HERE'S HOW YOU CAN GO ABOUT SELECTING THE BEST RETIREMENT PLAN
Retirement,
whether at the age of 45 or 60, is the most awaited phase of your life because
it means freedom from your everyday mundane and monotonous 9-5 jobs. The
crucial questions that loom over your retirement goal could be:
How do you want
to see yourself when you retire?
Do you see
yourself 11 years down the line, at the age of 36, owning a business that you
always wanted?
Or do you imagine
yourself travelling extensively to the places you always wanted to explore?
Your investment
plan for retirement should offer acceptable answers to these questions for you.
Following are the crucial factors you must consider while selecting your retirementplan, to ensure the retired life you are looking for:
1st
Does the plan offer tax benefits?
For a financial
goal as large, unpredictable and as crucial as retirement, you need to
eliminate as many costs as possible on the investment. Tax is one such cost.
Thus, it becomes the most basic condition all your investment towards
retirement should follow.
Most retirement
investment plans offer tax exemption on the investment amount and maturity
value. But you must check the nature of deductions before committing your money
to a plan.
Unless you have already used your limit of tax saving
under section 80C, there’s no point investing in a plan which does not offer
immediate tax benefit.
2nd
When You are a Fan of DIY?
If you are a fan
of ‘do it yourself’ when it comes to investing, you’ll love the challenge of
saving for the retirement. The challenges in retirement goal are as follows:
Ø Imagine and estimate the cost of living post-retirement
Ø Use online financial calculators or excel spreadsheet to estimate the
retirement corpus you will need
Ø Use retirement calculators to estimate the amount you need to invest
regularly to achieve the goal
The three steps
above are sufficient to create an investment plan towards your ideal
retirement. However, there are few things you would like to consider:
Ø Consider 110% or more of your estimated living cost post retirement
Ø Be conservative in the interest you will earn on your investment
3rd
How aggressively would you invest?
The right answer
in your case will depend on several key factors. These include:
·
Your income and assets,
·
Your attitude toward risk in
investment,
·
Whether you have access to an
employer-sponsored plan at work,
·
The age
at which you plan to retire,
·
Your projected expenses during
retirement.
But it's possible
to lay down some guidelines that may be of help to you. The conventional wisdom
has traditionally been that you should invest aggressively
when you're young and then move gradually toward a more conservative investment.
4th
How far is the Goal?
Even when you are
open to additional risk, you need to keep the ‘time’ in mind. The only
compounding growth rule with investments is ‘time’. This factor is even more
important when you are planning an early-retirement.
The more time you
can give to your investments the higher risk you can afford to take. Just to
align your thoughts and investment functions, consider the following
time-sheet:
Time to Goal
|
% of Risk (Investment in
Equity)
|
30 Years
|
70%
|
20 Years
|
50%
|
10 Years
|
30%
|
5 Years
|
Nil (All corpus
transferred to safe investments)
|
Time to goal in
the sheet equals to “The age you wish to retire at (minus) your current age.”
Thus, if you plan
to retire at 50, and you are currently 30, max you should allocate to equity is
about 50%. Even if you feel you can allocate
more, given your penchant for the equity market, you should be careful not to
put everything there. The markets are unpredictable, regardless of your
current level of confidence.
5th
Does your plan offer Life Cover?
Life cover with
retirement investment is not an absolute necessity. However, if you are married and your spouse depends on you, it’s
better to safeguard their future with life
insurance. Life insurance with your retirement plan
will ensure that they receive a pension
for life even when you are not there to ensure the same.
Don’t Think You Need Planning?
Think Again
Since only 59%Indians are regularly saving up for their retirement while the other
41% are just working their time out or not saving at all, you need to rework on
your retirement plans. It has also been found that over 77%of Indians do not save for their retirement as they expect their children
to support them. Given the challenges faced by the current generation, expecting
kids to support your expenses could be unrealistic.
Your retirement
could be a dream come true or a lead to a life of sacrifices if the
preparations fall short of your needs.
But, you can be
sure of the former if you are careful enough while selecting your retirement
plan. The retirement plans offered by life insurance companies not only offer
you exposure to equity for better growth
but also, many other features that we discussed above, including switching
feature between risky and safe investments.
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