What is the best retirement plan for small business owners in 2023?

Retirement is referred to as the 'golden age' since it is the point when most of your duties have been completed. However, without a retirement corpus, can you truly relax? During retirement, your income might dry up, but your expenses won't. In contrast, as you age, inflation and medical costs may increase your lifestyle expenses. Therefore, you should choose your retirement plan wisely to fulfill your needs.

EPFs are not suited for entrepreneurs. It is difficult for small business owners to invest in the Employees' Provident Fund (EPF), which builds a retirement corpus for salaried employees.

If you want to build a retirement corpus, you just have to save over your working life, earn returns on your savings, and accumulate a suitable fund. But how do you know what are the best retirement plans?

The best retirement plans for small business owners: An overview
 

There are many options for saving up for retirement that are available on the market. The following are some of the best retirement plans you can choose from:

Life insurance pension plans
 

Investing in life insurance pension plans helps build a retirement corpus. Additionally, these are among the best retirement plans for creating lifelong income through pensions. Life insurance pension plans fall into two main categories, each with its own advantages:

To create a retirement fund, choose the deferred annuity plan and save up over the chosen tenure. Life insurance pension plans are also the best retirement plans for availing of the following tax benefits:

·     The premium paid for the policy qualifies for a deduction under Section 80CCC. You can claim a maximum deduction of up to Rs 1.5 lakh.

·     In the case of deferred annuity plans, the commuted part of the corpus (up to 60%) is a tax-free benefit in your hands under Section 10(10A).

National Pension System (NPS)
 

The NPS is another retirement-oriented savings plan. It is the best retirement plan if you are looking for a long-term investment where you save annually and build up your retirement fund. The scheme is market-linked, and your contributions are invested in your chosen available funds.

The salient features of the NPS scheme are as follows:

·     You can subscribe to NPS with as little as Rs 500 and open a Tier I account. The minimum annual contribution is Rs 1000, and you must make at least one contribution every year after opening an NPS account. It is also the best retirement plan for disciplined investment.

·     You can invest in equity or debt funds based on your risk appetite. You can also switch between funds if needed.

·     NPS allows partial withdrawals during the investment tenure.

·     The scheme matures at 60 years of age. You also have the option to defer the maturity date by another 10 years.

·     You can withdraw up to 60% of the accumulated corpus on maturity in a lump sum. The remainder is used to make annuity payments.

·     You can choose from different annuity payment options.

Among the best retirement plans for tax benefits, NPS is quite popular. Under Section 80CCD(1), the amount invested qualifies for a tax deduction of up to Rs 1.5 lakh, as well as a further deduction of up to Rs 50,000 under Section 80CCD (1B). These two sections allow an aggregate deduction of Rs 2 lakh for NPS contributions.

Furthermore, 60% of the corpus is tax-free on maturity.

Mutual funds
 

For retirement planning, mutual funds are also an excellent option. They offer various investment schemes, including equity, debt, hybrid, and so on, and you can choose the one that fits your risk tolerance and investment strategy. In order to benefit from professional fund management, pooled investment avenues are the best retirement plans. You can start a mutual fund SIP (Systematic Investment Plan) to save over time at an affordable cost.

An equity linked savings scheme (ELSS) investment is eligible for an 80C deduction of up to Rs 1.5 lakh. Debt funds offer stable returns and avoid equity-oriented volatility.

Conclusion
 

As a business owner, working hard to maximise profits, you should also start planning for retirement. While retirement may seem far off, you can start saving early and still build an adequate corpus. Kickstart your retirement planning by choosing from the best retirement plans.

IDFC FIRST Bank offers some of the best retirement plans to start your investment journey. Pick from mutual funds, annuity, or life insurance investment plans to fulfil your retirement planning goal. Start planning today and take the first step towards a financially independent retired life.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.