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How to check if your retirement corpus will be enough?

dateKnowledge Centre Team dateJune 01, 2021 views112 Views
Retirement Plan | Best Retirement & Pension Plan

When you are young, retirement is at yonder and looks like loads of fun. But did you know that the vast majority of senior citizens endure retirement, not enjoy it? Needless to say, health-related issues are one of the major woes afflicting the older population. But money is a bigger challenge. Financial insecurity is the biggest impediment in leading a comfortable retired life. There are a lot of investment options that are essential for a comfortable retirement.

Majority of the working population lives paycheque to paycheque, putting themselves at grave risk for the future.

Ergo, there are three challenges that, if addressed early in life, can make retirement financially comfortable:

i. Saving
ii. Investing
iii. Wealth Creation

How much Money do you Need during your Retirement?

Considering the overall inflation rate to plan for retirement could be detrimental. You must consider what will remain relevant to you over the years. Both healthcare and food costs account for a major portion of senior citizens’ living expenses.

Retirement

Figure 1: What percentage of your annual income should go to your retirement?

You can consider the complicated estimates and time value of money, including the inflation and rate of return on your investments. However, it all boils down to one simple factor – what percentage of your income are you saving towards your retirement?

Learn the top mistakes to avoid while planning for your retirement.

Figure 1 shows the accumulation and depletion of retirement corpus built at different saving ratios. Here’s what it shows:

  • Let us assume that you start investing 9% of your income towards your retirement, at the age of 60 the corpus will be sufficient to provide you until the age of 90
  • Similarly, Investing 18.4% of your income towards your retirement will enable you to retire at the age of 55 and continue comfortably until the age of 90
  • And, investing 34.1% of your income for retirement, will allow you to retire at the age of 50 and the corpus will be sufficient to provide for you until the age of 90

Provided…

  • You start withdrawing the approximately same amount of money you used to earn at the age of 30
  • Inflation, income, and pension growth is 5% p.a.
  • Your rate of return on the invested money is 8% p.a.

This should give you an idea about how much of your income going to your retirement funds will ensure that your retirement is financially secure.

How to Solve Post-Retirement Problem Before you Retire?

Both Saving and Investing may, prima facie, look very similar but are contrastingly different. Putting aside some money each month right from the day you start earning is quintessential. If you do not “save” you will end up with no funds post-retirement. Your regular income streams would also dry up post-retirement.

Investing will grow your money over time. If you invest your savings in financial instruments such as Fixed Deposits (FDs), Public Provident Fund (PPF), National Pension Scheme (NPS), your money will grow at the specific rates of interest as announced by the bank or government. For example, FDs offer rates between 4% to 8% depending on the bank and tenure.

But if you observe closely, both “Saving” and “Investment” will not help you lead a retired life that is equivalent to the quality of life that you are used to, now! Inflation reduces the buying power of your money over time. To ensure your hard-earned money does not erode in value over time, the money must grow faster than the rate of inflation.

Saving Vs Investment: Which is Better?

Effects of Inflation on Your Savings

If you “save” money in non-interest generating assets or allow them to lie around in your savings account:

At the current savings account interest rate (for a savings account) of 3%
Real Return from Savings Account=3%-6%= (-)3%

This is a clear case of erosion where the buying power of your money reduces over time. To illustrate with a simple example:

You buy 2kgs of Oats for Rs 400. In another 10 years, the same 2kgs of Oats may cost Rs 700 at the current 6% rate of inflation.

If you had put in Rs 400 today in a savings account, the amount would have grown to Rs 540 in 10 years. This amount can fetch you only 1.5kgs of Oats then.

Both these examples demonstrate the need to focus on “wealth creation” rather than keeping money aside or “investing” in low-income yielding instruments.

4 Best Retirement & Saving Plans by Canara HSBC Oriental Bank of Commerce Life Insurance

Any investment should be a well-thought-out process keeping in view long-term goals, security of family, and education for children. Canara HSBC Oriental Bank of Commerce Life Insurance offers some of the best retirement plans in India:

1. Guaranteed Income4Life

Guaranteed Income4Life plan allows you to invest for a specific period (say 10 years) and defer the pay outs a few years. Your pay outs will start thereafter.

This plan is perfect for parking funds you receive within the last 15 years of your retirement. Since the plan offers guaranteed income, your investment is not only safe but also turns into a regular stream of income until your natural death.

2. Guaranteed Savings Plan

Guaranteed Savings Plan offers a guaranteed Sum Assured along with guaranteed yearly and loyalty additions. Thus, you can easily estimate your maturity value at the beginning of the investment.

This savings plan is perfect for the occasion when you cannot compromise on the value of the goal and need a guaranteed amount of money. This plan is perfect for wealth preservation before you retire, as the investment gets adequate returns to beat inflation while staying entirely tax-free.

3. Invest 4G ULIP Plan

The Invest 4G Plan, offered by Canara HSBC Oriental Bank of Commerce Life Insurance, is one of the most flexible and efficient investment. It gives you the options to aggressively grow your investment using professionally managed equity funds. In this plan, you can:

  • Invest in a mix of equity and debt funds
  • Use automated portfolio management to take advantage of market movements and benefit from equity growth even when you are not actively watching the markets
  • Boost your portfolio growth with wealth boosters and other bonus additions

4. Pension4Life Plan

The Pension4Life plan is another safe long-term investment plan that gives you income streams, post-retirement, called “annuities” till the end of your life after which the purchased/invested amount would be given to your nominee.

Key benefits for Income4Life

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.

Building a corpus considering possible major expenses and cost of living post-retirement helps you plan and start investing suitable amounts starting immediately. Insurance plans help you in wealth creation in the long run as the equity investments beat inflation to give you better returns.

Insurance covers also give you peace of mind because your family would be financially secure in case of your untimely demise. Pension plans offered by Canara HSBC Oriental Bank of Commerce Life Insurance give you a regular income stream even post-retirement to help you have fun in your 2nd innings!

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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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