Funding Retirement

27th March 2017

Finance Minister Mr. Arun Jaitley, in his 2016 union budget speech, articulated an aspiration to move towards a pensioned society. However, the 2011 census showed that only 12% of the working population were covered under any pension plan. The data contained in the last annual report of the Employee Provident Fund Organisation (EPFO) points out that the average accumulation in individual PF accounts is quite low.

As the regular income stream dries up as you draw near to your retirement, it is critical that you build a retirement corpus sufficient to cater to your expenses post retirement and if life expectancy is assumed as 80-90 years, the length of one’s retired life also becomes 20-30 years.This is where the importance of planning a retirement corpus comes into the picture. I have tried to indicate below, some of the best possible ways you can ensure a comfortable retirement corpus.

Estimate Post-Retirement Expenses

The hard fact about life is, that post retirement, regular income stops, but expenses don’t. Major retirement expenses include monthly household expenses, medical expenses, vacations or family visits etc. Future expenses must be carefully projected so that the arrangements can be made while the person is still working.

Balance between Spending & Savings

Typical human tendency is, to spend more during early years. This needs to be attended as soon as we start earning. Whatever is your income, every young person should learn to live within his/her means in order to avoid unnecessary spending.

Keep an Eye on Effect of Inflation

Inflation greatly effects retirement planning. So, a person should invest in such a manner that he/she is able to hedge against the effects of inflation.

Invest Smartly

There are several financial assets where one can put in money regularly till retirement.Some people think that traditional pension plans are a good way to invest and save, but there’s a catch. Traditional plans are inclined towards investment in debt funds as they assure a guaranteed sum assured at the end of the policy tenure. The other alternative could be unit-linked plans. A few reasons why you should opt for ULIPs over traditional retirement plans may help you change your thinking.

Higher returns

Picture this…Over 30 years, INR 10,000 invested in the Sensex would have turned into INR 5 lacs. But most investors haven’t made the most of the market’s returns. Since 1986, when the Sensex was first published, it stood at roughly 550 (with a base value of 100 dating back to 1979). Today, it stands at roughly 29,000, implying a gain of 52 times over 31 years. In compounded terms, that is a return of 14 percent, not including two percent dividend.

ULIPs offer a whole host of high, medium and low risk investment options under the same policy. You can choose an appropriate policy according to your risk taking appetite.

In a ULIP plan, your returns are expected to be much higher as the money is invested in equity markets. Through ULIPs, thus, you can build a big corpus by the time you retire.

Keep your eggs in different baskets

ULIPs also gives you the choice of choosing your investment options. So, if you are not comfortable with the idea of investing your money in equity markets, you can choose to invest in the debt market through a ULIP.

Staying Invested

In ULIPs you can increase your investment through top ups. However, you need to pay a premium allocation charge on the top-up premium. It is also advised that one should regularly top up their annual premium by an additional 15 to 20% in order to reach their retirement corpus goal.



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