How Can You Smartly Handle Your Retirement Investment?
“You do not eat the fruit when you sow the seed.” A lot is conveyed in this tiny quote. And it is particularly relevant when talking of retirement planning.
As we know, a person’s active income, through business or salary, stops or significantly reduces when they retire. However, leading a comfortable lifestyle entails significant expenses. Therefore, in the absence of a steady cash inflow, the lack of a good retirement plan sustaining such a lifestyle can be rather challenging and be a significant drain on one's hard-earned life savings.
So, how can one avoid this uncomfortable situation, and what seeds can be sown early on in life to lead a comfortable and relaxed life after retirement? Read on to understand more.
How Does Retirement Investment Work?
Retirement investment or retirement planning is similar to what we call “make hay when the sun shines.” It means one must tuck away a portion of their income during their working life to enjoy a steady, consistent cash inflow when they retire!
However, retirement plans can also be where the insured pays a single premium contribution and enjoys annuity benefits.
How Much Will I Need Post-Retirement?
Planning the annual payout is perhaps the most critical function of retirement planning. To devise a monthly income plan, one must calculate their recurring monthly/ yearly expenses in current times and make a few reasonable assumptions regarding inflation, lifestyle expectations, and primary life goals, like children’s education, marriage, purchase of property, etc. After that, one can use the Tata AIA Life Insurance Company Ltd’s retirement calculator to arrive at the contribution amount to meet the required amount.
Some New-Age Solutions to Retirement Planning
There are many ways in which one can handle retirement money. With the advent of the private sector in insurance, several customer-focused, need-based products have emerged. One such plan being the guaranteed1 income plan. This plan is a very low-risk plan, which assures a fixed amount as a payout to the insured. The returns of this plan are not linked to market performance. Hence, they are spared from equity or interest-rate volatility, making it an ideal, stress-free retirement solution for risk-averse investors!
Some Advantages of Retirement Solutions
Assured income: These plans provide a steady source of cash inflow to retired persons, ensuring that their needs are met with ease and they can spend their silver days pursuing hobbies and passions.
Death benefit: Being insurance-linked savings products, many retirement solutions encompass a death benefit if the insured has an untimely and unfortunate demise. This offers good financial security to the kin of the insured, especially when the insured is the only breadwinner in the family.
Tax* benefit: As per Section 80C of the Income Tax Act, contributions towards life insurance plans are exempt from tax, to the extent of ₹ 1.5 lakh. This offers a significant tax benefit to anyone who opts for a retirement plan with a life insurance company!
Investing After Retirement
Typically, post-retirement investment should be in safe assets, like gold and fixed-income, and should significantly reduce exposure to risk assets like equity. As a rule of thumb, one's equity exposure should be 100 minus your age. So, a 20-year old's exposure of net-worth to equity should be 80%, while an 80-year old's exposure of net-worth to equity should be 20%.
However, this is not cast in stone and should be viewed in conjunction with one's risk-taking ability. It can be used as a broad measure to understand the importance of allocating capital to safe assets as one's age increases.
Another thing one must take into cognizance is liquidity. People make a common mistake to park large amounts of their savings in illiquid assets like real estate and property. This means that they fall short of ready cash in times of emergency. Therefore, maintaining an emergency fund, such as a liquid fund or simply in the bank, is also highly advisable.
How Do I Ensure a Steady Flow of Income for My Family After My Demise?
In this too, pension products can come in handy. Most pension products come with the option to include one's spouse/survivor in the payout, which means that the survivors continue to receive the financial benefit of the plan even after the demise of the insured.
Some Handy Tips and Tricks
1) The earlier the better: The earlier one starts planning for retirement, the more extended contribution period they can opt for, which means they can enjoy a larger payout on retirement
2) Not an isolated product: Pension plans cannot be viewed in isolation but rather in the larger context of holistic financial planning. Retirement is only one aspect and must be carefully woven into an individual's financial plan.
3) Avoid being penny wise, pound foolish: While choosing ANY insurance product, one needs to look at several aspects such as features, benefits, limitations, and nuances revolving around each product in addition to the overall charges, and must carefully analyze these on a case-by-case basis before making a purchase decision!
4) Stick to quality: Being guaranteed1 income plans, the one risk that may be relevant to the investors is the survival of the pension provider. Hence, it is best to do a thorough background check on the company's pedigree before entering into any arrangement.
An Exciting Option When Planning for Retirement
Do explore TATA AIA Life Insurance Company Ltd's Guaranteed Monthly Income plan (UIN - 110N147V02),. It is highly customizable to best suit your post-retirement needs.
Retirement planning is one of the essential pillars of a robust financial plan as it ensures a steady income when salary/business income stops. It ensures that one remains financially independent even after they stop earning. It also offers the dual benefit of acting as a life insurance product. Hence, it is critical that one plans for their retirement well in advance and allocate wisely to reap the maximum benefit in their silver days.
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