When the topic of retirement is discussed, the main concern is usually the financing part. Having enough resources to manage life post-retirement is a vital concern for everyone. While many people start planning for their retirement quite early on in life, many people do not pay much attention to it till the time comes and they hit the panic button. In order to avoid such situations, it is always better to plan your retirement while you still can. If you are confused about where to begin, such as whether or not to invest in a pension plan, read on to know more about retirement planning.
What is a pension plan?
A pension plan is a type of life insurance product. This plan guarantees you a fixed income on a monthly basis post-retirement. The pay-out helps you in managing your regular expenses without the need of spending your savings. There are different types of plans that help you with retirement planning. Annuity plans, such as immediate and deferred plans, give you a monthly income. Other plans such as ULIPs offer you investment and insurance in the same policy.
How to plan your retirement efficiently?
Reema, 39, has been working for more than 15 years now. She has been married for 10 years and has two children. Reema earns more than her husband, which makes her the major contributor to the house expenses. While Reema has invested in a few financial instruments, she did not give retirement planning that much attention. One day, her friend was discussing with her about how she had invested in different types of pension plans for a financially secure future. This made her think more about financial planning in terms of retirement. Here are some of the steps that Reema took for retirement planning:
- Get in touch with an advisor
With most of the investments that Reema had done, she had done with her own knowledge without any external help. However, as she was unaware of how retirement planning can be done efficiently, she decided to get in touch with an advisor. The advisor first assessed her financial situation. Her income, her savings, her investments, etc., were analysed. These things helped him get an idea about Reema’s lifestyle and her household.
- Prepare a financial plan
Based on the assessment of Reema’s income and expenses, the advisor was able to help her map out a financial plan. This plan essentially gave her an idea about where she could cut costs, where to save tax, and where she could gain more wealth. While most of Reema’s investments were in mutual funds, she was also advised to invest in ULIPs as well. As ULIPs offer benefits of both investment and insurance, the plan was beneficial for her post-retirement.
- Invest in pension plans
The next step Reema was suggested was to invest in pension plans. She was informed about the different types of pension plans. Annuity plans were her first preference. There are two types of annuity plans: immediate and deferred. In the immediate plan, the monthly payment begins immediately after your retirement. In deferred plan, the payment starts at a point that is decided by you. Other plans are the national pension scheme (NPS) and provident fund. In NPS and PF, interest is added on the savings. Reema invested in these plans to have a stable source of income post-retirement.
- Change in nominee
In most of her investments and policies, Reema had nominated her husband. However, due to her husband’s health conditions, she decided to nominate her children. This ensured that her children would not face legal hurdles if she or her husband were to pass away suddenly. This also meant her children would have a secure future in the absence of their parents.
These were some of the steps that Reema took to create a proper financial plan for her retirement. Even though she started out late, she ensured there will be some financial stability during her retirement. You can follow these steps as well. If you are interested in investing in pension plans, you can use the retirement calculator to see how much your investments should be as per your age of retirement.