So how do you decide which retirement plan is the best one for you? Here are the top six parameters to keep in mind when finalising one for your golden years.
Photograph: Chris Potter/Creative Commons
Retirement is one of the key life stages everyone needs to save for through their working life. When you choose to retire from work, you should also be able to retire financially. It essentially means that your savings should be enough to sustain the lifestyle you desire even when you are not working. And you don’t generally desire to reduce your lifestyle from where you are when you retire.
There are a plethora of options available for retirement planning. While each of these offers different features, retirement plans provide an ideal combination of both investment and protection. All retirement or pension plans are structured in two parts. The first one is accumulation, when the policy holder pays the premium and the second one is distribution when he or she gets a regular income, through an annuity payout post retirement.
1. Your investment should beat inflation
One of the most important factors of retirement planning is to ensure that your investment beats inflation as inflation eats into the value of your money over time. This is because of inflation, which in its most simple terms is the general rise in the level of prices. Hence it is important to ensure that your retirement plan gives you real returns i.e. returns which are adjusted for inflation.
Your plan should complement your existing retirement savings. In case you are overly invested in conservative instruments then your retirement plan should be focussed towards higher risk/return instruments.
3. Pension guarantee for self and spouse
Retirement is a goal which you share with your spouse. One key factor when evaluating a retirement plan is to check if it safeguards the completion of policy and guarantees pension for the spouse in case of an untimely death of the policy holder. Your retirement plan needs to cater to both yourself and your spouse. A good plan will ensure the benefit to your better half continues, even in your absence.
4. Benefits and bonus
It is worthwhile to check the additional benefits and bonus that you are being offered with your retirement plan. For example some plans may offer benefits like completion of the payment premiums for the spouse, in case of an untimely death of the policy holder, since your goals will still remain even if you don’t. You should also check if your retirement plan provides you the benefit of a loyalty bonus over the tenure as it helps you accumulate a larger amount for your retirement.
It is beneficial to start investing early in a retirement plan. However, the capacity to pay higher premiums may rise only over the years as income increases with growth in one’s career graph. Some plans also provide the flexibility of increasing contribution to the premiums through top-ups every year. Even as little as a 5 per cent top-up each year over 25 years can increase your retirement corpus by as much as 50 per cent.
6. Guaranteed income option
No matter how much one saves, there is always a chance that one can run out of money. Therefore you need some basic income guaranteed for life. This is where you should look at annuity products which give you guaranteed income throughout your retired life. These products come in a number of options which one can choose as per the individual requirement.
While choosing your retirement plan keeping the above things in mind will ensure that your investment caters to your needs and maximises your returns. Starting your retirement planning early and investing regularly can guarantee financially secure and carefree sunset years for you and your loved ones.
Aalok Bhan is Director & Head -- Product Solutions Management, Max Life Insurance