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By the time we reach 30, the chances are that we have achieved most of the trivial pursuits in life such as career progression, independence, financial stability, and companionship. Thus, it is alright to feel a little chuffed and satisfied with life. But life? It can switch gears in a jiffy.
Have you paused and seriously thought about your life after retirement? How will you manage your expenses once your working years are over? If not, then this is probably the best time.
If you are in your late 20s and early 30s, you must realise how crucial retirement planning is and that you must start early to safeguard your life post-retirement financially. Moreover, if you’ve already started saving for your retirement, then you must take steps to protect your finances from market upheavals and devaluations.
If not carefully planned, you may end up with small savings that won’t suffice your post-retirement lifestyle expenses. Instead of just saving; therefore, you should focus on safeguarding your retirement savings.
Factors Affecting Your Financial Life after Retirement
Unlike your 20s and 30s, when you are young, spirited and gifted with youth, your life post-retirement will have several contingencies, both expected and unexpected. Here are a few that may crop up unannounced:
- Medical Inflation
In India, healthcare costs are increasing at an alarming rate. Thus, you could potentially deplete your retirement corpus, if you ignore the effects of ageing and adequate planning of expenses. Moreover, if you don’t have an adequate health cover, you may end up burning a significant hole in your savings.
To avoid such expenses; therefore, you need to purchase adequate health cover while you are working. The choice of health plan, in turn, depends upon several factors such as the insurer’s reputation, their persistency ratio and claim settlement procedures.
Given the fact that life expectancy rates continue to increase, you cannot underestimate the effect of inflation on your savings in the long term. During your working years, when you have an inflation-adjusted regular income, you may take care of lifestyle expenses while saving for your retirement.
After retirement; however, there will be no specific sources of regular income except for your accumulated savings. Hence, if you didn’t consider inflation in your calculations during the initial working years, you may end up slightly devaluing your savings.
As a rule of thumb, you must begin your retirement planning early by investing your savings in equities. Doing so will help you increase your retirement corpus significantly, with inflation-adjusted returns in the long term. You may start by investing 10 percent of your income into high-performing assets such as equities and continue doing so for the next 25-30 years. However, you should increase the quantum of these investments in proportion to your increasing income.
Also, when you are nearing retirement, you must look to diversify your investment portfolio into a variety of large-cap balanced funds and fixed income products such as debt mutual funds, National Pension System (NPS), Public Provident Fund (PPF), Bank fixed deposit (FD) and Senior Citizens’ Saving Scheme (SCSS)
Here are a few investment options that will not only help you maximise your retirement corpus but will also safeguard your savings from risks.
Monthly Income Plans
What is It?
Monthly Income Plans or MIPs are savings schemes that guarantee a monthly income for up to 10 years (differs from insurer to insurer) after the completion of the premium payment term.
Also, reputable life insurers such as Max Life Insurance offer a comprehensive life cover benefit along with accrued bonuses and terminal bonuses (upon maturity) throughout the policy period.
Life Insurance monthly income plans offer tax deductions on both premiums paid and death/maturity proceeds (as per applicable laws).
Unit-Linked Insurance Plana (ULIPs)
What is It?
In the simplest terms, ULIPs enable you to maximise your retirement savings through investments into a variety of equity and debt fund options.
Types of Investments
Overall, Unit-Linked Insurance Plans invest in an array of fund options that offer varying risk-tolerance capabilities and rates of returns. You can monitor the performance of each fund option periodically, by comparing their Net Asset Value (NAVs).
You can even switch between different fund options depending upon their respective market performance and returns.
Investments into ULIPs up to Rs. 1.5 lakh are tax exempted under Section 80C of the Income Tax Act 1961. On the other hand, the maturity benefits are excluded from taxation under Section 10(10D) of the Act.
Make Your Retirement Tension-free
We have distinctive views on how we wish to spend our retirement years. While some of us may want to purchase a retirement house in a far-away countryside, others may want to travel the world. Therefore, the cost associated with retirement will automatically be different for every individual.
Based on your retirement plans, therefore, you must start investing in an appropriate investment avenue from an early age. To make sure that your investment portfolio contains the mix of best long-term and short-term investment plan in India, you must devote much time in comparing different monthly income plans and ULIPs on their merits and shortcomings before investing in one.