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Top 5 Mistakes to Avoid While Buying a Retirement Plan Online

dateKnowledge Centre Team dateApril 30, 2021 views243 Views
Top 5 Mistakes to Avoid While Buying a Retirement Plan Online

What’s your dream retirement looks like? Vacation home near a small beach town or hills perhaps? Probably, you’d like to roam around the world with your spouse, when your family responsibilities are over. You may even plan to move to a different city with your old friend circle. Quite possibly, you may not even have thought about it this deeply.

Whatever your post-retirement plans are, or will be, you need to address the challenge that comes before – retirement savings.

Retirement and pension plans are the second most important investments of your life after term life and health insurance plans. If you have been working for a while and are yet to get your first retirement plan, you must understand that opportunity of employment post-retirement age is minimal.

Meaning, if you make these five mistakes while buying a retirement plan, online or otherwise, you may increase your chances of missing your retirement goal:

1. Not Starting Early

Always remember, the early you start investing, the better growth you can expect on your money. Ideally, you should start planning for retirement with your first job or salary. If you did not the second-best time is now, and given the COVID situation, your best bet will be the online retirement plans.

Planning your retirement

Time is the major factor deciding the king of funds you can have by the time you retire. For example, if you start investing Rs.5,000 at the age of 20, at an annual return of 12% you will have almost Rs. 6 crores by the time you reach 60.

You can also start investing Rs.10,000 at the age of 35 years. But, by the time you reach 60, you will only have about Rs. 2 crores in your pocket.

Since the rate of return on your investment is not in your control, the only two things you can really have in your hand are:

  • The amount of money you invest
  • The time you stay invested for

Since the amount also is dependent on your income, time is truly the only factor you can choose somewhat independently. Another way of looking at it is, ‘the earliest penny enjoys the best growth.’ So, be early with your online or offline retirement plan.

2. Not Assessing your Budget Correctly

Another big challenge of retirement planning and investing is to estimate the amount of money you will need every month after you retire. The continuous career growth results in lifestyle upgrade and income growth. Hence, there is an obvious escalation in expenses.

However, post-retirement life will be somewhat different from your present lifestyle, especially if you are in your 30s. Post-retirement most of your expenses will revolve around the following heads:

  • Kitchen & Utility
  • Commutation
  • Healthcare
  • Grandchildren/Gifts

Lifestyle expenses will also be there, but they are largely a minor part of your total expenses as you would have already built your household. Thus, you need to put a figure to these heads for your post-retirement expenses. Also, these monthly expenses will determine the size of your retirement corpus.

Another important thing to consider is a medical emergency. As you age your risk of landing in a hospital due to a health emergency or accident increases. However, your chances of having a health cover also decline. Hence, you must consider a medical emergency pool as part of your retirement goal.

Learn how life insurance is a key to happiness post-retirement.

3. Underestimating Future Living Costs

Another mistake you would like to avoid while saving for your retirement is shortcutting the numbers for each expense head for post-retirement life. Wisdom says if you expect to spend 100, you should prepare for at least 110, as a little buffer is always better than no buffer at all.

For example, you surely need not pay for kids' education and their upbringing, but you will have to pay utility bills, medical bills, and the responsibility of being grandparents.

Another aspect of retirement is relocation. Many pensioners relocate to rural areas or a more peaceful setting, and nothing wrong if you want to move too. For example, you may retire from a city but plan to settle in a rural locality, away from the hustle and bustle of the crowd. Just, don’t make the mistake of missing out on major costs, such as:

  • Relocation expenses
  • House purchase/renovation cost
  • Other costs you incur while settling at a new place

4. Not Considering Inflation

One of the most difficult factors to consider in any financial plan is inflation. In the case of retirement planning this is due to two big reasons:

  • The goal is too far away, i.e., 20 to 30 years at least
  • Inflation keeps changing

For example, the present inflation rate in India is about 4% p.a. However, over 30 years this may average out to be higher or lower than 4%. Once again, we should rely on the more conservative estimate for our goal. Thus, assuming a slightly higher inflation rate wouldn’t harm your retirement savings.

Also, in any case, you will find it easier to tone down your retirement investments later than to notch up.

5. Wrong Choice of Investments for Different Needs

Since retirement is a long-term goal the effect of these two erosions could be large on your savings unless you choose the correct investment options. Equity provides the best long-term growth option and can level or even best the erosion in a long run.

So, initially, a large part of your total investment should be in equity. In the later years, when you are close to retirement, you can systematically pull this money out and put it in debt. The best thing to do is to find investment plans that will make the switch automatically.

Such discipline in investment is necessary if you wish to achieve bigger financial goals. Fortunately, you have the option of plans like Invest 4G, from Canara HSBC Oriental Bank of Commerce Life Insurance. This plan allows three portfolio management strategies for investment growth and one for the safety of corpus near maturity.

Retirement plans in India are a provision to earn a regular income post-retirement. You can buy a life insurance retirement plan while keeping the above giving tips to avoid mistakes while buying a retirement plan online.

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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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