Retirement planning ...What to do

Retirement planning

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.

Below are 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.

Commitment

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.

Adjustment

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.

Detailing

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.


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:

Lock-in

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.

Cost

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. ~ Focus 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.


Where to invest for retirement?

WHOEVER said variety is good for consumers had no marketing sense.

An experiment with jams showed that when a customer had six options to choose from, the conversions were much higher than when he had 24 options to choose from. With so many options, the consumer gets paralysed with the burden of selection. Is this what is happening to retirement planning? Is that the reason why sensible people are procrastinating? There are various reasons why retirement planning has become imperative today: longer life span, increased medical costs, inflation etc. Even so, there are just a few takers.

Why don't you look at the options available?

Equity: Traditionally discouraged as a retirement planning tool, it could give your investments a boost if you start early.

Insurance: This one is popularly used for retirement planning. Experts say it should only be used as a risk cover, and not as an investment tool.

Provident Fund and Public Provident Fund: The all-time favourite option. Our grandfathers believed in these low-risk schemes implicitly.

Fixed deposits: Safe and secure, but may cower under inflation with their low returns.

Mutual funds: Preferable one, this. There are the professionals whose experience and expertise will come handy.

Property: Totally ever-appreciating asset in the long run, especially with the real estate boom. Small catch: the liquidity concern. Not everyone has money on hand to invest.


Happy Investing




Source : Moneycontrol.com
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