Plan early for a trouble-free retirement

Increasing life expectancy and surging inflation coupled with nuclear family system in the country make it imperative for people to plan for their retirement.

Given that today, the average age of retirement is 55, a person who starts working at the age of say 25 would have a career spanning approximately 30 years. As it can be safely assumed that he could live for another 20 to 25 years, it’s vital that plans for his retirement.

 “The Indian economy lacks access to a comprehensive and in-built social security regime unlike other developed economies, and is constantly under strain due to rising life expectancy. This coupled with the increasing trend of nuclear family system in India, makes it imperative for individuals to plan their savings towards meeting their post retirement lifestyle, today,” says Jayanth Dua, MD & CEO, Birla Sunlife Insurance Co Ltd.

Among the various options available, insurance products designed for retirement provide people with the option of investment and protection. A pension product of a life insurance company is designed to generate regular income after a person retires, making their life post retirement financially secure.
Two kinds of pension products offered by life insurance companies are immediate and deferred annuities. While an immediate annuity plan is a contract that is bought with single time payment with a specified payment plan which starts immediately, a deferred annuity contract that delays payment until the person chooses to retire. This type of annuity is divided into two phases.

One, the savings phase in which money is invested into the account during the investor’s working years, and the income phase in which payments are received post retirement.

Deferred annuity is available as traditional as well as unit-linked investment plans (Ulip) options. As traditional plans invest largely in fixed income securities which generate interest, they are suited for people who prefer guaranteed and stable returns after retirement. Ulip pension plans, however, could provide higher returns as they invest in a combination of debt and equity instruments.

“While investing in a pension plans one should consider the asset mix. Ideally, you should have a bias to equities at the early stages of your investment plan which should gradually shift in favor of debt as you retirement age approaches. This is to ensure that your corpus is protected and is less susceptible to market fluctuations during the later years,” says Sanjay Tripathy, executive vice-president, marketing & direct channels, HDFC Standard Life Insurance Company.

Annuity guaranteed for a fixed phase is of one kind. Under annuity with return of purchase price, the nominee will get the annuity at the purchase price in the event of the death of the insured. A particular amount would be paid every year to get an annuity payable for lifetime.

Every year, a rising portion of pensions in terms of percentage falls under the category of higher annuity. The survivor of the family gets a certain percentage of pensions if it is a joint life survivor annuity.

“One can opt for other retirement options other than insurance products which can be broken off half way. But in due course, one can shift to pension products of life insurance companies which are unbreakable so that the corpus remains unutilised and can be used well during post retirement,” says Sandeep Asthana, country head- India, Sunlife Financial.

The earlier you begin the more you gain for the retirement. “One should start retirement planning once he or she is financially settled. But ideally they can begin at around 30 years of age. Paying capacity, general inflation and salary hikes should be taken into consideration while planning for retirement,” says Sanjeev Pujari, appointed actuary, SBI Life Insurance.