Entering the retirement phase and reaping its various benefits is something that everyone looks forward to experiencing. However, without adequate savings or a strong retirement corpus, enjoying your golden years can be a tad bit hard. Financial preparedness and a thorough understanding of one's requirements are crucial aspects to evaluate during retirement. Here's a quick guide to planning your retirement, ensuring you avoid any financial instabilities during your 'second innings'.
Financial planning for retirement can start at any time. However, it is most effective when it is initiated at an early life stage. By incorporating a retirement plan early into your financial portfolio, you are ensuring abundant returns to enjoy your later years.
When you start planning during your working years, you are creating a ‘fund’ that grows through the means of regular contributions.
There are two ways in which you can contribute towards the fund:
Contributions towards your retirement can be built through schemes such as the Provident Fund or employee pension scheme or NPS (if mandatory) deduction. These can be availed through formal work channels between employers and employees.
Voluntary contributions towards your retirement fund are those where you independently deposit a percentage of your monthly income such as NPS or pension policy by life insurers. This ensures you build a corpus that is accumulated over the years that will provide a comfortable retirement.
Approaching retirement planning
Retirement planning works best when it starts at a young age. Over time the investment will accumulate and open the doors for a range of financial products to invest for benefits.
You can start by opting for financial advisers/experts who can help with managing and advising on creating a retirement plan. Alternatively, a retirement calculator can be a good option. A retirement planning calculator is a handy online tool that estimates how much money one may need after retiring. The calculation is based on the current and retirement age, current income, expenses, inflation rate, expected return on investment, and other pertinent parameters. This planning exercise can also be done in consultation with one’s trusted financial adviser.
Using life insurance plans as a tool for retirement planning
Life insurance long-term saving plans allow you to save smaller amounts at regular intervals in a disciplined, affordable, and secure way to meet unexpected expenses and provide financial security post-retirement. Along with offering flexible investment tenure, life insurance also offers death benefits and tax benefits.
Factor key parameters when purchasing a retirement plan
Account for investments and asset class – It is important to choose a retirement plan based on your risk profile – one that encompasses potential liabilities including health, financial etc. If you are wary of market volatility, investing in stocks might not be a good option. For customers who have long-term views, it is advised to go for a debt exposure
Plan tenure – Longer tenures are advised when thinking about retirement planning. This allows room for more flexibility, keeping in mind unforeseen circumstances
Income creation for self and spouse – While planning, it is best to opt for retirement plans that ensure guaranteed monthly income continues to be paid to the spouse even if you are not around.
Option to return original investment – Opt for a retirement plan that ensures the original investment is paid back to the legal heirs after your and your spouse’s demise. In that way, you can enjoy the income benefits during the living years while also ensuring that a legacy is available for your family.
At the core of retirement is comfort. But to achieve that, one must ensure that planning is done well. This would ease navigating financial challenges and create lifetime financial security.
Image: Aalok Bhan
Aalok Bhan is director and chief marketing officer at Max Life Insurance and is a doyen with longstanding experience in his domain. He oversees operations synergising the company’s product, branding and corporate communication strategies advancing leadership towards strengthening customer-oriented product design strategies, brand positioning, building a sizeable protection business as well as managing all corporate and internal communications.
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