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You hope for retirement to be one of the most interesting phases in your life. It is because the mental stress associated with your career, family and liabilities reach their closure and set you on a peaceful life exploration. However, retirement planning is a difficult process considering the different factors such as income, post-retirement expenses, long-term financial commitments etc.
However, it will be the best part of your life only if planned well in advance, considering all the essential factors. Here are a few concepts that you need to keep in mind while making a retirement plan.
A retirement corpus is directly proportional to the savings time horizon: Savings and investment are the right keys to retirement planning. However, it would help if you planned it based on your income and lifestyle.
For example, you can make a detailed financial plan with a defined budget at the start of your career. It must include the different sources of income, current expenses and the short term and long-term plans. It is best to make the budget and follow it religiously for maximum benefits.
While considering the current expenses ensure to plan them wisely considering the requirements. Exclude or postpone an expense if it is not important. Allocate a specific fund for emergencies and a major proportion for savings and pension plans.
Also, the earlier you plan and start saving, the better are the returns in the longer term. You can choose between the immediate annuity plan and the deferred option based on your requirement and the annuity rates.
Inflation: Inflation is a major concept in retirement planning. The cost of a long-term commitment, such as your child’s education, marriage etc., will be on the higher end compared to the same expenses now. Though your income is also expected to increase over time, it may not be sufficient to cover the expenses fully because of the inflation rate.
With the increase in the standard of your life, the expenses will also keep increasing. And to continue with the same standard of living, you have to ensure purchasing pension plans that account for inflation. Failing to do so can deplete your corpus accumulated very early in your retirement phase.
Choose retirement plans that grow apparently with an affordable risk. Diversify the portfolio with an annuity scheme to ensure safe and secure higher returns.
Increase savings proportionally to your income: Your retirement plan will be based on your current income and expenditure. However, both of them are expected to change and increase with time. And, if you are extremely productive at work, your income will keep increasing. Therefore, your retirement corpus should also grow in accordance with your income to ensure a better standard of living.
For example, if you get an increment of 10 per cent in a particular year, you should increase the investment also by 10 per cent so that the retirement corpus accumulated will last for another thirty to 40 years.
Managing expenses post-retirement: You might make a financial plan considering the present living standards. However, there are certain expenses that are bound to increase during your retirement. For example, a health emergency can occur anytime at old age. Therefore, your financial plan should account for such emergencies or other treatment-related expenses based on the family's medical history.
To consider such expenditures, you can reduce other unnecessary expenses to contain the budget plan. It is a very important concept because many people deplete their retirement corpus for unprecedented medical expenses. There are pension plans to defer the payout for a certain number of years. It will be a good way to reserve the money for such unexpected events in life.
There are different types of retirement solutions that you can consider based on your income and financial needs.
Employer-based pension plans: Many employers consider the social security of their employees important and devise pension plans in coordination to achieve a retirement corpus for their employees. It will be based on the contribution of the employees and the number of years of service.
Insurance-based pension plans: Insurers consider retirement planning important in every individual’s life and also for the financial security of the family. There is a single premium pension plan where you can park your retirement corpus and get maximum protection based on flexible payout options such as monthly, quarterly, half-yearly or annually.
The Tata AIA pension plans provide exclusive benefits that can provide either immediate or deferred annuity plan options with life cover. The terms and conditions are well detailed online and can be further addressed on-call by the customer service team for a better understanding.
Government-backed savings schemes: The government has introduced different types of schemes that help people to save a small fraction of the amount regularly or park their retirement fund for regular payouts.
As the returns are assured by the government, it is a fair option to consider based on your preferences. Some of the prominent schemes are National Pension Scheme, National Savings Certificate, Government bonds etc.
Retirement planning is the best way to secure your financial future. It should be a part of your financial plan in your present life to ensure a peaceful retirement. There are four main concepts that require special consideration to strategize your financials. Accumulating retirement corpus should start early in your life, grow with your income, account for inflation and be based on exclusive retirement expenses predominantly. There are employer-based, government-backed and insurance-based pension plans. If you are looking for an immediate or deferred pension plan with life cover, an insurance-based pension plan is certainly ideal!
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