What happens to your pension plans after your death?

You wanted to get into the best IT Conglomerate at 22, bought your first set of wheels at 25, and plan to get married to your childhood sweetheart very soon. You both want to build your dream vacation house at retirement away from the rush of the metropolis and bring up two lovely kids who will get the best possible education and lifestyle. Starting up a venture in your late 40’s and travelling around the world could be some other tasks on your Wishlist.

And in the end, who does not want to spend the sunset years comfortably without having to worry-at least about money?

A close observation of the above aspirational lifestyle points to a clear trend in increasing expenses as you traverse through different stages of life. Despite having the perfect blueprint of life, there are bound to be temporary setbacks that may pull you down. Planning for such unexpected contingencies is also important so that you bounce back and quickly start over again.

At 22, you were content spending on movies and food but post your wedding, you went on a honeymoon and annual vacations. Paying for a new house while spending on children’s school fees was added to the expense list.

Whichever stage you may currently be in, you have surely noticed that some expenses are closely linked to the stage of life. As you rose in your career, your salary kept growing to match your lifestyle expenses and to meet your professional and personal aspirations. But have you thought about the second innings?

How does your Pension Plan work After Death?

You will continue to get annuities till the end of your life after which the purchased/invested amount would be given to your nominee. In case you have opted for a Joint Life Annuity, your spouse would continue receiving annuity even after you until his/her demise. The purchased/invested amount would then be handed over to the nominee.

Retirement is a phase that should be enjoyed, not endured. Early planning, regular investments, and appropriate choice of pension plans can help you live your second innings with dignity, fun, and excitement.

Stages of Wealth or Retirement Goal

Building a corpus fund for your second innings cannot happen overnight. The earlier you start, the better it is. You will reap the full benefits of Power of Compounding if you start well before you need it. Wealth creation requires patience, focus, and consistency over the long term.

A typical Wealth Management process moves in this order:

Wealth Creation – Building the Retirement Corpus

You may have observed that young entrepreneurs have a higher risk appetite primarily because of lower financial commitments and smaller opportunity costs of quitting jobs and running ventures, full-time. The same applies to savings and investments. When you are young, you must invest a sizeable chunk of your hard-earned money in high-growth equity funds that have a long-term horizon.

Wealth creation requires risk-based investment approach. When you are young, you have more time at hand, and you can invest aggressively. But as you age, you need to reduce your portfolio risk.

ULIP plans are good investment options for wealth creation because you can:

• Invest in high-risk high-reward equity funds along with debt funds
• Change your portfolio mix on the way anytime
• Preserve your corpus from market volatility near maturity

For example, the Invest 4G ULIP plan from Canara HSBC Life Insurance systematically switches the equity fund to a debt fund in the last 4 years of the policy. The safety switch gets activated so that your corpus growth in equity remains safe from the market downtrends.

Learn how to check if your retirement corpus is enough.

Wealth Preservation – Calm Before the Retirement

This is a consolidation phase wherein you put together all the wealth that you aggressively accumulated during the Wealth Creation phase. In this phase, you must avoid too much risk and look at the safekeeping of your hard-earned assets. The equity allocation must gradually dwindle and you must start moving your money to safer instruments such as bonds, fixed deposits, debentures, G-Secs, etc.

The margin of error in decision-making must rapidly decrease in this stage because you will not have much time to bounce back. The investment plans you can focus on in this stage are mostly the safe investment plans:

1. Guaranteed Savings Plan: Maturity value is guaranteed but also tax-free. Thus, best for preserving your capital against inflation and taxes.

2. Guaranteed Income4Life: As the name suggests, this plan can offer you and your spouse regular income until the last surviving spouse reaches 99 years of age.

3. Pension4Life: Invest a large corpus and defer the income until you need it. The corpus continues to grow in the meantime. Also provides the income until natural demise.

Wealth Distribution – Retirement Pension Plan

In this phase, income from salaries would typically stop or taper down due to retirement or the inability to work beyond a certain age. The only sources of income, at this stage, would be the assets accumulated during the earning years. If you plan your investments well during the accumulation and preservation phases, you will have a comfortable income-generating corpus fund at this phase.

Life insurance retirement plans give a dual benefit of providing life cover as well as a predictable stream of income post-retirement. These pension plans are some of the safest long-term investment plans that give you two (2) options:

1. Immediate Annuity: The pension starts as soon as you invest a lump sum amount

2. Deferred Annuity: Invest gradually and start a regular stream of income a few years later

The regular income stream that you receive post-retirement is called the Annuity. The Pension4Life plan of Canara HSBC Life Insurance offers both annuity options.

If you have recently retired and would like to invest a large corpus to earn regular income streams, the immediate annuity option suits you well. If you have a few years left to pull down curtains on your full-time work, opt for a deferred annuity because you can invest over the years to build a corpus.