The aim of every investment must be to earn enough money to ensure a secure financial future. This includes planning for retirement too, which must be done early in life. While there may be many ways of planning your retirement like putting money in traditional plans and pension schemes, one way could be allocating money regularly to an equity-linked savings scheme (ELSS) fund for the next couple of decades. This way, you not only save on taxes but also build up a corpus that will pay for your needs in the golden years of your life. However, ELSS is often perceived as a three-year investment scheme by many, which explains why many do not include it in their investment portfolios while planning their retirement.
Also, the tendency to rely on risk-free investments such as fixed deposits, public provident funds (PPFs) and traditional life insurance policies leads to most people ignoring high-return investments like ELSS.
Following the 30-30 rule for retirement planning
The 30-30 rule is a general rule of thumb in retirement planning. According to the 30 - 30 rule, you have 30 years of working life to earn, save, and invest enough to cover 30 years of retirement.
Let us understand this with the help of an example. Assume that you are 30 years old and have 30 more years to plan your retirement. The following table highlights how much corpus different investment options will give you.
Monthly Investment (in Rs) | Investment Tenure (in years) | Type of Investment | Rate of Return (in %) | Investment Value (in Rs) | The total value of the corpus (in Rs) |
| 10,000 | 30 | PPF | 7.1 | 36,00,000 | 1,25,16,805 |
| 10,000 | 30 | EPF | 8.1 | 36,00,000 | 1,53,12,324 |
| 10,000 | 30 | Traditional life insurance policy | 10 | 36,00,000 | 2,27,93,253 |
| 10,000 | 30 | Quant Tax Plan | 22.66 | 36,00,000 | 45,32,46,077 |
| Note that PPF investment is limited to 15 years, thus, requiring you to renew your PPF investment post the completion of the first 15-year tranche. | |||||
One of the primary goals of retirement planning is to maintain a specific lifestyle. The impact of inflation erodes the value of corpus and hence, there is a need to invest in options that yield inflation-beating returns. And then there is the tax that must be paid, which means that your earnings are subject to the dual impact of both inflation and taxes. This explains why one should consider ELSS while planning for long-term financial goals like retirement.
