The most careful plans and preparation for retirement can fall apart due to any number of post retirement risks: an unexpected death, a lengthy illness, a stock market crash, or a pension plan that goes bankrupt. In addition, it is not unusual for people to live more than 30 years in retirement, due to increased incentives to quit early and rising life expectancy, which in itself presents a major risk that retirees will outlive their savings.
The reality in India is that most people don’t think and plan about long-term financial needs and are not conscious about the importance of savings and investment, but the short-term motive of saving tax outgo make them invest in tax-saving instruments.
Even while making tax-saving investments, very few people take into consideration suitability of the particular product in meeting their financial goals and invest just to avail deductions u/s 80C of the Income Tax Act to reduce the amount of tax deducted at source (TDS).
However, even if a person avails the full benefits of 80C just to save tax and invests Rs 1.5 lakh at the beginning of every year, he/she would end up accumulating a corpus of over Rs 1 crore (about Rs 1,25,70,252) in 30 years even with low cumulative interest rate of 6 per cent per annum in products like endowment insurance plan, which most people in India do to save tax.
Assuming a consistent interest rate of 8 per cent in the Public Provident Fund, a person may accumulate about Rs 1,83,51,880 by investing Rs 1.5 lakh at the beginning of every year in PPF for 30 years.
On the other hand, by investing Rs 12,500 per month through monthly systematic investment plan (SIP) in Equity Linked Savings Scheme (ELSS), a person may end up accumulating Rs 3,85,12,165 in 30 years assuming a consistent CAGR (compound annual growth rate) of 12 per cent.
So, even without proper planning, one may accumulate a reasonable corpus by religiously investing in tax-saving instruments.
However, with the entire tax-saving investment options scrapped under the new income tax regime, unless people take initiatives to plan and invest to meet their financial goals, which is very unlikely for most Indians, not only they have to spend a miserable post-retirement life, but most of their other financial goals, like child education, marriage, buying cars, home etc would also become tough to realise.
If they borrow to meet the financial goals, their sunset days would become even darker.
So, if you want to move to new income tax regime, make sure that you do a proper financial planning, so that you may identify your various financial goals, determine the amount of money needed to meet each financial goals by taking into consideration time left and rate of inflation and then choose appropriate investment products for each financial goals that would help you realise the goals by making investments as per your financial resources.
In case you are not comfortable to do all these, do take help of a financial advisor, who would guide you through your investment journey, so that you may reach your goals by taking minimum risks.
Remember, if you fail to plan, it will be just a plan to fail under the new income tax regime.
