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How to Buy the Best Retirement Plan in India?

dateKnowledge Centre Team dateMay 04, 2021 views221 Views
How to Buy the Best Retirement Plan in India?

Do you dream of the day when you can wake up and can choose not to go anywhere for work? That is usually called the retirement dream. The retirement reality could easily beat the retirement dream if you can ensure financial stability post-retirement. The key to post-retirement financial stability is your ability to plan, save and invest adequate money in your working years.

One of the key components of delightful retirement is your choice of investment plans for retirement. But, how do you know:

  • Which plans you should allocate your hard-earned money to? And
  • How it will help at the time of retirement or afterwards?

So, how do you choose the best retirement plans? Follow these 4 simple steps:

1. Plan that Offer Inflation-Adjusted Returns

There are only a few instruments that offer inflation-adjusted returns. Equity stocks are one of them. Also, because investment risk on equity stocks varies from low to very high, you can invest in a portfolio of low-risk stocks.

Although the risk or volatility of this portfolio will still be higher than debt funds, you can expect inflation-adjusted returns.

2. Guaranteed Regular Income

One of the two objectives of investing in your retirement goal is to secure an income for your golden years. If your retirement investment plan can offer a stable long-term regular income, it is a better investment option for the goal.

Life insurance companies have always been at the forefront with such investment options, especially if you want to secure a lifelong income for yourself. Plans like Guaranteed Income4Life from Canara HSBC Oriental Bank of Commerce Life Insurance can offer a regular income up to the age of 99.

Thus, providing much-needed income security in the later years of your life.

3. Flexibility of Asset Choices

Asset allocation is important if you want to balance your retirement goal with return and safety. For instance, equity funds are risky but they are the best wealth builders over the long term. However, before you hit retirement, you want your retirement corpus safely parked in debt funds and safer investments.

Also, remember that you need to avoid the taxmen as well, as much as possible. Whenever you liquidate your investments in one asset and move to another asset, you may have to incur the following two costs:

1. Transaction cost – effort and money lost in moving the corpus from one asset to another

2. Tax cost – tax on accumulated interest or capital gain

But, if you can move between the risky asset (i.e., equity funds) and safe asset (i.e. debt funds) within the same instrument, you can save both costs.

One investment option which allows you this flexibility is Invest 4G ULIP Plan from Canara HSBC Oriental Bank of Commerce Life Insurance. You can not only allocate to both types of assets (funds), you can also use an automated portfolio management option.

The automated management sets you free from worrying about portfolio rebalancing over time.

4. Loyalty Additions

Loyalty additions are another feature of the best retirement pension plans. These additions are bonuses, which the insurer adds to your portfolio for any of the following two reasons:

1. Staying invested for a longer period

2. Continuously investing in a plan for a long period

If you have been investing in retirement plans like Guaranteed Savings Plan, Guaranteed Income4Life or Invest 4G, you can benefit from these additions. These additions boost your portfolio growth by adding bonus units (in the case of Invest 4G) or bonus amount (in the case of other plans).

For example, Invest 4G plan will add 0.5% of your corpus in the plan as loyalty addition every five years you continue to invest money in the plan.

Saving Plans with all these Benefits Offered by Canara HSBC Oriental Bank of Commerce Life Insurance

Your retirement portfolio should consist of at least one plan which has most of the features and benefits as discussed above. These benefits help you fulfil the two most important needs of retirement goal:

A. Building a large enough corpus to survive the next 25-30 years after retirement

B. Ensuring a reliable source of lifetime income

While you may invest in schemes like NPS and PPF for your retirement, these plans have limits on the maximum amount you can invest. Exceeding this limit may lead to the loss of certain benefits from the plan.

Thus, you need to start investing in other options while you still have time and are earning. Three such options are:

1. Invest 4G ULIP Plan

2. Guaranteed Savings Plan

3. Guaranteed Income4Life Plan

Benefits of these Retirement Plans

Invest 4G ULIP Plan

  • High-growth using Systematic Investments (SIPs) into equity funds
  • Automated portfolio management to help you manage your portfolio risk without your continuous involvement
  • Tax-free Systematic Withdrawal (SWP) to help you with a pension income after five years of initial lock-in period
  • Loyalty additions and wealth boosters to expedite your corpus growth

Guaranteed Savings Plan

  • Maturity value is guaranteed. So, you can use this plan to fulfil important gaps in your retirement corpus
  • Safe investment option
  • Growth is unaffected by taxes as maturity and accrued growth is completely tax-free
  • Life cover helps ensure the post-retirement financial safety of your spouse

Guaranteed Income4Life

  • As the name suggests, use this plan to create a reliable lifelong income (till your natural death)
  • You can hold the plan jointly with your spouse so that he/she will continue to receive the pension even after your demise
  • Option for insurance cover for critical diseases like cancer, CABG, major organ transplant, etc.
  • Option to cover against accidental total and permanent disability
  • Boosters to improve corpus growth when investing in the online plan, and long-investment period

Choose the Best Retirement Plan for a Happy Retirement

Thus, selecting and investing in the best retirement plans in your employment years will help you build a large retirement corpus. Also, while you can also continue to use some of these plans to generate a post-retirement income, you can have more than one source.

planning your retirement

Using Invest 4G and Guaranteed Income4Life plans together can ensure a tax-free pension till the age of 80, and a guaranteed pension afterwards.

Although the average lifespan will be close to 80 some 2-3 decades from now, you should not forget the age gap between you and your spouse. Add to that, the chances of higher life expectancy of your spouse, and it means that your spouse will need a pension for a longer time.

Using a mix of pension plans allows you to offer the financial safety your spouse will need in her extended lifespan.

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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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