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The Impact of Covid on Retirement Planning

There is no easy way to say this – most people who had been planning their retirement and creating a savings fund for their golden years were certainly affected during the pandemic. It is obvious that businesses shut down, and people lost their jobs during the lockdown. Hence, naturally, even those with an organised plan suffered at least some minor setbacks during this phase.
 

Those having a retirement plan during this time would have had to borrow money from their savings and emergency funds to keep the retirement planning steady. However, the impact of Covid on retirement planning may have been more for those who invested in market-linked instruments as the financial markets were affected. Read on to understand the probable effects the pandemic had on retirement plans.
 

The Impact on Retirement Savings and Investments
 

It is no news that many companies and enterprises went out of business due to Covid-19 and the subsequent lockdowns. The loss of jobs caused people to turn to their savings to sustain their livelihoods and take care of their families.
 

An important initiative some life insurance providers took during this phase was enabling policyholders to revive their lapsed policies within 5 years of the first unpaid premium’s due date.
 

But retirement planning is not a one-time effort for anyone. Even if you are planning to invest a lump sum amount buy an annuity, you will need to have accumulated a decent amount over the last many years that will help sustain your family and you after retirement.
 

Likewise, if you want to pay regular premiums for your retirement policy, you will have to invest in the plan regularly for 15-20 years before you can buy the annuity at the start of your retirement.
 

It is for this reason that the impact of Covid on retirement planning and savings may not have been great, with the exception of some market-linked instruments. Even before the pandemic, other local and global political and economic changes have affected market movements, which have caused people to plan their retirement, keeping in mind the various market and portfolio risks involved. Therefore, Covid cannot affect your savings and investments to a great extent if you have been investing regularly for your retirement over the last decade or longer.
 

Moreover, a lot of people planning their retirement always hedge their market-linked investments with other savings and investments that offer fixed and guaranteed1 returns since market-linked investments offer variable returns, depending on the market’s performance.
 

How to Plan your Retirement after Covid?
 

 

It is likely that a lot of people who may have been about to start their retirement planning may have lost their jobs during the pandemic. This can directly impact your retirement plans, savings, and investments since the loss of a job or your main source of income could have set you back by a couple of years. But now, with the job markets opening up and people developing new working habits or even their own home-grown ventures, starting a retirement plan anew will not be a hassle.
 

To start planning your retirement, you need to ascertain how much wealth needs to be accumulated for the future. For that, apart from starting the process a good 10-20 years before retirement, these are the other steps to take:
 

  • Create a Future Budget

    Once you stop earning a salary, it is important to set up a budget even though your retirement plan renders a regular income. Consider every little expense along with any major financial commitments so that you and your family are able to fulfil all post-retirement needs and goals. You can cut down on trivial and unnecessary expenses to save more. By creating a budget, you can choose a retirement plan that allows you to invest and accumulate the required funds.

  • Pay Off Loans

    If you have already taken a loan or need to take one during your working years, do so knowing that it needs to be paid off at the earliest. If you carry your debts until your retirement, it will only be an additional financial burden for you. Therefore, it is preferable that your time and settle all EMIs and other debts while you have a stable salary from your job. This can help you save for other retirement needs, such as a hobby or a small-scale business.

  • Go for Automatic Transfers

    When you start investing in a retirement plan, many things need to fall in place during your golden years. All your utility bills will still have to be paid, and most of the time, people get busy catching up with life in the first few years of retirement. To avoid missing these bill payments, you can set up an automatic transfer from your retirement account or bank account to these payments. Always have enough funds in your account throughout the month.

  • Create Emergency Savings

    Even if you have planned out all your post-retirement needs and are saving up for the same, consider having an additional fund which can be used for dire emergencies such as a healthcare risk. Even if you develop a mild health condition after retirement, these expenses will need to be handled, and this fund can help you do so.
     
Conclusion
 

The reason most people need to create a retirement plan is that most companies and businesses are moving away from fixed pension benefits and, at the most, will pay out EPF benefits or gratuity in the case of group insurance plans if needed. Therefore, now retirement planning is all about buying a retirement insurance plan that offers guaranteed1 and regular income along with life insurance coverage or opting for additional savings and investment instruments.


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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

When should I start planning my retirement?

Depending on your age, you start planning for your retirement at least 15-20 years before you retire. By giving your savings, investments, and retirement insurance plan a long time to grow, you will be able to save a desired financial corpus that will meet your every need during retirement.A longer investment period for retirement planning also helps you understand the impact of inflation on your future savings and funds so that you can prepare accordingly.

What if I only want to invest in market-linked instruments to plan my retirement?

If you are well-acquainted with market-linked instruments and market conditions, it can be possible for you to build your retirement plan entirely through market-linked investments. In such a scenario, a Unit Linked Plan can be a good investment plan for your retirement which will allow you to benefit from investment as well as offer life insurance coverage to your family.

Disclaimer

  • Insurance cover is available under the product.
  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry.
  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
  • Past performance is not indicative of future performance.
  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
  • Please make your own independent decision after consulting your financial or other professional advisor.