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It is never too early to start planning for retirement. Retirement planning means taking care of two aspects – your personal fulfilment and financial security.
What you need is to have a retirement corpus which will provide you financial independence when you decide to hang your boots. To do that, start today by keeping in mind the following:
Start now to let the fundament of compound interest work it’s magic. Albert Einstein called it the eighth wonder of the world for a good reason.
With an early start you can invest aggressively by having a higher proportion of equity in your investment portfolio leading to a bigger corpus.
Calculate your current cost of living and add the cost of inflation on that.
Remember to include any expenses that are being borne by your company today but which you may need to undertake in future on your own. For example medical costs.
Future needs like higher child education and marriage.
Keep room for extravagance, nurturing hobbies, gifts and vacations.
After reaching a careful estimate, calculate the amount that needs to be saved and diverted into building a corpus and select a good plan.
Creating wealth through long term financial investment planning can be done in two ways – aggressively or conservatively. The common ways of channelizing funds are direct investments stock markets, mutual funds, fixed deposits, bonds, government securities and buying life insurance.
Retirement planning through an insurance policy can provide double benefits of security with wealth generation. You can either opt for simple Pension and Annuity plans or ULIP (Unit Linked Insurance Plan) pension plans.
In a pension plan or an annuity a lump sum or series of payments are made in return for a specific amount which will be paid out periodically, starting at a stipulated time, either for life or for a fixed number of years. Different plans like Life Annuity, Joint life Annuity, Deferred Annuity offer various choices.
In ULIP pension plans a part of the money is invested in the markets which over a period of time give high returns. While considering the equity – debt allocation it is advisable to take only as much risk as required and that you can bear comfortably. Top ups can further enhance the returns as premium allocation charge on them is usually 1-3% only. However, do look at the overall charges of the policy.
Currently, all pension plans are investments allowed under section 80C of the Income Tax Act where maximum investment up to Rs. 100,000 p.a. is exempted from tax. Make sure that your corpus itself is tax free even though the annuity payouts are taxable.
Look for schemes with a high lock in period so you are not tempted to withdraw money too early which will deprive you of the benefit of compounding! Make sure that the corpus will be available for annuity at the time of your retirement.
A sound retirement planning done early in life will ensure that you ride into the sunset prosperous and worry- free.
