Financial planning for retirement

Retirement is one of the most important stages in your life for which you work and should save for

Retirement is one of the most important stages in your life for which you work and should save for. It becomes even more critical as your comfort and security in your sunset years will depend on your retirement savings. With the advent of nuclear family system and reducing dependency on children,it is important that you plan ahead. A systematic and regular investment approach is required to build the nest egg for future financial security and help you maintain your current lifestyle as well as pay for critical medical expenses when your regular source of income stops.

The first step to retirement planning is to estimate the average amount that you would need every year to maintain your current lifestyle post retirement. This also has to be inflation adjusted and should take into account any emergency medical needs that may arise. In India,most people depend solely on their savings and accumulated PF for meeting these needs. Some of the most effective investment tools are retirement or pension plans,endowment products and a combination of others like public provident fund,fixed deposits and mutual funds.

Retirement and pension plans: These are long term plans which help build corpus for your retirement needs. Insurance plans give you an option of claiming up to 30 per cent of your sum assured as lump sum upon maturity,while the rest is paid off as annuity. The lump sum received can help you kick start your retired life and the regular annuities can help take care of the household and medical expenses on an ongoing basis. These pension plans should be also supplemented by health insurance plans as mere savings wont be adequate to meet rising cost of medical needs.

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Endowment plans: These are insurance cum investment plans where you pay regular premium for a specified tenure at the end of which a guaranteed accumulated corpus is paid to you as maturity value. The corpus received can be used to either pay off an existing loan liability or invest further for regular income. The advantage of investing in these plans is that even if the policyholder doesnt survive the entire policy tenure,the sum assured or life cover is paid to policyholders nominee,making sure that the financial goals of the family can still be met. These are

traditional insurance products and are low risk as they not affected by market volatility. You can also invest in a combination of PPFs,FDs and investment in equities through ULIPs and MFs to beat the inflation. Exposure to equities depends on the risk profile of the individual; however as one grows older,the exposure should reduce proportionately as it is affected by market volatility.

Your choice and degree of investment must vary depending on factors like your priorities and liabilities post retirement. For example,if you plan to start a small venture of your own post retirement,you must have an aggressive investment strategy with higher exposure to equity. But if you want to sit back and enjoy your golden days,you can go in for investments in bond which are safe and yield decent returns. Also,if you would be paying for your childs higher education or a home loan EMI post retirement,you must make provision for them in your retirement plan to avoid anyfinancial discomfort later.

Author is Director,Marketing and Products,Aviva Life

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