How to Save for Retirement Without Investing?

As per a retirement survey published by PGIM India MF in October 2020, around 49% of employees working in private companies get employer-sponsored retirement plans like EPF. This statistic shows that much of the population start to save early to build a sufficient retirement corpus.

Through proper financial strategy, individuals can achieve financial independence. Though the path will be more challenging than those getting EPFs, you can still figure out innovative ways to accomplish your goals. 

Consider reading to know how to save for retirement without investing.

To efficiently plan for your retirement savings, here are some tips:

• Those who do not intend to invest in stocks, bonds, mutual funds, PPFs and other financial products can still save substantial corpus for their retired life. All they have to do is open a bank savings account. However, this account should be dedicated solely to building wealth for post-retirement expenses and must remain untouched before you reach 60.
• Setting up monthly automatic deposits will reduce the pressure of contributing to this savings account. To initiate this, first, define an annual budget and break that down into monthly portions.
• While drawing the annual budget towards saving for retirement, consider the last tax filing date of the following year to be the end of one year, not December 31st.  
• If you receive extra income from bonuses, job promotions, or gifts, consider adding a portion to your savings account to ease the load for the rest of the year. The monthly contribution should increase as your income appreciates. Otherwise, it would not be possible to beat inflation.
• In this context, financial advisors recommend relying on well-proven investment products as they generate sufficient returns and do not corrode your wealth over the years, which is the case for savings accounts.

A savings account is a popular solution for most Indians when it comes to accumulating funds for retirement. It is because these accounts can be opened and maintained with a small balance, and they are not affected by market volatility. These couple of reasons make them an ideal long-term investment alternative. However, we suggest you go through the following points to ascertain why savings accounts may be ineffective at times.

Fluctuating Interest Rates

Interest rates offered by various banks are different. Also, it is not recommended for a consumer to prefer a bank over others simply because it provides higher interest. Most importantly, if you open a savings account that is contented with its then-interest rate, remember that it is bound to be revised soon after. Therefore the returns will not be constant and cannot overcome the high inflation rate.

Easy Access

Long-term savings get hampered if the available funds do not have a lock-in period. Moreover, as humans get easily tempted and commit to impulsive purchases, a savings account is not ideal for accumulating post-retirement resources due to high liquidity. 

Minimum Balance Requirement

Banks usually set a minimum account maintenance balance against a savings account holder’s portfolio throughout their business relationship with the bank. Failing to maintain this balance will incur penalties over time. 

You can follow these processes to take your retirement savings strategy to the next level:

• Besides opening a savings account, you may start investing in centrally backed schemes like NPS to pace the process of creating a desirable corpus. The National Pension Scheme provides an interest of 9-12%, much more significant than bank fixed deposits (5-7% tentative returns). However, both of these investment tools come with negligible risks.  
• Another good option for retirement planning is opening a PPF account. PPF accounts offer lower interest rates (7.1%) than NPS schemes but also have dedicated perks. For instance, under Section 80(C), the entire maturity amount of a PPF account holder after a 15 years lock-in period is tax-free, which is not the case for NPS. 
• NPS will be your ideal choice if you are looking for monthly income replacement, as 40% of the maturity amount gets annuitised once you reach 60 years. Moreover, 60% of the remaining sum can be withdrawn by the account holder as a lump sum, and 20% will be tax-exempt. 

Our brief message to you is there must be a perfect mix of risk-free savings sources and investment products to ensure the saved money retains its value as time passes. Therefore looking for ways on how to save for retirement without investing will not give you optimal investment alternatives. It will be best to perform market research and take a calculated risk to ensure a financially independent retired life.