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Do you know, what are the five stages of retirement? It consists of looking forward to the end of working years, the liberating feeling after retirement, disenchantment once retirement bucket-lists are complete, rediscovering your identity, and finally settling into a rewarding retired lifestyle.
But to reach the fulfilling final stage, you need to overcome the phases when you face a loss of purpose. However, if you have to compromise with your lifestyle to avoid outliving your retirement funds, getting out of the disenchantment phase can be challenging.
A sound financial plan starting from the pre-retirement phase can ensure financial freedom post-retirement. But you must avoid some common mistakes to prevent cash-crunches from interfering with a peaceful retired life.
1. Underestimating retirement-savings requirements
Knowing how much you need to maintain your current living standards after retirement can help you avoid cutting costs later. Take the following factors into consideration when you make the future cash flow projections and plan for retirement:
2. Not starting to plan early enough
The power of compounding attracts interest on the returns your principal earns, increasing your capital. Thus, by starting early, your money gets long enough to grow, helping you earn more profits.
3. Trading retirement funds for other life goals
Borrowing or partially withdrawing from your retirement account reduces investment growth. You can invest in separate financial instruments for your children’s college funds, home purchase, or other life goals. But you must ear-mark at least one investment plan for your retirement and let it accumulate uninterrupted to earn good profits.
4. Not preparing for unforeseen expenses
Financial emergencies can force you to cash out your retirement funds. Hence you must always keep a fund containing at least six months’ income aside for contingencies. It can help you tide over life’s uncertainties without denting your retirement savings.
5. Selecting the wrong investment options
Your investment plans must match your future financial goals, risk-taking capacity, and investment horizon.
Many investment options involve high brokerage fees, lowering your profits. If you are nearing retirement, you may not have the time to recover from market volatilities if you put your capital in equities. Also, for a financially secure retirement, rate of return from your pension plans must match your post-retirement monthly income needs.
Hence, you must understand the features of all retirement plans available before making a final commitment.
Your employer sets up these types of pension plans to help you save for retirement. Different types of employer retirement plans include:
In both EPF and NPS, your employer and you both have to contribute a defined percentage of your monthly salary. The average rate of return on EPF schemes is often conservative. In NPS, the returns are based on the performance of your chosen funds. Also, you have to purchase an annuity, or a monthly-income plan, with at least 40% of your NPS maturity amount#.
Even if you participate in a pension plan at work, it is advisable to opt for an individual retirement scheme as a back-up.
An annuity plan offers a lifelong income stream. It effectively shields you against any shortage of funds in your advanced age. Some annuity plans provide a return of purchase price, which can secure your dependents’ future financial goals and wellbeing in your absence.
Life insurance pension plans safeguard your loved ones against any financial shortfall if your pension stops due to an unfortunate event..
Also, with guaranteed1 returns from traditional policies, you can be sure of financial resources after you stop receiving pay-cheques. The market-linked products help you tap into the capital market’s high return potential, offering inflation-adjusted returns.
Hence, you should consider including such products in your retirement portfolio to avoid financial uncertainties during retirement.
TATA AIA offers a wide range of retirement solutions to secure your financial stability after retirement.
The different types of retirement plans that TATA AIA Life Insurance offers include:
Tata AIA Life Insurance Group Employee Benefit Plan (UIN:110L151V02)
Tata AIA Life Insurance Smart Annuity Plan (UIN:110N150V05)
Tata AIA Life Insurance Guaranteed Monthly Income Plan (UIN:110N147V02)
Compare different offerings and select a plan based on your budget and future financial goals. It will protect your old age from financial worries.
@Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry
Tata AIA Life Insurance Company Limited (IRDAI Regn. No.110 • CIN: U66010MH2000PLC128403). Registered & Corporate Office: 14th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400013. Trade logo displayed above belongs to Tata Sons Ltd and AIA Group Ltd. and is used by Tata AIA Life Insurance Company Ltd under a license. For any information including cancellation, claims and complaints, please contact our Insurance Advisor / Intermediary or visit Tata AIA Life’s nearest branch office or call 1-860-266-9966 (local charges apply) or write to us at firstname.lastname@example.org. Visit us at: www.tataaia.com.
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