Retirement Planning: Plan Sufficient Pension For Retirement
Administrator 04-12-2018 04-12-2018
Reading this article shows your interest in a better life after retirement. Why not after leading life in our own terms everyone deserves a better life especially in his or her second part of life. When it comes to retirement we all know that someday everyone has to stop working for money with or without choice. This can happen because of many reasons like Job loss, health issues, market pressure, work pressure, physical fitness or just willingness to relax.
In next 20 years almost every working person today will be retired or will be thinking of taking retirement but most importantly, the people having source of regular monthly income will be able to do it smoothly. When 65 percent of we Indians are young it is of great importance to discuss the life after retirement, when younger generation will be busy in their rat race and none will have time for young people of today. So we need to discuss the issues of retirement.
Different reports suggest that life expectancy is increasing and as per recent report says the average Indian citizen will have life expectancy of 79 years of age. What about people with higher purchasing power of medicines and other medical facilities. Longer life span means people need to be prepared for a good life till 85 or 90 years of age. So people will need more funds for retirement.
Earlier we used to live in joint family system and for our personal and individual aspirations we chose to be in nuclear family of husband wife and kids only. This resulted in less care for senior citizens. At end the nuclear families will need higher domestic help, drivers and nursing help. All these need higher level of requirement of funds in life after retirement.
In present scenario the job market is competitive, pushing people to match with the competence level of younger teams. You created your position by replacing someone, this will happen again, someone will replace or at least try to replace your position and it’s healthy for the market to evolve. Most importantly the employer also looks for this kind of opportunity.
Overall job market pushes an individual to opt for forced retirement, earlier the life expectancy was less, now working years are less and non working years are much more than working years. This equation has pushed us to a situation where we need to plan our life after retirement very carefully. In this situation it is very difficult to create adequate kitty for retirement in working years as we need to save much and invest in the right asset class to get sufficient kitty to support us in the non working years after stopping work.
In India there is very little help from the Government to society, even if there is help in the name of weaker segments it is very less amount to be considered as help by middle class to lead life with dignity after retirement. So we need to be prepared for our retirement on our own resources.
The day one decides to retire, one can reduce expenses related with profession but all the other expense will increase, one spends more on holidays and after one takes retirement or stops working to relax everyday is holiday. We work in our life for different important milestones like home, car, kid’s education, marriage of children. After these important responsibilities the most neglected part is retirement. If we take 30 non working years it’s the 2nd part of life – the life to live your passion. When we know that
We need to plan accordingly. This is not planning your first year of retirement only, this is about planning your entire life after retirement, in these non working years the monthly expenses will keep on increasing year on year, in this scenario only adequate monthly income increasing yearly can be the only right solution for income after retirement.
We all know that positive inflation pushes the cost of living upwards, India is a developing country and someday we shall be number 1 so the inflation is going to be there in our lives for quite a long period. The fixed rate instruments for investments are available for short period of time and we need to keep an eye on these regularly, there are only a few instruments for investment in India which give returns more than inflation. This means if inflation for next 1 year is 7% and I invest Rs. 1 lac at 6.75% rate, I shall get Rs. 5400 as interest (after paying tax), in total after 1 year my maturity value is 105400 and on the contrary the value of my capital (by purchasing power) should be Rs. 107000, which means I lost my purchasing power by 1.5% in just 1 year. If this investment is continued for 20 years it will give a maturity value of 286000 with a loss of purchasing power by 26%.
This means in longer period this type of investment will reduce the quality of my life.
At present there are only two to three investment instruments which give you real return after paying taxes and keeping inflation. This results in losses for a large segment of society the middle class. All the good asset classes giving higher and comparatively safe returns are accessible by families from upper class only.
Only adequate monthly income increasing year on year to meet rising expenses of family is the only solution for life after retirement to maintain dignity. Our expenses are fixed; there is approximately no change in the basic structure of monthly expenses for family, the main difference is in the income of the family now family doesn’t get salary on 1st of every month. To lead life on the same terms one needs sufficient monthly income. One needs to ascertain the sources of income in the distribution phase of life after retirement carefully, before taking retirement or stopping work for money.
There are many popular sources of income after retirement among vast segments of society; these are Pension Plans, Senior Citizen’s Saving Scheme, Post office MIS, Systematic Withdrawal Plan of Mutual Funds, Rental Income from residential property and rental income from commercial property.
Some instruments are popular because of marketing and lack of information, pension plans are from the same category. There are 2 types of pension plans mainly
Deferred Pension Plan
Endowment Pension Plans
Unit Linked Pension plans
|Investment Approach||Annual Investment||Investment Years||Return||Total Investment||Retirement Corpus|
|Pension Plan (Bonus Linked)||Rs. 12000||30 Years||5%||Rs. 360000||Rs. 837129|
|Pension Plan (ULIP)||Rs. 12000||30 Years||14%||Rs. 360000||Rs. 1400000|
|With Inflation @7% value of Invested Capital||Rs. 360000||Rs. 1212876|
|Other Options (MF/Other)||Rs. 12000||30 Years||14%||Rs. 360000||Rs. 4500000|
Deferred pension plans are taken in accumulation phase of life, these plans give you a corpus fund at the end of term which gives you pension for life. People invest in these for a better life after retirement but in general these plans give you loss in terms of purchasing power resulting in erosion of capital and the person investing in these has to work for more years to cover the losses. Ultimately the amount of corpus decides the quality of life of family.
This is taken when one needs income from next month, in general these give you very low returns as pension to you.
|Monthly Pension from pension plan on corpus of 45 lacs|
|Year||Year 1||Year 5||Year 10||Year 20||Year 30|
The irony of these plans is the plan gives you very low returns and the amount of pension doesn’t increase while the expenses increase year on year. The income from these becomes insufficient in just 2 to 3 years which leads to decrease in quality of life in some time.
This income is similar to the income from pension plans.
Systematic withdrawal plans of Mutual Funds are becoming popular among people for monthly income. Mutual Funds are good for accumulation phase of life, when it comes to the 2nd part of life these give you marginal more return than fixed deposits but these are exposed to the risk of capital loss, in total the risk reward ratio is low. More over the huge corpus is finished by the age of life expectancy.
Most of the people miscalculate while taking decision to stop working or taking retirement. The proper planning of income after retirement is the key to a better life after retirement. In general people calculate the interest amount they will get from bank from the corpus they have in their retirement kitty or the defined retirement benefits they get. This always gives a faulty figure as the life after retirement is not the first year of retirement only.
We all need to lead our lives on our own terms only, so the right solution can be something like this.
Right solution for retirement
At Planyourworld you can plan your income for retirement with your wish.