Strategies to Achieve Financial Independence in Your 40s

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The common goal in your 40s is to build a substantial corpus that helps you live comfortably in your golden years. As you transition from your 30s, you need to revisit your financial plan and revise a few strategies. Why? This is because the 40s bring you closer to retirement, and you may have additional responsibilities like a child’s education, marriage, etc., to fulfil. Therefore, it is essential to assess your financial plan and take steps that will help you meet all your obligations and secure your future. So, let’s begin.   

Settle outstanding debts

In this life stage, it is common to have debt. It could be in the form of a loan for a home, car, child’s education or dues on your credit card. And this is the right time to pay off outstanding payments to free up funds for savings. If you have multiple debts, you can either consolidate them into one or prioritise the one that affects your credit score significantly.  

Consider life and health insurance

To protect you and your family, it is necessary to have an insurance plan. The coverage must be adequate enough that it matches the current needs as well as safeguards against financial loss. You can consider a guaranteed savings plan as they offer cover and tax benefits. Here are the deductions you can claim:

For life insurance premiums, you can claim a deduction of about ₹1.5 lakhs p.a. under Section 80C of the Income Tax Act. On the other hand, for mediclaim/health insurance, you can claim ₹25,000.  

Save for your retirement

The earlier you start, the better. Some may have already started building their retirement corpus. But if you haven’t already, start now.  Some of the recommended schemes you can invest in are:

PPF (Public Provident Fund): It’s a safe investment option that offers tax benefits, too. If you have made contributions to your PPF account, you are eligible for tax deductions of about ₹1.5 lakhs under Section 80C of the Income Tax Act. Furthermore, the interest earned and maturity amount are tax-free, which is the cherry on top.
NPS (Nation Pension Scheme): This is a government-regulated plan that allows you to make contributions during your working years. Here, the contributions are deductible under Section 80C and Section 80CCD(1). Additionally, there is a deduction for investments up to ₹50,000 under Section 80CCD(1B), making the total potential tax deduction up to ₹2 lakh.
EPF (Employee Provident Fund): If you are a salaried employee, then make the most of this scheme. It is a safer investment avenue with a reasonable interest rate. The contributions made under this account are tax-deductible under Section 80C. Both the interest earned and the withdrawal after retirement are further tax-exempt.

Shift towards safer investments

In your 40s, you may take a more conservative in your approach to making investments. The change in your risk appetite should also be reflected in your financial plan, too. For this, you can make more stable investments. Diversify your portfolio in a way that minimises risks and maximises savings. You can consider low-cost index funds, ETFs, or well-performing mutual funds. SIP (Systematic Investment Plan) can also be a great addition. It is great for building wealth gradually. You can start with a manageable amount and increase the sum over time.

Prepare for emergency

Unexpected events come without a warning, and it’s important to take such situations into consideration. Whether it’s job loss, health issues or some other emergency, you should have an adequate sum to handle them in an effective way. Besides savings and investments, set aside money for contingencies. You can open a zero balance savings account online where you can make regular deposits. The main goal should be to create an emergency fund that can take care of your expenses for at least 4 to 5 months.

Start preparing now with Kotak811

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.