Retirement planning need not hinge on a single option. A basket of instruments can do the job
As you read reports of surging inflation, you begin to wonder if you have enough in your kitty. With many people not used to the habit of retirement planning, the concept is still the last item in the list of things to do. So, if someone gets worried and starts thinking about postretirement life, it is not completely out of place.
Technically, post-retirement life begins any time after the age of 50 and it is also reflected in the vesting period fixed by many insurance companies. In recent years, however, many individuals have begun to advance this figure by a couple of years due to a number of factors. It could be the dream to start an enterprise or the comfort of a kitty at disposal. While the former may still provide some regular source of income, the latter is technically a zero income period and hence requires greater planning.
The retirement planning in itself can be divided into a number of components as the general assumption is that an individual has at least a couple of decades to plan for this eventually. While the sum needed for the rest of life is not an easy figure to arrive at, one can take up the process as early as possible. Since income levels too change over a period of time, the allocation can vary for the better over a period of time. Hence, a plan or scheme signed up at the age of 30 need not be the end of all when the investor turns 50.
One of the good things about retirement planning is that it lets you do the investment over a long period of time. For instance, a parent does not have the luxury of building a corpus for a car purchase beyond 3-5 years and so is the case with planning for a child's future. For instance, a parent cannot think of setting aside a sum for a child's education beyond 20 years. On the contrary, an investor can build a corpus over a period of 30-35 years for his retirement kitty if he thinks about it early.
There are plenty of options for retirement planning and some may not carry the tag too. For instance, an investment in land or property can take care of retirement needs through their sale. On the other hand, there are also flexible products like stocks, systematic investment plans (SIPs) and pension plans which can come in handy after retirement. The choice of products and allocation has to be according to the comfort of the investor and his financial position. More importantly, one has to keep in mind the flexibility and tax implications of each product as they can have a greater impact over a period of time.
Among some of the options mentioned, the pension plan has lost flexibility because of restrictions imposed by the regulator, Insurance Regulatory and Development Authority. Now, pension plans come with guaranteed returns. This is a big plus but they have lost flexibility. More importantly, they also carry life cover and hence may not be suitable for all. Earlier, even a 50-year-old could think of a pension plan with a high premium paying term of five years. Now it is not the case as they have a minimum paying period of 10 years and because of life cover, can prove expensive. In a number of products, the premium is directly correlated to the life cover and hence an investor cannot call the shots.
But the positive aspect of the new pension plan is that it forces the investor to think long-term and is particularly advantageous for young investors. For instance, a 30-year-old gets the advantage of life cover and pension with a single product and because of his age, the mortality rates too aren't high.
While no single product can do the job of pension planning, a combination of products can definitely do the job. Investors can have a basket of products for their retirement portfolio by opting for equity, debt, pension plan and property among others. More importantly, they have to monitor the performances and shuffle the portfolio at regular intervals.
