It is advisable to start investing early in life towards a retirement plan. Here are some tips:
Retirement planning should be an essential element of everyone's financial planning. Individuals should start planning for their retirement funds as early as possible in their life. If we look at the way our society is shaping (increase in average lifespan, nuclear families etc), it becomes even more important to plan carefully so that you are totally independent in your golden years. Planning for retirement is a comprehensive process for determining how much money you will need at the time of retirement.
Some people feel that retirement planning is important when you cross 40 years of age. It then becomes difficult to build a good corpus within the next few years and eventually these people end up investing in risky investment instruments. They invest their hard-earned money in risky stocks, where the returns are generally not certain.
There are many insurance instruments available in the market that provides different flavors to people in their post-retirement life.
Life Insurance
Many people use various insurance policies as their retirement planning tool to make life after retirement easy and pleasant. Most people invest in endowment life insurance policies. These plans invest most of their corpus in corporate bonds, G-secs and the money market instruments. They provide a safe/guaranteed return in the range of 4-7 percent. These policies provide life insurance during the active tenure and a lump sum amount at the time of maturity.
Unit-linked plans (ULIP) have been in the limelight from the last few years as the stock market was soaring. ULIP is like a mutual fund with a life cover added to it. They invest the corpus in equities as well as debt instruments and therefore promise to deliver better returns than regular endowment policies. Investments in ULIPs should be related to the individual's risk appetite. Individuals who can take higher risk (younger investors) should allocate a higher percentage of their investments to equities.
Pension Plan
Under pension plans, an individual decides his retirement age at the time of subscribing to the policy. The investor pays a regular premium to the insurance company and the insurance company invests this money in various instruments to earn returns and build a corpus over the term of the policy. At the time of retirement, the corpus amount is converted into a monthly income (annuity) payable to the investor. The premium paid for pension policies qualifies for deduction under Section 80C of the Income Tax Act.
Healthcare
In addition to regular cash flows, another major postretirement concern is the expenditure on healthcare. Medical expenditure can be constant or variable in nature. There are many health insurance schemes available in the market. Many people subscribes to mediclaim policies that covers all major hospitalization expenses. Other healthcare policies available in the market include accident policies that cover death and disability of a family's breadwinner and even provide monthly pensions to the beneficiaries. Some healthcare policies cover all major diseases. In case the policyholder gets these diseases, he gets a lump sum payment in addition to periodic cash flows.
The idea here is to start planning early in life and diversity your investments (avoid relying on one source for all post-retirement needs). Investing early gives time to your investments to grow by way of compounding, and also, investors can invest in instruments with a higher risk-and-return ratio. A good retirement portfolio should have investments in mutual funds, insurance (life insurance as well as medical insurance), fixed deposits and properties.
Retirement planning should be an essential element of everyone's financial planning. Individuals should start planning for their retirement funds as early as possible in their life. If we look at the way our society is shaping (increase in average lifespan, nuclear families etc), it becomes even more important to plan carefully so that you are totally independent in your golden years. Planning for retirement is a comprehensive process for determining how much money you will need at the time of retirement.
Some people feel that retirement planning is important when you cross 40 years of age. It then becomes difficult to build a good corpus within the next few years and eventually these people end up investing in risky investment instruments. They invest their hard-earned money in risky stocks, where the returns are generally not certain.
There are many insurance instruments available in the market that provides different flavors to people in their post-retirement life.
Life Insurance
Many people use various insurance policies as their retirement planning tool to make life after retirement easy and pleasant. Most people invest in endowment life insurance policies. These plans invest most of their corpus in corporate bonds, G-secs and the money market instruments. They provide a safe/guaranteed return in the range of 4-7 percent. These policies provide life insurance during the active tenure and a lump sum amount at the time of maturity.
Unit-linked plans (ULIP) have been in the limelight from the last few years as the stock market was soaring. ULIP is like a mutual fund with a life cover added to it. They invest the corpus in equities as well as debt instruments and therefore promise to deliver better returns than regular endowment policies. Investments in ULIPs should be related to the individual's risk appetite. Individuals who can take higher risk (younger investors) should allocate a higher percentage of their investments to equities.
Pension Plan
Under pension plans, an individual decides his retirement age at the time of subscribing to the policy. The investor pays a regular premium to the insurance company and the insurance company invests this money in various instruments to earn returns and build a corpus over the term of the policy. At the time of retirement, the corpus amount is converted into a monthly income (annuity) payable to the investor. The premium paid for pension policies qualifies for deduction under Section 80C of the Income Tax Act.
Healthcare
In addition to regular cash flows, another major postretirement concern is the expenditure on healthcare. Medical expenditure can be constant or variable in nature. There are many health insurance schemes available in the market. Many people subscribes to mediclaim policies that covers all major hospitalization expenses. Other healthcare policies available in the market include accident policies that cover death and disability of a family's breadwinner and even provide monthly pensions to the beneficiaries. Some healthcare policies cover all major diseases. In case the policyholder gets these diseases, he gets a lump sum payment in addition to periodic cash flows.
The idea here is to start planning early in life and diversity your investments (avoid relying on one source for all post-retirement needs). Investing early gives time to your investments to grow by way of compounding, and also, investors can invest in instruments with a higher risk-and-return ratio. A good retirement portfolio should have investments in mutual funds, insurance (life insurance as well as medical insurance), fixed deposits and properties.
