Financial planning for retirement

Gaurav Rajput
Aviva Life Insurance

Retirement in India is still viewed with trepidation. Though most of us have plans on what to do post retirement, most of us have not really planned for the same. Infact 5 out of 6 Indians who are about to retire in the next 5-10 years haven’t planned for their retirement. The majority of us think that our savings are enough for a comfortable retirement period. But are savings alone sufficient? With the rising inflation, the costs of unexpected critical illness and with no regular source of income, it is evident that savings cannot meet all our needs. One also needs to consider that we would not like to compromise on our current lifestyle. To be financially secure, one needs to start planning early, to save as much money as possible.

Proper planning, therefore, doesn’t remain an option but becomes a necessity.

A plethora of investment options are available in the market that can help you plan and reach your estimated retirement corpus. Ideally, it should be a combination of these options that will help you form a complete retirement portfolio based on your life stage and risk profile.

Some of the most effective tools are retirement or pension plans, endowment products and a combination of others like public provident fund, fixed deposits and equities.

Retirement or pension plans- You can invest in these plans offered by insurance and MF companies. These are long term plans which help you build corpus for your retirement needs. Insurance plans gives you an option of claiming up to 30% of your sum assured as lump sum upon maturity, while the rest is paid off as annuity. This makes sure that you don’t end up exhausting the entire corpus and funds are available for you at one go and ensure steady stream of capital throughout your retirement years. This is a good investment option as the lump sum received can help you kick start your retired life and the regular annuities can help take care of the basic household and medical expenses on an ongoing basis. For any individual, these pension plans should be also supplemented by a proper health insurance plan as mere savings won’t be adequate to meet rising cost of medical needs and any emergency.

Endowment plans– Investing in endowment plans can be also be an excellent option for risk averse customers as these are insurance cum investment plans where you need to 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 and invest further for regular income, depending on the policyholder’s financial standing and goals. The advantage of investing in these plans is that even if the policyholder doesn’t survive the entire policy tenure, the sum assured or life cover is paid to policyholder’s 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.

In addition to these, an individual can also go in for a combination of public provident saving schemes, fixed deposits and investment in equities through ulips and mutual funds to beat the inflation costs. Exposure to equities is based on the risk profile of the individual, however as one grows older, the exposure should reduce proportionately as it is affected by market volatility. If your risk appetite does not allow direct investment in equities, you can invest through ULIPs, as they adjust your equity exposure according to your risk appetite in the long term. Lastly, while your savings alone may not suffice your retirement needs, their importance cannot be undermined. In addition to these investments, it is also strongly recommended that you start saving for retirement as early as possible in life. 

Before choosing the type of investment, one must list out their priorities and their requirements. To be on the safe side, one can invest in a combination of financial assets.

Some of us want to go on a world tour, some want to pursue their hobbies and some just want to spend time with their children and grandchildren. Unfortunately, only a few of us have the resources in our retirement to do the things which we planned and dreamt about. Hence it is important that you start saving today to enjoy your golden years.

The writer is a Director Marketing at Aviva Life Insurance.