cautious about market volatility.

5 Actionable Retirement Planning Steps for Indian Millennials

Secure Your Future: Choose a Retirement Plan with Built-in Life Cover

Determine your retirement corpus as soon as possible, taking into account your life expectancy and potential future expenses, including medical emergencies. It is recommended to have a retirement corpus that is 20 to 25 times your current annual income. This amount will not only protect against inflation but also provide 4% of its value, making it easier to cover regular expenses.

The best way to do that is to start the retirement plan today with life cover. Suppose a 24-year-old male starts investing in a term life insurance plan worth ₹1 Crore until his retirement at age 61, with a monthly premium of ₹1200. It will not only secure his future but also his family's.

1. Maximise Tax Benefits under Section 80C of the Income Tax Act, 1961^#

Under section 80C of the Income Tax Act, 1961^#, retirement contributions to the Employees’ Provident Fund (EPF), Equity Linked Savings Scheme (ELSS) and life insurance plan and retirement plan premiums offered by insurance companies are eligible for tax deductions up to ₹1.5 Lakh per annum. These tax-saving benefits let you reduce your taxable income.

It is a smart idea to calculate the after-tax rate of investments to get an accurate measure of financial growth. This way, you will have a peek at the actual value of your investment earnings after considering income taxes and inflation.

2. Enrol in NPS for Additional Tax Benefits

You can enjoy additional tax benefits by enrolling in the National Pension Scheme or NPS. Contributions to the National Pension Scheme (NPS) Tier I accounts are eligible for tax deductions up to ₹1.5 Lakh under Section 80C^# and an additional ₹50,000 under Section 80CCD (1B)^# of the Income Tax Act (1961).

However, tier II accounts are eligible for tax deductions up to ₹1.5 lakh under section 80C^# if they have a 3-year lock-in period. Besides, if you are a central government employee with NPS, you can migrate to UPS (Unified Pension Scheme), which will enable you to receive a guaranteed monthly income of ₹10,000.

3. Build an Emergency Fund Alongside Retirement Savings

Building an emergency fund with sufficient liquidity alongside your retirement savings reduces the risk of early withdrawals from your retirement savings. Early withdrawals from retirement funds such as EPF and NPS can disrupt your long-term goals. Therefore, ensuring that your retirement funds are untouched until your retirement is crucial.

4. Review and Rebalance Annually

To ensure a successful retirement planning for millennials in India, it is essential to review and rebalance your funds annually. This will help you decide whether you need to increase your contributions to the retirement fund or maintain the current level. Consistency is key when it comes to long-term investments, such as retirement.

Balancing Today's Needs with Tomorrow's Security

• The 50-30-20 Budget for Indian Millennial’s

According to the 50-30-20 budget rule, to build a disciplined savings habit, it is crucial to set aside a certain amount of your monthly earnings. Now, to do that, you need to put aside 50% of your monthly earnings for essential expenses such as rent, transport and utility bills. Living only on essential expenses is not satisfying; you need to splurge, whether it is eating out or shopping. For that, you need to allot 30% of your earnings.

Finally, you can save 20% of your monthly income for savings and investment. Following this budgeting rule every month will ensure you maintain a balance between your earnings, expenses, and investments.

1. When to Prioritise Debt Repayment over Retirement Savings?

Suppose you have debts with higher interest rates. In that case, it is beneficial to prioritise debt repayment over retirement savings, as debt can be overwhelming and cause stress not only for you but also for your family.

Experts believe that if your debt interest rate is more than 6%, it is smarter to pay it off before investing. Because paying off debt leads to saving more money than investment returns. In contrast, if you have debts with lower interest, such as an education loan, you can opt for investment and grow your money more in the long run.

Since education loans offer lower interest rates and multiple tax benefits, financial experts recommend taking an education loan rather than utilising their parents' retirement fund.

Conclusion

For successful retirement planning for millennials in India, diversifying the portfolio is key to stabilising investment returns through steady wealth creation. Invest a portion in equity mutual funds and Exchange Traded Funds (ETFs) for market-linked growth, debt funds for stability, and National Pension Scheme (NPS) or Employees' Provident Fund (EPF) to secure retirement income.

Remember, the earlier you start, the greater your financial freedom later in life. Start your retirement plan today to secure your tomorrow and enjoy the peace of mind that comes with a worry-free future.

FAQs for Indian Millennial Retirement Planning

1. How Millennials Choose the Right Retirement Plan?

The best way to choose the right retirement plan is by defining your personal retirement goals based on your income and expenses. Furthermore, exploring flexible options and starting early could contribute.

Whereas flexible options give you the freedom to choose between lump-sum and monthly payouts, an early start will enable your funds to grow exponentially through compounding. So, you get a sizeable retirement corpus that ensures a comfortable retirement.

2. What are the ways to save taxes on Indian Millennial Retirement Planning?

You can save on taxes in your millennial retirement planning in India by investing in the right avenue. For example, if you invest in the Employees’ Provident Fund (EPF), you can withdraw your funds tax-free after a 5-year lock-in period.

Furthermore, under section 80C of the Income Tax Act, 1961^#, contributions to EPF (Employees’ Provident Fund), PPF (Public Provident Fund), and Notified Pension funds of UTI or MF are eligible for tax deductions up to ₹1.5 Lakh and an additional ₹50,000 under Section 80CCD(1B) of the Income Tax Act (1961) # for contributions to NPS.

3. Why do I need a Retirement Portfolio at age 40?

Building a retirement portfolio at age 40 is significant, as you have a stable career with regular income, allowing you to save. Plus, you have more liabilities compared to when you were younger, making savings inevitable. This is the ideal time to catch up on the savings you missed in previous years.

Moreover, suppose you want to mitigate inflation's impact in the future. In that case, a dedicated retirement plan can help you build wealth so you can maintain your current lifestyle even when you do not have a regular income.

4. How to plan retirement for millennials in India?

Millennials aged 25 to 40 should plan their retirement as early as possible, as an early start will allow their funds to grow into a sizeable retirement corpus through compounding. Being late with retirement planning can limit wealth generation, as there is less time.

5. How to Determine an Ideal Retirement Budget while planning for retirement?

To determine an accurate retirement budget, you first need to calculate your expected retirement corpus, inflation, lifestyle expenses, and life expectancy. There is no standard amount, since it varies from one to another.

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