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Retirement planning is an essential part of a sound financial plan, especially at a younger age. When you begin preparing for your future earlier, there is sufficient time to tackle any unprecedented challenges and live comfortably in the meantime. Many reasons add up to the importance of retirement planning in life.
First, let us understand what is retirement planning to have a better idea of the necessary steps to take.
What is Retirement Planning?
Retirement planning is a process of setting retirement income goals and taking all the possible actions and making decisions, which are essential to achieve those retirement goals. Retirement planning includes evaluating sources of income, estimating expenses, and setting up an investment plan or savings plan to achieve the retirement goals by managing the risks and assets.
When you start earning, retirement planning is not an immediate concern. It may be reasonably easy to put it off till a later time in life. Nonetheless, you must remember that it is always in your best interest to be prepared. There may be many life events that are out of control, but the least you can do is prepare for them in financial terms. The same is true for retirement planning.
Each of us has an idea of what our life will look like after retirement. No matter what it is, it requires ample financial support to maintain your standard of life. Retirement planning simply means setting income goals for post-retirement life and determining the steps necessary to achieve them.
A significant part of retirement planning is identifying income sources, evaluating expenses, investing in savings programs, and managing the risks.
To put it plainly, retirement planning means devising financial strategies that will help you save, spend, and invest according to your long-term goals in the later age. There are many financial instruments available that aid in retirement planning, depending on the individual’s profile.
Importance of Retirement Planning
When you have a steady income source, most problems in life become easier to solve. A financial burden can lead to several harmful consequences, including health issues that will only add to your worries.
When you have an adequate understanding of what is retirement planning and how it affects your life, you are better equipped to deal with post-retirement challenges.
While you can begin retirement planning at any point in life, it may be more convenient to do it early. Depending on when you start your retirement planning, your goals may also change. The pace of life today makes it challenging to pause and reflect on the long-term plans at the right time.
Also Read: Benefits of Early Retirement Planning.
While a comfortable life may have varying connotations for everyone, the importance of retirement planning remains the same. It is crucial to consider the factors particular to you and calculate the adequate amount for a joyful life after retirement.
While you can begin retirement planning at any point in life, it may be more convenient to do it early. Depending on when you start your retirement planning, your goals may also change. The pace of life today makes it challenging to pause and reflect on the long-term plans at the right time.
Also Read: Benefits of Early Retirement Planning.
While a comfortable life may have varying connotations for everyone, the importance of retirement planning remains the same. It is crucial to consider the factors particular to you and calculate the adequate amount for a joyful life after retirement.
Benefits of Planning for Your Retirement
Financial security makes most things in life more convenient. Retirement planning provides that surety of being secure in monetary terms throughout life, regardless of employment. Let’s discuss the multitude of such reasons that make retirement planning essential for life.
1. Independence
Most people worry about being a burden to their family in their old age. It can also be emotionally distressing to be dependent on someone else for your expenses. Retirement planning allows you to maintain a good lifestyle without depending on family members.
Some people think of retirement as a time for achieving goals that were ignored due to more pressing needs in life. If you put in time and effort into retirement planning, such dreams can come true with ease.
2. Life Expectancy
You may not realize it now, but life after retirement is considerably long. For example, if someone retires at the age of 60, the average life expectancy of 70-75 years gives them many years to manage their post-retirement fund. This is what makes retirement planning at the right age more crucial.
3. Medical Costs
With each passing day, the cost of medical treatment is reaching new heights. A medical emergency can burn a massive hole in one’s savings. Furthermore, people are more susceptible to illnesses at an older age.
2. Life Expectancy
You may not realize it now, but life after retirement is considerably long. For example, if someone retires at the age of 60, the average life expectancy of 70-75 years gives them many years to manage their post-retirement fund. This is what makes retirement planning at the right age more crucial.
3. Medical Costs
With each passing day, the cost of medical treatment is reaching new heights. A medical emergency can burn a massive hole in one’s savings. Furthermore, people are more susceptible to illnesses at an older age.
Retirement planning is of immense importance to meet such expenses and receive quality medical care at a time of need.
4. Tax Relief
Each earning individual wishes to reduce their tax liability and maximize their savings. The government of India allows certain tax benefits on several financial instruments, which you can include in your retirement planning agenda. It is an effective way to plan for your future and save money in the present simultaneously. Tax benefits are as prevailing tax laws subject to change.
5. Peace of Mind
Your peace of mind is invaluable. The stress of managing money to meet your long-term and short-term expenses can be dreadful. It may even cause health-related issues such as hypertension and other unfortunate illnesses. It is more important to shield yourself from such problems at an older age.
Retirement planning is an effective method of ensuring a happy and healthy life for a long time.
Types of Retirement Plans in India
Currently Indians can choose from a wide range of retirement plans in order to ensure financial security for their golden years. Currently available options include annuity plans offered by life insurance companies, retirement funds from mutual fund companies, unit linked investment plans and the National Pension System. Below are key details regarding these retirement plans in India:
1. Immediate Annuity Plans
Annuity plans are designed to provide regular usually monthly income to the subscriber after retirement. In the case of immediate annuity plans, the subscriber makes a single lump sum investment after which the annuity pay outs start within 1 year. This retirement planning investment option is most suitable for individuals who are close to retirement.
2. Deferred Annuity Plans
In this type of annuity plan, the investor has the option to choose the timeframe or period over which he/she wants to receive the annuity payouts. To avail this type of retirement plan, the subscriber has to make multiple relatively small payments over a period of time during the accumulation phase. During this period, these small investments grow and create a corpus for retirement. The payouts from this annuity plan typically start after retirement.
3. Senior Citizen Savings Scheme
Senior Citizen Savings Scheme (SCSS) is a government-backed savings scheme designed to give regular income after retirement. This tax-saving investment option can be availed by retired individuals aged 60 years or more as well as by individuals aged between 55 and 60 years. The minimum investment allowed is Rs. 1000 annually and the maximum investment allowed is Rs. 15 lakh. The initial investment tenure allowed is 5 years with the option of extending for an additional 3 years after maturity. The interest payouts from this scheme occur every quarter and the current SCSS interest rate is 7.6% p.a. which is applicable till December 2022.
4. National Pension System
The national pension system (NPS) is a retirement plan that can be availed by any individual between the age of 18 and 70 years. This retirement plan offers tax benefits of up to Rs. 2 lakh in a financial year. This retirement planning option is suitable for investors who have moderate to high risk appetite through investments in market linked instruments. Investors can opt to invest in Equities, Corporate Bonds, Government Bonds and Alternative Investment Funds. NPS account matures after the subscriber is 60 years old and the amount can be used to purchase annuities and receive a monthly pension post retirement.
How do Retirement Plans work?
Typically, investments in a retirement plan or pension scheme should be started as part of retirement planning as early in life as possible. The early start to retirement planning means your investments will have a longer time to grow and you will also be able to invest a bigger amount as the accumulation phase would be longer.
After completion of the accumulation phase, the corpus created is used to purchase annuities that would provide a monthly income post-retirement. Additionally, even after being converted to annuities, the retirement corpus would also continue to grow. Depending upon the type of pension plan purchased, the annuity payouts can be life-long or for a limited term such as 10 years or 15 years post retirement. At the end of the annuity payout term, all monthly payouts will cease.
When Should You Start with Retirement Planning?
There is no perfect time to start with retirement planning. At different stages in life, your financial profile may look different. However, it is advisable to begin retirement planning in the early years of life. It helps spread the investments over an extended period, thereby reducing the burden on your regular income.
Typically, retirement planning includes three phases of investment, accumulation, and withdrawal. The first phase should start at the age of 30-50 when you can afford to save or invest a fair amount.
When Should You Start with Retirement Planning?
There is no perfect time to start with retirement planning. At different stages in life, your financial profile may look different. However, it is advisable to begin retirement planning in the early years of life. It helps spread the investments over an extended period, thereby reducing the burden on your regular income.
Typically, retirement planning includes three phases of investment, accumulation, and withdrawal. The first phase should start at the age of 30-50 when you can afford to save or invest a fair amount.
It is essential to understand your risk-taking ability in terms of age, income source, and more considerable expenses such as a child’s education, loans, and marriage.
When you are nearer to retirement, the focus should be on availing of the benefits from the assets acquired over time. You can enjoy them in the form of a monthly income or a lump-sum amount on retirement.
Max Life Retirement Plans
Retirement can be an enjoyable time of life if you plan for it well. Investing in a suitable retirement plan at the right time can help you reap incredible benefits. It is vital to choose the right retirement plan according to your requirements. It is a choice that has a long-term and significant impact on your life.
Max Life Insurance offers some of the suitable life insurance plans in India to fulfill your retirement planning goals. We understand the importance of retirement planning in life and strive to provide the best features to suit the needs of every individual.
Different Max Life retirement plans offer a range of benefits such as guaranteed income for a lifetime, flexible payout options, guaranteed benefits transferred to nominees, and many more.
Max Life Forever Young Pension Plan*, Max Life Guaranteed Lifetime Income Plan**, and Max Life Perfect Partner Super# are among the best retirement plans available in India.
As the policyholder, you must consider specific features like premium payment terms, annuity options, and vesting age when selecting a retirement plan. Thorough retirement planning is necessary to enjoy a life of independence and happiness.
Frequently Asked Questions (FAQs)
Q. How Do I Determine My Long-Term Financial Goals?
A. Certain milestone events in life require significant financial planning, such as marriage, childbirth, education, home loan, or car loan. It depends on the nature of your income and lifestyle how much you can allocate to these expenses. Remember to layout a financial plan keeping inflation in mind.
Q. Should I Save For Retirement Or Other Major Life Expenses First?
A. Your retirement planning is as essential as any other expense in life. You do not want to reach an age where the income source is compromised, and you have to make harsh compromises. However, take into account the urgency of other expenses in terms of your savings.
Q. What Is The Best Retirement Plan If I Am Self-Employed?
A. Unlike the salaried people, self-employed people have a different retirement planning approach since they do not have an EPF. Depending on your profile, you must try to expand the investment portfolio with PPFs and mutual funds. However, keep in mind to have a specific financial instrument for a particular goal and not mix them.
Q. What Happens In Case Of An Individual’s Demise Before Withdrawing Retirement Benefits?
A. In such a case, the retirement funds can be transferred to the beneficiary. You can assign a beneficiary at the time of purchasing a retirement plan.
Q. Should I Choose Lump Sum Payment Or Monthly Payment of Retirement Funds?
A. The method of payout entirely depends on your personal choice. Consider your expenses after retirement to make the decision. If you require a large sum of money at once for specific needs, a lump-sum payout is wise.
However, if you wish to have a steady income source every month to meet general expenses, monthly payout would be a suitable option for you.
*Max Life Forever Young Pension Plan (UIN: 104L075V03; A Unit-Linked Non-Participating Individual Pension Plan)
**Max Life Guaranteed Lifetime Income Plan (UIN: 104N076V10; Non-Linked Non-Participating Individual General Annuity Savings Plan)
#Max Life Life Perfect Partner Super (UIN: 104N077V03; Non Linked Participating Individual Life Insurance Savings Plan)
Sources
[1]https://www.forbes.com/advisor/in/retirement/how-to-plan-your-retirement/
[2]https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=62
[3]https://www.icicibank.com/blogs/pension-schemes/what-is-a-pension-plan-and-how-it-works
ARN: Apr23/Bg/01a
