Retirement is inevitable. How you live it is up to you. In this day and age, retirement is about rediscovering life by doing all the things your responsibilities towards your family discouraged you from doing. It is about rediscovering independence, as opposed to dependence on children. In fact, seniors now look forward to their retirement as a phase to travel, take up long lost or new hobbies, and indulge in new experiences.
The flip side is that retirement is a phase where you may not earn any income. It also may be accompanied by higher medical costs. Therefore, you will depend upon your savings and returns on all investments. This should make it quite clear why retirement planning is important.
Retirement planning is an act of financial responsibility that you start when you are younger, so you have a better chance of living your post-work phase to the fullest. There are several types of pension plans, including government-backed schemes, annuity options, and other investment plans, that can help you create a solid foundation for your superannuation. While not each type of pension plan, or retirement plan, is suitable for everyone, it is quite likely that you will find an option suitable to your requirements among the options available today.
What is a Retirement Plan?
Retirement planning is an act of building your financial portfolio in a manner allowing you to have a sufficient corpus in the last phase of life, whether it comes in the form of a lump sum earning from your investment, payouts from your annuity plans, or pension from schemes that you invested in when you were in the early days of your career.
This might make it clear that retirement is not to be left to chance. As early as possible in your working life, you ought to start building a solid financial fortress that will keep you safe throughout your retirement. This is much easily achieved by investing in the right retirement plans, instead of relying on your savings alone.
Retirement plans are plans designed to provide you with what you need, in terms of financial goals, when you have retired. For example, contributing to the Employee Provident Fund (EPF) will allow you to have a dedicated corpus you can withdraw only upon retirement. On the other hand, an annuity plan allows you to invest as you like and get periodical payouts alongside a life insurance cover that will take care of your responsibilities after you are gone.
There are multiple types of pension plans that can suit your needs. However, before selecting a pension plan, you may want to take a moment to understand your requirements so you may choose the right option. The type of pension plan you invest in has to be suitable for you, instead of only being the popular option. Some of the common choices are EPF, annuity, and NPS.
Various articles on retirement planning can leave you feeling overwhelmed. The jargon, the numbers, all sound so complex. Here is a simplified version that should help you make better decisions. Yet, there are some rules that apply to all when it comes to the best ways to plan for your retirement.
1) How much to save:
The first step when it comes to retirement planning is to know how much to save for one of the most important phases of life. If you are overwhelmed by this idea, you may break it down into steps. Start by listing your goals for retirement. How will your lifestyle be? Would you scale it down? Do you want to travel the world? Or stay at home enjoying the camaraderie of the community you have built throughout the years? Would you have to support your kids or spouse?
After you have answered these questions, figure out how much you will require to save for these goals. You can do so by understanding the present-day cost of these expenses, including healthcare and living costs, and then factoring in what you would need for fulfilling your goals. An online retirement calculator can help you get these estimates easily. It can help you understand the bigger picture by putting together the details.
2) Consider multiple factors:
Here are the important ones:
- Never forget to factor inflation. Even the best laid plans will yield poor returns if the effects of inflation are not built in. Therefore, your retirement plans in India must account for future price projections, especially medical inflation.
- Your retirement phase may bring health concerns. Invest in good health insurance plans that safeguard your finances, in case of any health-related emergency.
- Consider all tax benefits as well as tax deductions on returns on investments.
- Assess your current and projected income and expenditure levels. Then keeping your financial goal in mind, work towards increased savings and rationalizing expenses.
- Understand the risk landscape of all your investments, evaluate your risk appetite depending upon life stage and plan your asset portfolio.
3) Start saving early:
When it comes to retirement planning, the earlier you start, the more you are likely to save, provided you choose the right investment avenues. Using a retirement calculator can tell you that a combination of investment and retirement plans will yield better results than simply ‘saving’ for retirement. When you just start working, your income is low and so are your responsibilities. You will be able to save a higher percentage of your income in your early years. It makes good sense to allocate a fixed percentage of your income towards your retirement corpus. Remember to increase the amount of savings in proportion to the increase in income. Try and invest all surplus income such as salary increments, commissions, and bonuses in order to reap benefits later. Also, try and reduce all debts well before retirement.
4) Long-term care insurance:
This is highly recommended as these plans offer funding for extended periods of time. They cover expenses towards nursing, assisted living or day care (for adults), and at-home care for the elderly. Given the increase in life expectancy rates and spiralling costs of living, investing in long term care insurance is beneficial.
5) Choose the right plan:
Finally, now that we have looked at how to do retirement planning, we must evaluate the different options of retirement plans. You could look at either retirement plans / guaranteed regular income plans, or market-linked plans.
Retirement Plans
Annuity plans or pension plans are great options when choosing tools for the retirement planning exercise. These plans are typically worked out in a manner that allows them to accumulate funds and then ensure regular payouts during the retirement years. The objective is stability and therefore pension plans generally invest the accumulated corpus in conservative instruments such as government bonds or securities. IndiaFirst Life Guaranteed Pension Plan is a great option as it offers a guaranteed payout.
Whole Life Income Plans
Saving for a rainy day is always a good move. Using an insurance plan as a tool to ensure savings for retirement is a very smart move. These plans allow you to accumulate a corpus over an extended time period. They ensure you are disciplined and organized about putting away some money on a regular basis. This corpus is then returned to you in the form of regular payouts, and you get life coverage as well. All in all, it’s a great package. There are some interesting insurance plans options when you want to look at long term security.
How to plan your retirement is really up to you. Every individual is different, and everyone will have different ideas about what they would like to do during their retirement phase. Whatever it is, retirement planning is an important activity which needs to be carefully planned and efficiently executed.
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