Perspective on Retirement Planning

Early planning for retirement is imperative in today’s age wherein advancements in medical science have helped increase life expectancy. In addition, a wide choice of career options and a fast paced life has evoked the thought of early retirement in the minds of the younger generation. With increased longevity and the urge to maintain a similar lifestyle in one’s post retirement phase as well, the need for appropriate retirement planning is an imperative.

According to survey conducted in 11 tier 1 and tier 2 cities to understand the current state of financial planning in urban India, consumers are skeptical about the adequacy of their financial plans to meet their desired standard of living throughout their lifetime. In fact, only 13% of youth and women are extremely confident that they have adequate retirement planning in place. Though the Wisdom investor segment (45 years and above) scored better in the level of confidence yet their percentage stood at only 24%.

The study clearly points out that while we postpone a lot of simple joys of life to our retirement period, we do not adequately prepare ourselves during the prime time of our working lives to focus on building a war chest. These joys could range from travelling to cherished destinations to owning much coveted luxury goods or simply indulging in an expensive hobby.

In the absence of a formal social security framework in our country and inadequate statutory retirement funding (by both employers and self), there is a greater need to evaluate in advance the options available for retirement income planning. A clear definition of our retirement needs is the first step towards adequate provisioning for retirement. The answer to this lies in two basic questions – “HOW MUCH MONEY would we need when we retire?” and “WHAT PART OF OUR INCOME should be invested towards building that corpus?”

Having quantified our retirement needs, we need to also look at suitable instruments that are tailor-made to fulfill such needs. Let me talk about two such instruments which are customized towards fulfilling retirement planning goals.

Pension and Annuity

An exclusive category of products offered by Life Insurance companies in India is Retirement Solutions, which is a culmination of two phases – accumulation phase when we build our retirement fund by investing in a Retirement Pension Plan before retirement and redemption phase in the form of regular and guaranteed income for life post retirement through an Annuity plan.

I feel that Pension and Annuity plans should never be looked at in isolation. They are two sides of the same coin. A combination of these two plans is a good investment avenue that takes care of longevity risk, i.e. risk of us outliving our savings.

The key benefits of a Pension and Annuity combo are:

1.        Flexibility to choose the tenure depending on one’s retirement age

2.        Hassle free transaction giving the process an OTC feel (online options available)

3.        Advantages of tax efficiency under sec 80 CCC and 10(10A) of the Income Tax Act 1961

4.       Derisking from market volatility once Annuity is purchased

5.        Benefit from the power of compounding commences early

6.       Ensuring by virtue of regulations that funds for retirement are actually utilized accordingly

7.        Wide range of Annuity options to choose from (including Return of Premium) and ability to customize features like payment modes etc. as per need

8.       Doing legacy planning for loved ones

National Pension System

National Pension System (NPS) was introduced by the Government of India with an objective to extend old age security coverage to all citizens. Launched in January 2004 the scheme is now more than 10 years old. At inception the scheme was made compulsory for all new Central Government employees (excluding Armed forces) by scrapping the old pension structure for them and that was soon followed by the State Government employees as well. It was only in May 2009, that the scheme was made available for all citizens of India.

In the basket of investment tools currently available in the market NPS clearly stands out. It offers subscribers the option to choose service providers, fund managers & investment schemes along with flexibility to switch amongst the same if desired. The NPS account is fully portable and offers an online platform that enables subscribers to access their account details 24X7. The NPS contributions also provide subscribers with an additional tax saving sunder section 80 CCD (2) benefit as per the Income Tax 1961.

Retirement planning is an ongoing and systematic process. It is advisable that we introspect, study our needs and aspirations, draw a timeline and observe discipline in doing so. The earlier this process is initiated, the better it is, as we can gain from the power of compounding as well as aim for a higher return in order to lead a comfortable life in our golden years.

[Source: https://retirementplaninindia.wordpress.com/2015/09/25/perspective-on-retirement-planning/]

Seven Benefits of Buying Traditional Pension Plans

Retirement is an inevitable phase of life. One of the many products life insurance companies offer people for retirement planning is pension. Pension is aimed at securing your post retirement life, be it related to financial security, pursuing a hobby or planning a legacy. There are many reasons why one needs to plan well for retirement - increase in life expectancy, inadequate employer funded pension, change of social structures, absence of social security system, desire to remain a contributor or rest and relaxation.

Pension products can be offered either on ULIP (market linked) or Traditional (non linked) platforms (difference between ulip & traditional plans). Given the nature of these products, ideally one would want to de-risk his/her retirement plan from market volatility. That’s where traditional Pension products have an edge and have been quite popular among customers. Traditional retirement solutions are of 2 types:

1. Participating - These plans participate in profits of the fund. 90% of the profits get distributed to the policyholders as bonuses. Hence, these are also referred to as ‘with profits’ plan.
2. Non Participating - These plans do state a rate of return at outset and are not linked to the market or any index. They offer guaranteed returns.

You save regularly till you reach your retirement or do it using a lump sum as per the availability of funds. On maturity, the benefits are mandated by regulations to be reinvested, in order to generate a regular income stream, which is referred to as annuity. This feature is what makes pension plans a good fit for retirement planning.

Key advantages of buying traditional pension plans:

1. Secure Returns: Traditional pension plans offer secured and guaranteed returns. For participating plans, the secured returns are in the form of bonuses. Once declared, bonuses are guaranteed to be paid at maturity or death. For non-participating plans, the secured returns are in the form of additions. These additions are fixed percentages of the sum assured that are added every year or on maturity. Today in addition to the above, traditional pension plans also have a minimum guaranteed benefit at maturity and on death.
2. Easy Issuance: Retirement Insurance Company is the true over the counter plans. They do not require any medical tests and hence can be purchased without much of a hassle. This feature makes a pension plan possible for all, irrespective of their health condition.
3. Guaranteed Income for Life: On maturity of the pension plan, one needs to purchase an annuity. This annuity is a guaranteed income stream for a lifetime. This helps in meeting post-retirement needs.
4. Tax Benefits: Premiums paid in traditional pension plans are eligible for tax benefit u/s 80CCC of IT Act. This is subject to the prevailing tax laws.
5. Health Care Needs in Old Age: Health expenses are a major concern during old age. With improved life expectancy and increased medical expenditure, it’s imperative that health care expenses are kept in mind while doing retirement planning, more so because during old age, the eligibility for a health assurance or life assurance have their own limitations. By investing in Pension plans one can easily create a fund for any contingency.
6. No Limitation on Maximum Premium: You can invest as much as you need into these plans. Investing higher amounts means you have a higher chance of better fund creation and consequently better income post retirement.
7. Death Benefit: Though the primary objective of any pension plan is to build a corpus for post retirement expenses, it also brings with it benefits on death of the life assured. The nominee then can either choose to take the complete death benefit or can invest the same in an annuity plan that will offer a guaranteed income for life.

                [Source: http://blog.hdfclife.com/benefits-of-traditional-pension-plans-532260]

The Roadmap to Retirement – Your 2nd Innings!!

Retirement is like tomorrow’s sun. It will happen – whether you like it or not. It is as certain as any other fact of life. You, therefore, must be ready for it: mentally, physically and of course financially. In fact, there is a strong case for you to start preparing now, right now. So whether you are in the age group of 25 or 50: retirement planning is equally important to each one of you.

Retirement planning is a means and an end.

Means: because it shows you how to open the door to freedom and exhilaration.

End: because it propels you towards what you consider are the cherished goals in life.

It creates the bedrock on which your choices stand today. These choices can stem from your normal everyday activities as well as your ambitions and objectives.

The one thing that’s guaranteed to GO UP is the cost of living. Services that you need will be more expensive. Medical costs will soar. Hospitalization will cost the earth. Food prices will spiral. You will have to live with all that and more. More? Yes, remember, with better health facilities (courtesy, advances made by medical science) you will probably live longer than what may be expected.

Let’s take an example here:

Say a pack of toothpaste now cost you Rs.50/- and your family uses a pack a month – totaling Rs.600/- a year. Now if toothpaste price inflates at 10% per annum and if your family wishes to maintain their current lifestyle and use toothpaste 30, 40 and 50 years hence – the respective cost would come to Rs.10000/-, Rs.27000/- and Rs.71000/- p.a. (sounds weird – but it’s true). Now if this happens when you are still working, it is still ok – but if the rise happens when you are no longer working will have serious repercussions. And remember this will happen not only to your toothpaste but to each commodity, you are using today. How to manage then is a challenge: we need to face now.

Retirement plans can be defined as the manner in which an individual plans for the years during which he ceases to do routine work that had in the past generated regular income.

Putting a number to your goal

An individual, during his pre-retirement years, will have to set clear goals (as early as possible), which must be translated into numbers. What are these numbers? These numbers mainly from the amount of money needed to cover expenses, keeping in view possibilities like escalating prices (inflation) and taxes.

The corpus that you build for your retirement depends on 2 broad factors:

o    the choices you make, and

o    the behavior of the financial markets.

We have no control over the behavior of the financial markets, so let’s leave that one aside.

Consider the first. Can you imagine what your retirement life would be like if all the choices you made were absolutely perfect? If you didn’t make a single retirement planning mistake, if every time you invested, it was according to plan, in the right asset class, in the right instrument, in the right option and at the right time? Wouldn’t life be grand?

In the spirit of achieving that investing perfection, let’s educate ourselves on What We Need to Do.

Let’s get started.

Have a Retirement Plan

At Bajaj Allianz Life, we have seen our clients go through incredible growth phases – not growth of the financial markets, but phases of personal financial growth.

When I talk to some clients, the state of their investments ranges from the slightly unstructured to the completely messy. If you don’t know where your money is, you won’t know what it’s doing. Our clients at times come to us slightly confused, not having articulated their financial goals, and looking for financial help.

Remember, you are earning and investing now, so that you build up enough funds to cover all your expenses for your entire retired life, so give your retirement plan the attention and importance it deserves.

Diversify & Rebalance Your Assets

Don’t make the mistake of thinking that it’s all about equity / property.
You must have a proportion of your wealth in different asset classes such as debt and gold.

There’s a thumb rule you can follow to know how much equity you should have, and it’s got nothing to do with your age.

It’s got everything to do with your investment time horizon.

If your retirement fund goal is less than 3 years away, you need to be in debt / fixed income products. This is not the time for equity.

If your retirement goal is between 3 and 5 years away, you can have part equity exposure, up to 45%, with 15% in gold, and 40% in debt / fixed income.

If your retirement goal is more than 5 to 7 years away, you can have anywhere between 45% to 60% in equity, 15% in gold and the rest in debt.

If your retirement goal is 7-10 years away or more, you can opt for 75% in equity, 15% in gold and 10% in debt.

If you follow this, you will never face the panic that equity investors faced when the market crashed in 2008.

That’s not all. You also need to keep track of how and when to rebalance your funds.

Remember that as your retirement goal time horizon changes, your asset allocation must change. In your Retirement Plan, your investments need to be rebalanced to reflect the right asset allocation for the goal’s reducing time horizon.

[Source: http://lifeinsights.bajajallianz.com/roadmap-retirement-2nd-innings/]

Retirement Planning – Essential for life after retirement

Are you worried about your future after retirement from a reputed job? Do you feel insecure about your future and are searching for the ways in which to enjoy a peaceful and pleasant life after retirement? Every employee and normal person is concerned about his or her future due to the present economical conditions. If you wish to have a great retirement, then you need to have a good plan ready. If you follow good Retirement Planning tips then you are sure to have good years with your family.

• Retirement Planning helps you to create wealth with small savings during your professional life in the form of a retirement plan.
• Plan for your retirement; is not as easy as just purchasing any plan and paying its premium without knowing the benefits you may accrue after retiring.
• A plan that helps you save now and build a corpus for the future, depending on the amount you feel would be enough to sustain the same lifestyle as today is a good retirement plan. In other words a plan that is able to replace your income from employment on retirement is known as a retirement plan. Such plans can be provided by your employer or the government or even insurance providers.

Need for retirement planning: Planning for life after retiring from work is very important. Most people tend to ignore this and believe that they will be able to survive on their meager savings after retirement with their children offering support. However, being financially secure makes sense in today’s scenario of high inflation, increase in everyday prices, and high cost of living. It would be prudent if you saved today so that you can meet any circumstances in future, knowing you have a backup plan.

Types of retirement planning: There are two types of Retirement Pension Plan. One is the defined contribution Plan and the other is the defined benefit plan.

• In defined contribution, the plan is to accumulate money from the contribution made by each employee. This plan is based on a percentage of the income contributed by the employee which is then placed or invested in a retirement plan by the employer on his or her behalf. Such income is exempt from taxes.
• In the defined benefit plan, the employer guarantees a certain sum to the employee on his retirement irrespective of how the investment fares in the market.

Benefits

• Easy to adjust to any costs and monetary wants post leaving work.
• Helps you avoid any major changes in your lifestyle after retirement.
• Such a plan helps you to give monetary security to the people dependent on you for any kind of economic maintenance.

[Source: https://insurancelifedotorg.wordpress.com/2014/10/27/retirement-planning-essential-for-life-after-retirement/]

Retirement Plan Company

Retirement Plan Company from Mihir Shah

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Retirement Planning with Life Insurance

Retirement brings with it a drop in income and in some cases no income at all. This means that unless you plan well in time for your golden years, you might be left high and dry, and dependent on another for your financial needs. This is where retirement planning using life insurance comes to the rescue.

Retirement planning entails the accumulation of wealth during one’s earning phase for life after retirement. It eliminates chances of dependency and ensures that you can easily maintain your quality of life, even when you no longer actively employed. There are a number of tools available in the market for retirement planning, such as EPF provided by the employers, PPF accounts and other such plans. Life insurance too offers pension plans. Let’s find out more about them.

Features of Life Insurance Pension Plans

At the beginning of the policy, you can pick the lump sum savings that you want to receive on vesting. One-third of this sum may be withdrawn tax free, while the remainder will have to be invested in an annuity plan. Your retirement savings will increase with non-guaranteed bonuses (if declared), starting after the very first year of the policy. No declaration of health status or medical examination is required for the issuance of such a policy. The policy also allows the insured to get another such policy from any other insurer in the industry simultaneously. The age criteria of this policy are as follows:

• Minimum age at entry: 40 years (10 year policy term) or 18years (to the age of 60)
• Maximum age at entry: 70 years (10 year policy term) or 45 years (to the age of 60)

Benefits of Life Insurance Pension Plans

Under Section 80 CCC of the Income Tax Act, an amount of up to INR 1,00,000 is deductible towards the premiums paid for a pension plan when the tax is calculated. Under Section 10(10)A(iii), any sum received by way of benefit out of the Retirement Insurance Policy

is exempt from tax. The death benefit of the Retirement Insurance Policy is that in case of an unfortunate event of death of the person insured during the policy term, the beneficiary shall receive 108% of the total premiums paid. On maturity of the pension plan, the policyholder gets the Vesting Fund, along with the declared bonus. You also have the option to withdraw 1/3 of the vesting sum tax free and start receiving a pension from the residual 2/3 amount. You might also choose to get pension from another insurer.

With such benefits and features retirement planning using life insurance pension plans becomes easy, ensuring that you are financially secured and independent in later life.

[Source: http://onlinelifeinsurance1.weebly.com/blog/retirement-planning-with-life-insurance]

Why is investing in retirement plans beneficial?

Retirement Insurance Policy - Why is investing in retirement plans beneficial? from Gaurav Kadam

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