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5 Myths About Retirement Planning

dateKnowledge Centre Team dateMay 06, 2021 views287 Views
5 Myths About Retirement Planning

Retirement means different things to different people. Although governments and private sector organizations define retirement ages, the age of retirement is blurring in this modern world of gigs. Expertise and demand for one’s expertise define the age of retirement.

Therefore, if you have skill sets that are in demand and you wish to work (provided your health permits), you can do so. On the other hand, even if you are hale and hearty, you can choose not to work. In that case, you may need a retirement plan. But despite so much progress and availability of opportunities, it is not practically possible for most people to work beyond a certain age. With advancements in healthcare, the average lifespan has also increased.

As per a report titled, The Future of Retirement, the Cost of Ageing, by HSBC, 20% of the people do not foresee any challenges post-retirement despite not having accumulated any significant savings. A staggering 68% expect their children to take care of their needs in old age.

With increasing nuclear families, migration to urban and global locations, most senior citizens find themselves stranded alone, left to fend for themselves in their hometowns.

The report also states that almost 56% of the working population lives paycheque to paycheque, putting themselves at grave risk for the future.

As a result, most senior citizens end up enduring retirement rather than enjoying it. This can be avoided if people do not get carried away with some common hearsay about retirement.

#1 Too Young to Start Saving for Retirement

It is never too early to start planning for retirement. If you start early, your wealth will grow much faster due to the power of compounding. Moreover, you can start with small investments each year and still build a sizeable corpus by the time you retire. A large corpus helps you live off the returns rather than eat into the core principle.

#2 Too Late to Save For Retirement

Better late than never!

Even if you realized the need to save at the age of 45, a systematic plan could help you build a good retirement kitty. Look for the best pension plan in India that initially allocates a large portion of your money into equity. In the years closer to retirement, the fund will move most of your money to safer debt instruments.

Life insurance plans give a dual benefit of providing life cover as well as a predictable stream of income post-retirement. The best retirement pension plans in India are some of the safest long-term plans and give you the following two options:

A. Immediate Annuity: Where your pension starts immediately after you invest your money

B. Deferred Annuity: You can invest now and start your regular income a few years later

Pension4Life Plan of Canara HSBC Oriental Bank of Commerce Life Insurance offers both annuity options. In an Immediate Annuity, you must invest a large sum of money immediately. In the Deferred Annuity option, you can invest over a few years to build a corpus, which will turn into regular income after the vesting period.

#3 Don’t Have Enough to Invest

If you have just started working, you may feel that your salary is just about sufficient to meet your expenses. It is tempting to procrastinate financial planning for retirement savings, but this can be risky. Even small savings started early grows into a large fund over the years. You can keep increasing the proportion saved as you progress through your career.

You can explore guaranteed return plans that look at protecting life, generating an income stream, giving away loyalty additions, and financially supporting the family till the end of the policy period. For example, the Guaranteed Income4Life plan of Canara HSBC Oriental Bank of Commerce Life Insurance gives out a regular stream of income after the premium payment term is completed.

#4 Your Inheritance is Enough to Cover the Expenses

Inheritance may or may not suffice depending on the type and size of the asset. Liquid assets are generally easier to utilize when needed. If you inherit real estate such as land, you may have to either sell it off or reverse mortgage it to avail a cash flow. Both cases depend on the location and demand for such a place. A house may generate some rent provided it is in a place where there is a demand for rented houses. While selling off property, any existing loans will also have to be cleared. The market value of all such assets must be ascertained first.

#5 Post Retirement, your Expenses will Decrease Significantly

The cost-of-living increases year on year. If your money does not grow faster than the rate of inflation, you will not be able to maintain even the same lifestyle in the future even with the current level of expenses. Healthcare becomes an important factor in old age and the costs associated must be factored in. People also require more helping hands in old age which will cost money.

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Frequently Asked Questions (FAQs) for Retirement and Pension Plans

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the Premium calculator available in the ‘Tools and Calculator’ section of www.canarahsbclife.com.

The Invest 4G plan offers three benefit options to choose from. If you have opted for the Life Option or Whole Life Option, the insurer will pay the nominee(s) death benefit if the policyholder meets with an unfortunate incident. However, in the Life Option with Premium Funding, the policy continues even after the death of the policyholder. The company pays the remaining premiums until the policy matures.

Life is unpredictable and so it is important to prepare for all eventualities. If you regularly save a substantial amount of your income for retirement, the corpus may expand to a comfortable level before retirement. In case you become disabled and are unable to contribute to the retirement plans, most plans will continue to multiply your savings. The amount already accumulated will continue to grow and besides the existing plans you can also choose to invest in pension schemes specifically designed for people with disability.

Investment in ULIPs like Invest 4G plan qualifies for tax deductions under section 80C of the income tax law. The maturity benefits of ULIPs are also tax-exempt under section 10 (10D) of the Income Tax Act, 1961. However, if the premium paid during the policy term is more than 10% of the sum assured, the maturity proceeds will be taxable.

The concept of early retirement is catching up fast in India, but there are no specified ages for early retirement. While in some western countries the age between 35 and 45 is considered favourable for early retirement, in India the ideal age is 45-50 years. With the right planning and investments, it is not very difficult to retire early.

At the age of 35-40, people generally have several responsibilities such as children’s education and various EMIs. It is difficult to spare a substantial amount of income for retirement. Depending upon the needs of the household and the lifestyle, one should aim to save around 40-50% of his/her income. Around 10% of the income should exclusively be allocated for retirement planning. Here are some tips to choose the best retirement plan.

  • Focus on your needs: It is easier to formulate a strategy when the goal is clear. Make an estimate of the amount required to sustain your life. Take inflation into account and zero in on the targeted corpus.
  • Research thoroughly: Conduct thorough research before investing in any financial product. Read the term and conditions properly and try to understand how an investment product fits your needs.
  • Consider different products: The market is awash with all kinds of investment products. Do not follow conventional advice as the need of every person is different. Take into consideration all the suitable products, conduct an objective analysis and then invest.

Owning a house is a cherished dream for many. There are several ways to save for a new house, but in urgent cases, people may be tempted to withdraw from their retirement fund. There are various financial products for retirement planning, and all have different withdrawal rules. In the case of the National Pension Scheme, partial withdrawals for special purposes like buying a house are allowed only thrice during the policy tenure. However, to avail the withdrawal facility, you should be an NPS investor for at least 10 years and you are permitted to withdraw only 25% of your contribution. If you have a PPF account, you can withdraw 50% of the accumulated amount, but only after staying invested for at least 6 years. The Invest 4G plan also allows partial withdrawals after five years of investment.

The quantum of monthly savings depends on the specific needs of the buyer. Financial advisors, however, suggest people save around 15% of the monthly income for retirement.

Retirement plans such as NPS have a very low entry threshold. It is also open to all and anyone can open an NPS account and start saving. A small business can also invest in Invest 4G plan from Canara HSBC Oriental Bank of Commerce for as low as Rs 5000 every month.

The choice between paying off a student loan or start a retirement account is not a difficult one. Starting early for retirement planning has its own advantages but extending the student loan will increase the interest burden. You will have to find a balance between the two. Try to pay off the student loan as soon as possible, but do not hold back on investing in a retirement account.

Most people nominate their spouse to receive retirement benefits in their absence. But a spouse is not automatically entitled to be the beneficiary of a retirement account owned by the other spouse.

Gold is a safe investment asset and investors often flock to the yellow metal to stabilise their portfolios. Holding a small quantity of gold can be considered as the intrinsic value of gold remains intact. You can also choose to have an exposure to gold through ULIPs. ULIP funds invest in a variety of asset classes and some fund options also have a small exposure to gold. You can choose fund options with gold to have a small and indirect investment in gold.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

The government has allowed all central government pensioners to open a joint account with their spouses.

Vesting date or age signifies when your pension plan’s accumulation phase is over and the distribution phase can begin. For example, in a deferred annuity plan, you may have a vesting date which is 10 to 30 years away depending on your age at entry. You will continue to invest or stay invested till the vesting date. After the vesting date or age, you can start receiving the pension or withdraw the money from the plan.

The steps may differ from plan to plan. However, you can buy the online retirement plans following the steps below:

  • Retirement Calculator: Use a retirement calculator to estimate your corpus need and expected monthly investment amount to achieve it
  • Choose Plan: Select the online retirement plan you want to start investing in
  • Contact Information: Fill in the personal details including the contact information. Make sure to put the correct e-mail ID which you can access since all future communication about the policy will take place via e-mail.
  • Define Your Investment: Select the goal, investment term, investment frequency and amount you want to invest (based on the calculator estimate)
  • Select Fund Allocation: Online retirement plans give you the option to invest in multiple assets including equity funds. You can select the ratio in which your premium will be allocated to these funds as per your risk appetite. Then select one of the portfolio rebalancing strategies.
  • Select Withdrawal Plan: You can withdraw money based on set milestone or systematically from the plan after the lock-in period. Select the options for withdrawal as per your plan.
  • Review Plan & Investment Details & Complete the Application Form

You can pay the premium amount before or after completing the application form to start investing.

The best time to plan your retirement is when you are planning your career. However, this may not be the time when you really start investing money for your retirement. You must start investing in your retirement plan as soon as you start earning.

Retirement is the only financial goal you cannot repair with other means of funding like a loan. Thus, developing the habit of investing with every income you have is the best way to have a comfortable retired life.

Insurance allows your family, especially your dependent spouse to continue living without financial worries if anything happens to you. Also, insurance may help you save enough for retirement in case of permanent disabilities. Additionally, life insurance retirement plans allow you to build a good retirement corpus with bonus additions.

Yes, you can change the nominee of the policy anytime you need. If you are using an Electronic Insurance Account (EIA) to manage your policies, you can change the nominees anytime from this account. Otherwise, you can contact the customer care to update the nominations on your policy.

You can opt for auto-debit of the premiums from your savings account. You can also pay the premiums online using your debit card, credit card or a payment wallet.

You can get Rs. 1 Core pension plan using the online retirement calculator. The calculator will assess your eligibility and provide you with the probable monthly or annual investment to achieve the goal. If the amount seems feasible you can complete the purchase online or set an appointment for a qualified advisor to help you in the process.

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