How much will be enough? That’s the question everyone stops at. There is no one answer. It depends on your current income, your lifestyle, your dependencies, etc. And how much ever you need, you can’t save it all. You will have to let your money grow to that.
For instance, Amit retires with a lump sum amount of Rs 50 lakh as a part of his retirement benefits. However, 8-10 years post-retirement he found himself in dire straits as he had used up all his savings for other goals including funding his child’s higher education, buying a car and a property. Because of this, he had no choice but to resume work again as a consultant in his old age to support his financial requirements.
Abhishek Misra, CEO and Principal Officer, Bonanza Insurance Broker says, “There are many people who after retirement end up using the lump sum amount they receive on retirement for other goals such as buying a property or a vehicle, exotic vacations, children’s education or marriage. As a result, they end up either depending on others for money or are forced to take up work again.”
He further adds, “Therefore, it is important to opt for regular income even after retirement.”
Here are a few reasons why regular income is important even after retirement:
For financial independence
In the absence of regular income, one has to depend on others or compromise on one’s basic necessities. Hence, having a regular source of income can ensure financial independence and the freedom to live on your own terms.
To take care of health issues
Health problems tend to increase with increasing age. Health insurance is the first solution but most don’t opt for it and depend on their employer-provided one. After retirement, they are left with no insurance cover.
Misra points out, “A regular source of income even after retirement can ensure that one can avail the best treatment without compromising on other needs.”
To take care of monthly expenses for the rest of the life
Industry experts say the average lifespan of humans has increased over the last few decades. This means it is important to have a source of regular income to take care of your monthly expenses as long as you are alive.
Tendency to use lumpsum amount received on retirement for other expenses
“Due to the emotional quotient associated with family’s needs especially those of children like higher education or marriage, many people tend to use their retirement corpus for other goals,” explains Misra.
Therefore, in the absence of regular income after retirement, such situations can cause a lot of financial and mental stress at later stages of life.
Where to park the money?
“Retirement is an ideal time to take up one’s hobbies or interests. It is also a time when one should be free of financial stress,” says Misra.
There are many investment options available for retirement planning such as direct equities, mutual funds and pension plans offered by life insurance companies. However, Misra says “it is important to note that every investment comes with its own set of pros and cons. For example, while direct equities and mutual fund investments have the potential to generate high returns, the risk factor associated with them is also high. Pension plans offered by life insurance companies offer moderate but assured returns.”
Further experts say a regular annuity plan can help one generate income on a regular basis to take care of various monthly expenses. By investing even a small amount on a regular basis in a deferred pension plan, for instance, one can build a huge corpus over the long term as the time horizon is large. The corpus thus generated can provide annuity on a regular basis to take care of your monthly expenses.
Before investing in any financial instrument, it is important to look at one’s own risk appetite. As planning for a comfortable retirement is an unavoidable goal, one should choose their investment for the same with adequate diversification among different financial instruments. Misra adds, “The guarantee element associated with pension plans offered by life insurance companies makes it a must-have in one’s overall investment portfolio for retirement planning.”