RETIREMENT need not be only about gardening and reading. If planned for, it can be the best stage of your life, without children that need attention and loans that need paying.
We offers some pointers on how to plan your retirement.
To plan your retirement, you need~ Time
Start early. Use the power of compounding that can make even a small amount add up to a substantial one. Start channelling a small amount of your investments to a suitable pension option.
This needs discipline. No matter what your expenses, there should be a regular outflow towards your goal till you retire. This is often easier said than done because your immediate needs may seem stronger than a future requirement.
Prices will rise by the time you retire and continue rising post your retirement. Account for inflation because it will affect you as long as live. Your standard of living might change. In fact, it would have
constituted a major increase in your expenditure pattern rather than inflation, over the last few years.
Use our cost of living tool to see how inflation will affect your post retirement costs.
When accounting for base expenses for your retirement, don't forget to include all expenses currently being reimbursed by your company. Medical or travelling expenses may not pinch you right now, but they will at a later stage, since you will bear them yourself post retirement.
Use our Retirement Planner to calculate how much you would need after you retire and how to save up for it.
Selecting the right option
At this stage, keep your options open on an annuity distribution cycle and service providers. Once pension options open up in India, we might see a variety of more suitable options available.
But till then, bear in mind the following:
Your pension plan should not have any flexibility or liquidity options. Avoid withdrawal or liquidity options during the contribution (wealth creation) period. The corpus you generate must be available for an immediate annuity option from the time you retire.
Unit Linked Insurance Plans, popularly called ULIPs, are a good bet for the longer term. But when you choose unit-linked plans you need to look into the overall cost structure, which impairs the total return in the long-term as well as the performance of the fund.
~ Tax benefits
Understand the tax benefits of any pension plan. Your accumulated corpus must be tax free; only annuities at the time of receipt should be taxed. You will have the flexibility to frame the annuity cycle when you retire, so you can work it out at the time of maturity, depending on the prevailing tax rates. Making any guesses about the tax structure about that time would be hazardous.
Try never to look at additional benefits. Each of these will cost you and, thus, reduce maturity benefits. Any pension plan should only generate maximum retirement corpus.
Here are some smart options that you can choose from.
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