5 Steps to Launch Your Own Retirement Plan

A critical aspect of a retirement plan is how and where to invest. The assets you choose to invest will vary depending on several factors, which include your risk tolerance and investment time horizon. These two factors function hand-in-hand. The more years you have left until retirement, you can opt for higher amount of risk.

If you are venturing into the retirement game late, i.e. after 45 years, majority of regular savings should be invested in government securities and exposure to equity should be limited. If you start reasonably early (in your 30s) or you expect to have your substantial company pension waiting for you, then you can take up higher investment risks that will grant you the opportunity to earn higher returns. Along with right asset allocation it is also important to diversify your portfolio. As rightly said, “Do not put all of your eggs in one basket.”

The closer you get to retirement, the less tolerance you'll have for risk and the more concerned you'll be of keeping your principal safe. Once you reach your target retirement age, you must shift your corpus toward income-generating securities.

Pension and Annuity

A combination of pension and annuity plans offered by life insurance companies is a good investment avenue for a secure retirement. Retirement Plans help build a retirement corpus. These plans also have assured benefit on death of the insured. The unique feature that distinguishes it from any other insurance plan is that on maturity, two third of the corpus is mandated by current regulation to be reinvested for generating a regular income stream, which is referred to as Annuity. The remaining one third can be taken as tax free lump sum. An Annuity is an insurance product that pays out income and is a popular choice for investors who want to receive a steady income stream post retirement.

Once you invest in an Annuity, it generates payments to you on regular intervals. The income you receive from an Annuity can vary from monthly, quarterly, annually or even in a lump sum payment. You can opt to receive payments for the rest of your life, or for a set number of years. You can also receive your invested corpus back or increase your Annuity every year. You can continue to receive the regular payments (by your spouse) after you. Annuity offers a wide range of options, which can be opted by an individual as per his/her requirement.

To sum up, below are the key steps to kick start your own pension fund:

1.       Establish how much you would need for yourself and your partner after retirement. Don’t forget to consider inflation and expenses.

2.       Estimate the time horizon you have for retirement. Keep in mind the longer investment horizon gives better corpus.

3.       Learn about your employer’s pension plan so that you can plan for the gap in corpus.

4.       Select the investment avenues that suits best your risk and return appetite. As much as possible, research and read on the best plans available in the market.

5.       Review the plan regularly, at least every year, until your retirement age.

There are many online tools and guides that can help in devising your retirement plan. However, it’s always advisable to take guidance of a financial planner for expert view on your plan. After all, it’s not when you retire, but to what lifestyle and income you retire.