Retirement is a phase when you want to taper down your professional commitments and spend more time with your near and dear ones. Retirement is not just a number anymore because people work even beyond the age defined by their employers. Moreover, this age varies across organizations and industries.
But whenever you decide to pull down the curtains on professional life, the first thought to cross your mind is about running your household. This is where a well-thought-out retirement plan and investments can help you live and enjoy your second innings.
Only YOU can answer this question based on your current lifestyle, cost of living, aspirations, etc. Some of your expenses such as child’s fees etc may not exist when you retire. However, routine health-related expenses may increase. Also, inflation will increase the cost of living in the future. Another important factor is your current ability to set aside the required amount to invest to meet your financial goals.
You must introspect on these five important questions while selecting a retirement plan for yourself. You are making a long-term decision and this decision should enable you to lead an equally comfortable life post your retirement.
Questions to Ask While Buying the Best Retirement Plan
There are a lot of financial products that offer a regular or monthly income to the policyholders while some of the policies pay a lump sum amount at maturity. Not all the retirement and pension plans will offer you similar benefits. Hence, it becomes important for you to ask these questions to assess the suitability of the retirement plan you are about to choose for yourself.
1. Does the plan meet your needs?
Your retirement needs consist of two financial goals:
A. Build an adequate retirement corpus before retiring
B. A reliable regular income for a lifetime after retirement
If you are in your late 20s or early 30s your priority should be to build a large corpus by the time you retire. So, the investment plan you choose to meet this goal should help you invest aggressively. While you are investing aggressively, you need other supports from your retirement plan:
- Option to invest systematically in an equity fund
- Automated investment allocation management
- Systematic switch option from risky equity funds to safer debt funds in the final few years of investment
These features will allow you to benefit from the aggressive investments in your early years and build a solid corpus by the time you retire.
However, if you are in your 50s, this is the time when you start thinking of the next phase of your life. Your investment needs or retirement plan need will change to pension plan need. Now is the time you start converting your investments from the first phase to generate a regular income after you retire.
You will need the following qualities in this retirement pension plan:
- Safe investment
- Guaranteed income (possibly until your natural demise)
- Life cover to help surviving spouse continue the pension and meet transition costs
Life Insurance Equation
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 in the country 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 by Canara HSBC Oriental Bank of Commerce Life Insurance offers both annuity options. The difference is for the immediate annuity option you need to invest a large sum of money immediately. With the other annuity plan, you can take a few years to invest the corpus, which will turn into regular income after the vesting period.
2. Does the plan offer tax benefits?
Will your investment help you save taxes as well? Retirement and pension plans from life insurers definitely offer maximum tax efficiency.
Checking this will help you plan your investment better. For example, in the case of Invest 4G plan by Canara HSBC Oriental Bank of Commerce Life Insurance, the withdrawn amount is exempted from tax under section 10(10D) of the Indian Income Tax Act.
3. Does your plan consider inflation?
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 the same lifestyle in the future. When you invest in any plan, you must check the past track record and the kind of funds it invests in. Or you need to plan for a larger retirement corpus.
The best thing to do to ensure that your retirement goal keeps up with your income and inflation is to invest a specific percentage of your income in this goal. However, not all long-term investment options will allow you to invest an increasing amount of money in the same plan.
4. Does the plan offer guaranteed or safe monthly income?
You can explore guaranteed return plans because robust, comprehensive insurance coverage is no longer about only a Sum Assured. Top money-saving plans 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, Guaranteed Income for Life plan of Canara HSBC Oriental Bank of Commerce Life Insurance gives out a regular stream of income until your natural demise.
Such plans are very important, especially for the later years of your life when you’d like to retire from managing your finances as well.
These plans are most useful when held jointly with your spouse. If one partner passes before the other, the pension income automatically transfers to the other spouse.
5. Can you change the sum assured in a retirement plan?
Few retirement plans, including Smart Lifelong Plan from Canara HSBC Oriental Bank of Commerce Life Insurance, allow you to increase or decrease your life cover as per your needs. This helps you meet your financial goals and beat inflation.
Do take care of the tax angle (10% premium rule) while changing your life cover option. Breaking this rule can make your partial withdrawals and maturity value taxable to some extent.
If you carefully evaluate your short and long-term goals and start investing in your future, you will enjoy retirement rather than endure it. But finding the right insurance plan is important so that you stay invested and watch your money grow. This gives you peace of mind now and even then.