Never expect either the government or your employer to provide for your retirement. You are responsible for your financially comfortable retirement. No one else is. There is a wrong notion that planning for retirement should start when a person approaches retirement. Nothing can be farther from the truth. Retirement planning must start as soon as a person starts earning. The best “private” retirement plan would be a sustained systematic investment into well diversified equity linked savings scheme (ELSS) mutual funds or index funds. So long as interest on the Public Provident Fund (PPF) remains tax-free, this would also be an excellent retirement avenue for the conservative investor. Employees who are eligible for Employees’ Provident Fund (EPF), should make the maximum possible contributions to the EPF.
From the financial year 2005-06 onwards, Section 80C of the Income-Tax Act, 1961, provides an excellent opportunity to build a tax-advantaged retirement fund of up to Rs 1 lakh per annum, using among other things, PPF and ELSS. While the exemption under Section 80C may be a sweetener, it should be borne in mind that a retirement fund is of vital importance in its own right, whether or not there is a tax benefit attached to it.
Just as an emergency fund must be utilized only in an emergency, withdrawals from a retirement fund must be contemplated only upon retirement. The solitary exception to this rule is if the family or any of its members is threatened with a life-and-death situation, and emergency funds and insurance have already been exhausted.