The COVID-19 pandemic has become an eye-opener for several individuals. People are no longer only focussing on accumulating wealth and material growth. Instead, they are now opting to spend quality time with their loved ones, care for their health, and fulfill their passions as much as possible. This shift has prompted a clarion call amongst several professionals with regard to opting for early retirement.
A growing number of Indian professionals are retiring early to pursue other life goals, hobbies, travel, and in some cases, entrepreneurship. However, it goes without saying that many of them could take this step since they had adequate financial security to back them up. Do you plan for the same?
It is possible if you invest in a good retirement plan while in your early years. Considering the ever-rising inflation, you should start as early as possible to build a sizable corpus that will help you retire earlier than expected. You can use an online retirement calculator to determine the amount you will need to accrue and then work towards a strategic plan for achieving the same in a certain number of years without compromising on your other investments, necessities, expenditures, and so on.
Some Essential Points to Remember For Retirement Planning
- Being financially independent comes first. You should not only emphasize the age of retirement. Try to be financially secure before crossing the retirement threshold, so that you can live your life comfortably without any dependencies on an organization or your family.
- Make sure that you are insured – If you have adequate life insurance coverage, then you can sleep better at night, knowing that your family’s financial future is secured even in your absence.
- Health insurance is mandatory, along with coverage for critical illnesses and accidental death/disabilities added to your life insurance plan.
- Keep evolving your investment goals as you reach your targeted retirement age, and you should do this as per your evolving risk tolerance and financial goals. In this case, you can steadily de-risk your portfolio by shifting more towards safer investment avenues with age and higher responsibilities.
- Successful retirement planning necessitates continuous portfolio reviews. You should always keep an eye on the market and how your investment portfolio is performing. This will help you tweak your asset allocation for the best possible results.
Types Of Plans That You Can Invest In
If you are looking for early retirement, you must choose an investment plan early and give your funds a longer period to grow and compound. Here is a guide to some of the plans that you can invest in for a smooth and comfortable retirement:
- ULIPs – Unit Linked Insurance Plans offer returns linked to the market and help you accumulate a sizable corpus over the long haul. You also get life coverage throughout your policy tenure while getting maturity benefits at the expiry of the policy term. You can comfortably build your retirement corpus with these flexible plans, where you can choose funds for investment based on your risk appetite and also get tax benefits under Section 80C of the Income Tax Act, 1961, on your premium payments, up to Rs. 1.5 Lacs per year. You can also keep switching your funds at various stages in response to market conditions and your risk-taking capacity.
- Pension Funds – Pension funds are a kind of pension plan that cover employees’ retirement expenses. By regularly contributing a fixed amount to your pension fund, you will gradually amass a sizeable corpus for your retirement. Some examples of pension funds in India include Employee Provident Fund and Public Provident Fund.
- Pension Plans or Annuity Plans – Under these plans, the insurer will invest the premiums you pay and pays back the returns generated from it. Once the plan matures at your retirement, you will get periodic annuity payments. Annuity plans can be further divided into the following:
- Deferred Annuity
- Immediate Annuity
- Deferred Certain Annuity
- Guaranteed Period Annuity
- Life Annuity
You can learn more about these annuity plans online and choose the one that suits your needs the most.
- Pension Plans With or Without Life Cover – Some pension plans come with the added advantage of a life cover. These pay out a lump sum death benefit to the nominees of the policyholder in case of their untimely death. On the other hand, pension plans without life cover offer no such benefits.
- Endowment Plans – These are life insurance policies that allow the policyholder to build up savings as well. If you are risk-averse by nature and want something entirely safe and secure, then you can choose an endowment plan at the outset. This gives you life coverage while the savings accumulate until the policy tenure ends. These are paid out as maturity benefits (including any cumulative bonuses).
- National Pension Scheme (NPS) – This is a pension program offered by the Central Government. Except for the military forces, employees from the public, private, and even unorganized sectors can invest in this plan. In accordance with this plan, you can contribute to a pension account while employed. Following retirement, you may withdraw a percentage of the accrued sum. The remaining money will be paid as a monthly pension once you retire.
Now that you have an idea of the different retirement investment options available, you can take your time in comparing each one carefully. Then, choose an option that fits your needs and your future goals. Then, once you attain financial freedom, you can also consider early retirement and pursue other interests in life.