It is easier to ensure a steady income stream through your retirement years if you plan early
Some things are hard to predict and planning for post-retirement is surely one of them. The task is more challenging in the current scenario with the growing uncertainties. You are not sure whether you will drag on till 58 or 60 in your current job and the uncertainty could even come from you if you decide to hang up your boots for entrepreneurship in your mid-40s. However, this is for those who are planning to have a long innings in their current job and have a few decades on hand to plan for retirement.
Here's how you can plan for a comfortable retirement:
List out expenses
Before you set out to plan for your life after retirement, check out your expenses. Some of those expenses may not be visible at present but could prove to be a key factor at a later stage. A classic example of this is medical expenditure. As you are aware, medical insurance too does not take care of medical expenses which could be in the form of medicines or regular check-ups. While this expense may not exist during working life, it becomes an integral portion for many at a later stage in life. And interestingly, this expense has shown the tendency to move up well above the normal inflation rate, and hence, you need to brace up for this expenditure with proper planning.
Besides, medical expenses, think of some of the nonrecurring expenses which may not exactly be part of your daily consumption. For instance, a television set is unlikely to serve you for life and the chances are that you may have to buy 1-2 new sets even after retirement.
Similarly, your planning needs to take into account short holidays, gifts for the dear ones on special occasions etc. They may not form part of your monthly expense and your pension plan may not account for it, but you need to keep these expenses in mind. For such irregular expenses, an equity fund with dividend payout or an MIP with systematic withdrawal can do the job.
Pension plans
Now the question is, how does one plan for post-retirement life? The commonly known products are pension plans. Till now, many employers took care of this facility by deducting a portion of the amount from the salary. Though it didn't take care of complete monthly expenditure for too long, it provided the basic liquidity for individuals who hadn't planned for life after retirement. However, over the years, many companies have withdrawn this facility and have forced individuals to focus on retirement planning. Since the task is a reality, it makes sense for individuals to think of retirement planning well in advance.
Those who think of it at an early stage can rely on purely a pension plan. This could be in the form monthly or annual contributions. A pension plan with long tenure can look at higher equity component as this can be less risky over the long term. Since pension plans allow plenty of flexibility in terms of asset allocation, it can come in handy in the long term.
However, not every individual can have the luxury of pension plans at an early stage. For instance, some might have invested large sums in equity and ignored products like pension plans. Such professionals can look at pension plans with a single premium component or can look at it for funding a portion of their future cash flows. The need for a pension plan is a necessity because it ensures cash flows without active fund management. On the other hand, other investment options like property, equity and debt would need regular monitoring and products like equity are highly illiquid.
Some things are hard to predict and planning for post-retirement is surely one of them. The task is more challenging in the current scenario with the growing uncertainties. You are not sure whether you will drag on till 58 or 60 in your current job and the uncertainty could even come from you if you decide to hang up your boots for entrepreneurship in your mid-40s. However, this is for those who are planning to have a long innings in their current job and have a few decades on hand to plan for retirement.
Here's how you can plan for a comfortable retirement:
List out expenses
Before you set out to plan for your life after retirement, check out your expenses. Some of those expenses may not be visible at present but could prove to be a key factor at a later stage. A classic example of this is medical expenditure. As you are aware, medical insurance too does not take care of medical expenses which could be in the form of medicines or regular check-ups. While this expense may not exist during working life, it becomes an integral portion for many at a later stage in life. And interestingly, this expense has shown the tendency to move up well above the normal inflation rate, and hence, you need to brace up for this expenditure with proper planning.
Besides, medical expenses, think of some of the nonrecurring expenses which may not exactly be part of your daily consumption. For instance, a television set is unlikely to serve you for life and the chances are that you may have to buy 1-2 new sets even after retirement.
Similarly, your planning needs to take into account short holidays, gifts for the dear ones on special occasions etc. They may not form part of your monthly expense and your pension plan may not account for it, but you need to keep these expenses in mind. For such irregular expenses, an equity fund with dividend payout or an MIP with systematic withdrawal can do the job.
Pension plans
Now the question is, how does one plan for post-retirement life? The commonly known products are pension plans. Till now, many employers took care of this facility by deducting a portion of the amount from the salary. Though it didn't take care of complete monthly expenditure for too long, it provided the basic liquidity for individuals who hadn't planned for life after retirement. However, over the years, many companies have withdrawn this facility and have forced individuals to focus on retirement planning. Since the task is a reality, it makes sense for individuals to think of retirement planning well in advance.
Those who think of it at an early stage can rely on purely a pension plan. This could be in the form monthly or annual contributions. A pension plan with long tenure can look at higher equity component as this can be less risky over the long term. Since pension plans allow plenty of flexibility in terms of asset allocation, it can come in handy in the long term.
However, not every individual can have the luxury of pension plans at an early stage. For instance, some might have invested large sums in equity and ignored products like pension plans. Such professionals can look at pension plans with a single premium component or can look at it for funding a portion of their future cash flows. The need for a pension plan is a necessity because it ensures cash flows without active fund management. On the other hand, other investment options like property, equity and debt would need regular monitoring and products like equity are highly illiquid.
