Retirement or pension planning becomes an integral part of investment portfolio for ones who are in service. One should start planning for retirement funds as early as possible. Increase in average lifespan, financial commitments, competition, nuclear families etc make it even more important to plan carefully so that one can become totally independent in the later years. Even planning for retirement is a comprehensive process to determine how much money one may need after retirement.
Some people feel that retirement planning is important after the mid years when a person crosses a certain age, say 40 years. In fact, pension planning at later stages becomes difficult as there won't be much time to build and grow a good corpus to sustain a good retired life and eventually such people end up investing in risky investment instruments.
There are several insurance instruments available people, providing varied options for post-retirement life:
Pension plan
Under pension plans, an individual decides his retirement age at the while subscribing to the policy. And for the pension plan the investor pays a regular premium to the insurance company. The insurance company invests this money in various instruments to earn returns and build a corpus over the term of the policy. At the time of retirement, the corpus amount is converted into a monthly income (annuity) payable to the investor. The premium paid for pension policies qualifies for income tax rebate under Section 80C.
New Pension Scheme(NPS)
A new Scheme started by Govt of india in May 2009. This is lowest cost investment optionin which you accumulate till 60 years of age and then purchase annuity plan of the corpus accumulated by way of monthly/Quarterly and halfy early or yearly pension. Best part is that if you open your account this year Govt of India will contribute Rs. 1000 every year.
Insurance
Many people use various insurance policies as their retirement planning for an easier post-retirement life. Many invest in endowment life insurance policies. These plans invest most of their corpus in corporate bonds, G-secs and money market instruments. And these instruments provide a safe and guaranteed return something between four to seven percent. These policies provide life insurance during the active tenure and a lumpsum amount at the time of maturity.
Unit-linked insurance plans (ULIP) have been sharing the limelight for quitesome time now as the stock markets are soaring. ULIP is like a mutual fund with a life cover added to it. Here in this case the investments take place in equity as well as debt instruments, and therefore promise to deliver better returns as compared with regular endowment policies. Investments in ULIPs should be related to the individual's risk appetite. Individuals who can take higher risk (younger investors) should allocate a higher percentage of their investments to equity.
Healthcare plan
In addition to regular cash flows, another major post-retirement concern is the expenditure on healthcare . Medical expenditure can be constant or variable in nature. There are many health insurance schemes available in the market. Many people subscribe to mediclaim policies that cover all major hospitalisation expenses.
Other healthcare policies available in the market include accident policies that cover death and disability of the family's breadwinner and even provide a pension to the beneficiaries. Some healthcare policies cover against all major ailments . In case the policyholder gets an ailment he can get a lumpsum payment in addition to periodic cash flows.
Starting early is the key
It is best to get started early on depositing the corpus for retirement and diversifying investments. Relying on one source for all post-retirement needs would be useless, and it should be avoided. Investing early gives time for the investments to grow with compounding. And one can also invest in instruments with higher risk-return ratio. A good retirement portfolio should have investments in mutual funds, insurance (life insurance as well as medical insurance), fixed deposits and real estate.
