An increase in average lifespan demands for a solid retirement planning. Most of us think that retirement planning is all about finances. However, it is more about managing your finances in a systematic manner to have enough for your retirement days. You must have a plan about how you want to spend your retirement. And that is the first step of retirement planning. Some of the major reasons for planning your retirement are that you cannot work forever, may help you during contingencies, and you will get a chance to build a saving corpus to boost your wealth creation.
Retirement planning requires a mix of economic and life planning. Personal planning determines your life during retirement. On the other hand, financial planning helps in budgeting income and expenses to support your personal plan.
Why should you Buy a Retirement and Pension Plan?
#1 Enjoy Stress-free Post-retirement Life
You can choose a retirement and pension plan as per your risk appetite and retirement goal. For example, you can use guaranteed savings plan like Guaranteed Income4Life from Canara HSBC Oriental Bank of Commerce Life Insurance, to ensure lifelong pension income.
On the other hand, if you aim to accumulate a large corpus till your retirement 20-30 years away, you can use ULIP like Invest4G. This plan allows you to invest in a dynamic portfolio of equity and fixed-income investments.
The best part is you can automate this portfolio completely so that you benefit from market performance even when not paying attention to it. ULIPs like Invest4G will help you accumulate a large tax-free corpus for your retirement.
#2 Reliable Regular Monthly Income
No matter how much money you have in your bank account, a regular income is an important financial input. It helps you maintain a consistent lifestyle and brings a level of certainty in life.
After retirement, as well, you need a reliable long-term income to enjoy a level of consistency in life, despite having a large corpus. A good pension plan will help you generate this regular income while keeping your remaining corpus safe.
Guaranteed Income4Life is a fine example of such a pension plan.
#3 Tax Benefits after Retirement
The normal monthly pension that you receive after your retirement is taxable as salary income. However, if you plan your retirement income properly, you can receive a large part of this income as tax-free.
Investments in most of the pension and retirement plans qualify for tax benefits. After retirement few of these investments like ULIPs or guaranteed savings plan can provide you with:
- Tax-exempt partial withdrawals, &
- Tax-free maturity value
#4 Cost Efficient
Starting your retirement investments early with correct retirement and pension plans can also save you a lot of money.
For instance, ULIP also offers a life cover for which a monthly premium is deducted from the accumulated corpus. However, as your corpus grows the amount of premium for life cover goes down.
So, if you start investing in a ULIP at an early age, you can grow your corpus much faster over time, as the life cover cost will also be lower.
#5 Healthy Returns on Investment
Early investment allows you to take more risk in your investment. And in turn, aim for a higher future value and growth. Time is your best friend when it comes to generate better returns on your investments.
For example, a long-term pension plan from a life insurer, and an NPS Tier-I account can automatically adjust your asset allocation to reduce risk over time. This helps you benefit from the market movements while avoiding negative impacts.
Therefore, proper retirement planning will provide significant returns in the long run. For getting good returns, you have to start saving at an early age. This practice helps in averaging out the impact of market volatility.
Retirement is one of the most important goals of your financial planning. Although you may not want to put your career hat down, you should have the door open when you do. Retirement and pension plans are investment cum saving plans to help you ensure financial security during your retired life. At the time of retirement or any other such life transition, where your financial needs shift dramatically, you need:
- A large lump sum amount
- A reliable source of regular income, preferably monthly
Considering the fact that after retirement, your financial investments are going to be your only source of income, building these two pillars is important. This is where your retirement and pension plans come into play.