We all worry about our income and earnings when we think of our retirement.
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We all worry about our income and earnings when we think of our retirement. You would need Liquidity and Regular Flow of Money during your retirement period.
One of the most secured and surest ways is to plan it through Retirement Plans also called Pension Plans. By investing small amounts from your earnings today, you build a corpus and then use it to buy an Annuity on retirement. This will provide you a fixed annual payout during your retired life.
Retirement Plans, if planned out well are very effective and flexible to use o build for a regular income flow. On reaching the retirement age, you can withdraw 33% of the maturity amount for some immediate financial needs. The balance amount is used to purchase an annuity which gives a regular income (monthly/annually).
Types of Retirement Plans
- Traditional plans: Under this plan the amount of payout is almost guaranteed and ULIPs in which.
- ULIP: Under the ULIP a part of the premium is invested in financial instruments every year. These funds are known to appreciate handsomely over a long period of time.
If you are completely averse to RISK, it is best to go with traditional pension plans and if your investment horizon is more than 10 years, you should opt for a ULIP based pension plan.
Why you should not neglect Retirement Planning
- 60 Is not that Old Anymore
- You Cannot Run from Illness
- Being a Dependent Is not Fun
- The Joint Family Is Dead
- You Have Post-retirement Goals
Advantages of starting an early plan for retirement:
- The Power of Compounding: The interest that your money earns on the invested income also increases by compounding interest and that in turn increases the investment corpus by a huge amount. Thus starting early will help you increase your Retirement Corpus greatly. Let us understand this with an example.
- Employers do not provide Retirement Plans: There are hardly any companies that provide for Retirement Plans today. And even if your company does, are you sure you are going to stick around long enough to be eligible for the same? With a lot of job hopping, the benefits of super annuity and gratuity are difficult to come by.
- Rise in Life Expectancy: With the advancement in technology, medicines and standard of living, Life Expectancy is increasing every year. This means you have more of post- retirement years and require a higher corpus for post-retirement income to maintain your lifestyle.
- Inflation: You need to take into account inflation while calculating your retirement fund as well as your returns.
Suman starts saving at age 25 with an annual saving of Rs 10,000, Rate of Return – 8% p.a., Term – 35 yrs. Thus, the Total Saving till age 60 is Rs 3.5 Lacs.
Shiva starts saving at age 35 with a Yearly saving Rs 15,000, Rate of Return – 8% p.a., Term – 25 yrs. Thus, the Total Saving till age 60 is Rs 3.75 Lac.
This is the Power of Compounding! So, even if you start late with a higher amount, you would end up getting a much lower amount on retirement.