Retirement planning is a critical financial responsibility that every individual owes to himself and his loved ones. Those who ignore it, have much to rue later when they outlive the money supply in the bank. With the increase in life expectancy and the escalating cost of living and healthcare, retirement planning must be taken up on priority.
Here are 10 hints for purchasing a pension plan:
- Prior the better
Retirement planning must start early on. How early? Ideal from the time, you draw your first cheque, put aside some cash for a rainy day. After some time as your compensation/salary expands, hike the contributions.
- Equities are important
Studies have demonstrated that after some time, equities can increase the value of the portfolio compared to other assets like fixed deposits, bonds, gold, and property. So when you are getting ready for retirement, ensure equities are part of your plan. This could be as unit-linked pension plans or equity funds or stocks.
- Think diversification
Equities are great, yet so are fixed deposits, bonds, and gold. Pause, aren’t we contradicting the previous point where we said equities work harder than other assets. Genuine, yet this shouldn’t imply that equities will take care of every one of your issues. You require a portfolio with equities in it along with other assets like fixed deposits and gold. Every one of these benefits should be in a specific weight or distribution. Together they form a portfolio that can enable you to accomplish post-retirement earnings.
- PPF won’t be sufficient
Many people go into retirement arranging with an autopilot attitude. They contribute cash towards choices like PPF (public provident fund) or EPF (employee’s provident fund) and trust they are set to resign in comfort. This is a long way from reality, these choices are, best case scenario one of the roads we talked about before (recall equities, fixed deposits, bonds, gold). There is a whole other world to be done as far as building a portfolio than just PPF. PPF or EPF won’t be sufficient to fight inflation. Picture this – if long-term inflation is at 6% and the PPF rate is 8.5%, that is a simple 2.5% (8.5%-6.0%) net of inflation. Envision you go into PPF supposing you will make Rs 85 on each Rs 1,000 and you wind up making Rs 25 on each Rs 1,000 on the grounds that inflation stole the rest of the money from you.
- Vesting age
Go for a pension plan with a vesting age that matches your requirements. There are some pension plans with vesting age beginning at 40 years. So in the event that you need an income stream that at an early stage throughout everyday life, go for such a plan. Then again, there are plans with vesting age of 85 years, which is suitable if you plan to retire late.
- Higher sum assured
Go for a pension plan for that gives out higher of sum assured on vesting and accrued bonuses or assured benefit.
- Assured death benefit
Prefer a plan with a minimum payment on death For e.g. 100% of repayment of premiums.
- A suitable annuity option
Opt for a pension plan with the annuity alternatives most suited to you – for e.g. the lifetime alternative ensures annuity for a specific number of years regardless of whether policyholder survives or not, the joint life/last survivor annuity gives out pension till the individual is alive, the post which his companion gets the annuity.
Go for alternatives where charges/costs are aggressive. Keep in mind the more cash you lose towards costs, the less you spare towards retirement. This calls for a comparison of expenses across options to identify the most cost-effective one.
- Financial planner
Retirement arranging is not kidding business. It is serious enough for you to commit money towards it. What’s more, it is serious enough for you to consider engaging an experienced and competent financial planner who would handhold be able to you through the retirement arranging and execution process.