While it is best to begin early, there are options for those starting on their retirement plans later in life too
It is very important to think about and plan for life after retirement. Individuals should start planning for their retirement fund as early as possible. Investing early gives time to your investments to grow by way of compounding. Also, one can invest in instruments with a higher risk-return ratio.
Considering factors such as increase in average lifespan, financial commitments, higher cost of living, higher cost of medication, competition, nuclear families etc, it becomes even more important to start early so that you become totally independent in your golden years.
Although it is important that one should start retirement planning as early as possible, there is no hard and fast rule on when one should start. The point is that you should not delay it unnecessarily. Those who have not yet thought about retirement planning can start from today.
Some feel that retirement planning is important after the middle age, say around 40 years. In fact, pension planning at a later age becomes difficult as there won't be much time to build and develop a good corpus to sustain a high standard of retired life. Nevertheless, it's better to plan now even if you could not start early enough.
Here are some tips for those who start late:
Finance planning
It is very important to build a retirement fund. It's better to given some time to planning rather than just go after some available instruments haphazardly. There are some significant points that one should consider while planning for retirement.
The needs of every individual are different and therefore one formula cannot be applied to everyone. Therefore, it is important to determine various objectives like regular income, corpus building etc. You should determine your risk appetite while zeroing in on the investment instruments.
Healthcare is one of the necessities during the later years. With medical treatment being expensive it is important to think about taking appropriate insurance cover keeping the retirement years in mind.
One can also plan to use the free time after retirement and hence open a means to generate some cash flows.
Instruments and options
These are some of the investment instruments that can form part of a retirement plan:
Pension plan policy
This is one of the simplest ways for retirement planning. Under the pension plan, 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 income tax rebate under Section 80C of the Income Tax Act.
Market instruments
Investments in equity based instruments give good returns. However, one should be careful as the returns are subject to market volatility. It is a good idea to invest partially in equity based instruments to build a corpus even for late starters. However, one should invest from a long-term perspective and have realistic returns expectations from the equity instruments.
Healthcare policy
In addition to regular cash flows, another major postretirement concern is the expenditure on healthcare. Medical expenditure can be constant or variable in nature. Usually, healthcare policies do not cover expenses related to pre-existing ailments. Therefore, it is important to subscribe to adequate healthcare policies at the earliest to get proper coverage at a lower premium.
