How much money do you need to meet your retirement needs?

Retirement is an inevitable phase of life. When in the age of 20-30s, it is just a thought but as you near towards 40s, this thought starts gaining importance.

Financial planning plays a key role in achieving your retirement goals and aspirations. After retirement, you would have a desire to travel to different parts of the world or pursue your gardening hobby which you could not take up due to time/money constraints.

Calculate your retirement needs

While doing retirement planning, one question which always matters is what will be the capital/corpus amount with which you want to retire. Though answer to this question is not easy as corpus funds is more tailor-made figure and varies from person to person. It depends on the standard of living and lifestyle of the person. 

Suppose you have a current expense of Rs.50,000/- a month. Extrapolate it with inflation at an average rate of 6% at the end of 20 years (assuming you are 40), you will need Rs.1,60,000/- for monthly expenses. Add in the inflated medical costs minus the current obligation like loan and children’s education, you will still need a corpus of Rs.3.84 Crore.

If you go by this, accumulating such a huge corpus fund is very tough since expenses like EMI’s, children’s education, household and medical expenses form a big chunk of your salary. The answer to this worry is to buy a pension plan.

These plans  are annuity plans which provide you fixed amount every month, quarter, half yearly or yearly as per the terms of the policy.

It  help you secure your retirement in a secure way. It gives you the freedom to choose where you want to invest your money. The money can be invested in debt/government securities (traditional plans) or in equity market (ULIPs).

There are two phases in a pension plan, accumulation phase and annuity phase.

In the accumulation phase, the policy holder pays premium to the insurance company every year and in the annuity phase, the policy holder enjoys fixed income from the insurance company which will be received at frequent intervals.Opting for the best retirement plan India has become a significant aspect of every one’s life.

Benefits of buying a pension plan are:

Ø  Source of regular income

As there will be no paychecks post retirement, pension plans give a boost to the policy holder’s saving by providing regular income.

Ø  Tax Advantage

The premiums paid for traditional pension are eligible for exemption u/s sec 80CCC of the Income tax act.

Ø  Insurance cover to policy holder

The main purpose of these plans  is to help you build a capital fund so that it can provide you a steady income after retirement. However, few insurance companies provide you insurance cover too. In case of untimely death of the policy holder, a sum assured is given to the nominee of the policy holder.

Ø  Easy to buy

With the ease of buying pension plans online, you can compare among the various plans provided by insurance companies and opt for the one which suits you the most. Customer assistance is available around the clock all 365 days of the year.

Ø  Compounding benefit

Investment in pension plan helps you enjoy the benefit of compounding as your money is constantly invested so that the corpus funds are enhanced.

Ø  Flexibility in terms of investment

This plan provide you the flexibility to invest your money in government securities or ULIP’s or a balanced fund which is a mix of traditional pension plan and ULIP.

Few points should be kept in mind while choosing an annuity plan:

Ø  Your present age

If you are in 20-30 age group, then you have time to accumulate the corpus fund. However, early investment always reaps good return as it has adequate time for compounding.

Ø  Revisiting your financial plans with time

Accumulation of corpus fund is an estimated figure. Over time, you should revisit the amount and see if there is a need to revise it as per the current inflation and market conditions.

Ø  Take into account your industry

You might be working in an industry which is fragile by nature. Unusual events like a job loss could impact your investment decisions.

Ø  Take help from a financial planner

As financial planning helps you achieve your desires, in case of any doubt, do not hesitate to consult a financial planner who will enable you to attain your goals.

Source: How Much Money do You Need to Meet Your Retirement Needs?