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What is a retirement plan?

What is a retirement plan?

What is retirement plan

What is a retirement plan? Things you should know

India has a huge young population, with over half of the nation’s population under 25. Nearly two-thirds of the country is 35 or below, and the median age of an Indian is 29. But, fast forward to the future, when this two-thirds of the population turns 60. That is a huge number of senior citizens. Planning the welfare of this demographic from now becomes important for their welfare in the future. At the individual level too, the same principle applies as the cost of living is set to increase over time. Today’s 35 year old needs to start planning for retirement now so he or she can lead a peaceful post-retirement life.

A retirement plan is one that helps you meet your needs post-retirement and continue to enjoy that time without any financial burden. Starting early helps you meet those needs, so it is important to pick one of the life insurance plans that offer features to help you enjoy your retired life.

Points to consider before you plan for retirement

One of the thumb rules of a retirement plan is that you need to save anywhere between 10 and 15 per cent of your monthly income for retirement. However, you may also need to take into account other expenses related to lifestyle, healthcare and aspirations before you set aside a corpus for your post-retired life. Another aspect to be considered is inflation, so the more you save, the better it is for you post-retirement life.

You would also need to take into account your commitments and life goals when you plan your retirement corpus. As a general rule of thumb, it is said that you may need to have at least 70 to 80 per cent of your income before retirement, for a post-retirement life.

Mere savings won’t help you grow your money. You may need to tap into the power of compounding early on for a retirement plan. This is where your long-term investments come into play.

Life insurance plans make up a key aspect of your retirement plan. Here’s how:

  • Picking one of the life insurance plans such as unit-linked insurance plans (ULIP) ensures both investment and protection, as a portion of your premium is invested in the capital market. This allows you to grow your wealth while also availing insurance coverage benefits.
  • When you invest in a ULIP as a retirement plan, you have the option of choosing from among funds that include a mix of equity and debt funds. You could pick the fund, based on your risk tolerance and your expectations of returns. Debt funds are considered more conservative than equity, where returns expected are relatively high.
  • One of the benefits of having a retirement plan early on is the low cost involved. If you opt for one of the life insurance policies such as a ULIP, the premiums are low when you start early. The earlier you opt in, the more you tend to save as well.
  • When you pick a unit linked plan, as part of the insurance component, you get death and maturity benefits. The death benefits are paid out to your nominee in the unfortunate event of the policyholder’s demise. Maturity benefits are paid out when the policy term ends or matures. The amount received is called the fund value, which is computed by multiplying the number of units held at maturity with the NAV (net asset value) prevailing then.
  • Look for the liquidity option when you pick a life insurance plan as you may have to make a partial withdrawal without having to surrender your policy.
  • You could also pick an insurance plan that gives you the option of receiving your maturity benefit in instalments and not as a lump sum.
  • With life expectancy increasing world over, you would need to take into account a longer retirement period when you are planning your corpus for a post-retirement life. Choosing the whole life option while choosing between life insurance plans comes in handy here. With this option, your policy continues to be active for life.

Apart from the ULIP option, there are retirement plans that give you a guaranteed annuity for a specific number of years, irrespective of whether the policyholder survives the plan or not. There are different types of annuity plans, including immediate, where the person wants the payments immediately and deferred, where the policy holder can choose a later date. There is also fixed and variable annuity.

In a nutshell

Choose from among the retirement plans, based on your needs, risk profile and goals. Not every plan is for everyone, so pick one after taking your personal circumstances into consideration. Opt for Canara HSBC Oriental Bank of Commerce’s Invest 4G plan, and choose from seven funds to invest in. What’s more, the plan allows you to switch between fund options and make the most of market movements. With this plan, you can not just get insurance cover but also invest early on for a peaceful retired life.

Speak to an insurance specialist now!

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