When working on retirement planning, it’s important to think about what your retirement will look like.
Samarth did what his friends and family suggested him to do. He started investing Rs 10,000 a month in a retirement plan since 1994, when he was 35. Today, he realizes he needs at least Rs 1.5 – Rs 2 lakh a month when he retires this year. But if you look at the numbers, he was able to get a return of 7-8% a year and his money has nearly grown to Rs 1 crore. That money, stored in a ‘low-risk’ fixed deposit, will give him just Rs 64,000 per month.
Now when the time of retirement is near, he realizes that even Rs 1-crore plan isn’t enough to sustain his family’s needs and his retirement goals. He checked his expenses & realized that this is not at all sufficient for meeting monthly expenses. And with inflation, his expenses will only double in about 12 years. As a result, he’ll have to dip into the corpus to fund himself which means he will run out of money before time.
On the face of it, a nest egg of Rs 1 crore may appear big enough for a lot of retirees. But if taken all expenses into consideration such as outstanding loans, education or marriage of your children, medical expenses and above all – inflation, the same amount might not work for everyone.
Unfortunately, there is no doubt Indians are not saving like they used to save. Over the years, gross financial savings of Indian households have been range-bound — around 9-10 per cent of GDP. But net financial savings available for growth is falling. It fell from 7.2 per cent of GDP in 2011-12 to 6.5 per cent in 2017-18.
Technically, when working on retirement planning, it’s important to think about what your retirement will look like. Will you be content to focus on spending quality time with family and friends? Or does your ideal retirement involve lots of foreign travel and dining out at fancy restaurants? Also, think about expenses that may be less in retirement – like clothing – and expenses that could be more – like airline tickets or healthcare expenses. Of course, remember to calculate inflation, especially if you are more than a year or two from retirement. An easy rule of thumb says that you’ll need to replenish 70% to 80% of your pre-retirement income to lead a good retired life.
Retirement is an important reality for everyone. But it is easy to lose track of a long-term goal. While Samarth started saving at the right average time, yet ended up in a bad place. Simply because he didn’t plan it right. When planning for retirement, it’s always better to start as early as possible for best compounding returns and not to rely heavily on one source of savings. Because there are always emergencies in old-age. So, having a sufficient corpus to deal with all these is crucial.
Don’t Just Save, Compound Money
If you’re like most people and want to protect your retirement money by diversifying your investments, a whole life ULIP, besides some other options, can be a good choice for your needs. Since whole life ULIPs are designed in a way that offers you both protection and investment benefit, till the age of 99 to 100 years. These are the plans which not only take care of providing your beneficiaries with death benefit but also take cares of your living needs during your retirement. You have the flexibility to enter into Whole Life ULIPs at any age between 18 and 100 years and can exit at any age. You can also choose till what age you want to save money, or accumulate money. This could be till your retirement.
The maturity benefit you will receive at your retirement totally depends at what age you start. For instance, if at the age of 60 years, you expect your corpus to be around Rs 5 crore, then you need to start investing in Whole Life ULIP at least by the age of 30. And the amount that you would be required to invest per month till 60 years is just Rs 15,000. You have the option to receive the maturity benefit either as a lump sum or as a structured pay-out using Settlement Option. Depending on your needs or in case of any financial emergency, you can anytime increase or decrease your pension which is also tax-free. This is a specialised benefit in this product designed for people looking for flexibility in later stages of their life.
(By Vivek Jain, Head-Investments (Life Insurance), Policybazaar.com)