When it comes to financial planning, “planning for retirement” often falls by the wayside, with many individuals only seriously considering it in their 40s or later. However, this delay can lead to missed opportunities and unnecessary stress during retirement. Studies indicate that individuals typically need around 70-90 percent of their last income to maintain a comfortable retired life.
Retirement planning is essentially a two-step process – accumulation (savings) and annuity. Commencing the accumulation phase early offers distinct advantages, enabling regular contributions over an extended period, allowing funds to grow through compounding. Long-term savings products offered by life insurance companies can effectively aid in building a retirement fund while providing life coverage during the product’s tenure. Retirement tools and calculators available from insurers offer insights into required corpus sizes.
The benefits of starting early are evident when comparing scenarios. Consider a 30-year-old and a 40-year-old aiming to amass a retirement corpus of Rs 1 crore by age 60, with an assumed 8 percent annual return. The 30-year-old would need to invest Rs 1 lakh annually for 30 years, totaling Rs 30 lakh. In contrast, the 40-year-old would need to invest Rs 2 lakh annually for 20 years, totaling Rs 40 lakh. Various long-term savings products exist to construct diversified portfolios across asset classes, emphasizing the importance of regular contributions and sustained commitment to the product’s tenure.
Entering retirement without debts is a critical goal. Unsettled debts can deplete the retirement corpus, undermining its purpose. Effective financial prioritization in the years leading to retirement is crucial for optimizing available resources.
For retirees, guaranteed regular income is a primary concern, and annuity products cater to this need. By making a single premium payment, retirees can secure a lifelong stream of income. Annuity products come in Immediate and Deferred variants. Immediate annuity initiates regular income upon purchase, ideal for those nearing retirement. Deferred annuity, on the other hand, allows income deferral for up to 10 years. This option suits individuals as young as 50 or 55, offering higher income with extended deferral. These options can be blended to create a retirement income strategy featuring escalating income, vital to contend with rising living costs.
Certain annuity products offer unique features like early return of purchase price upon reaching specific ages. Joint Life annuity with a return of purchase price option ensures continuity of income for the secondary policyholder after the primary recipient’s demise. When both policyholders and annuitants pass away, the purchase price is returned to the nominee.
Commencing retirement planning early is undoubtedly sound advice, fostering a gradual corpus growth. This fund can then be channeled into an annuity product, guaranteeing steady lifelong income. Innovative annuity solutions, such as ICICI, SBI, TATA AIG, MAx Life Pension Plan, furnish retirement solutions with increasing income, empowering individuals to achieve financial independence during their golden years.
