I Already Have A Term Plan, Do I Need A Retirement Plan?

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Introduction

Every phase of your life requires a different level of financial preparation. Investing in term insurance is an economical, prudent choice to safeguard your family in the event of an untoward death, however, only for a specified period. Moreover, steadily increasing healthcare has given a boost to the life expectancy of individuals, which is now pegged at 68 years for Indians. So what happens when you retire at 60 and stand on the brink of your golden years?

The Government pension scheme does not service private sector employees in India. This is when the benefits of a well-envisioned retirement plan can be enjoyed. In a time of rising healthcare costs and living expenses, it ensures that you remain self-sufficient even without a source of income. To make the most of your retirement, you are advised to start investing in your plan as early as possible.

Build a retirement corpus

Your retirement corpus is the fund you will have saved during your working years for post-retirement life. A term plan can only guarantee the well-being of the family upon the demise of its breadwinner and not a steady income for when you stop working. Due to the compounding effect, the earlier you begin planning, the more you will have contributed to your retirement corpus. A small amount of money set aside early will yield more gains, having been invested for a longer period.

Unforeseen expenses

One can never be too careful, especially at an age when medical expenses can crop up often and unexpectedly. Medical services are constantly becoming more expensive, as is evidenced by an increase in healthcare inflation at double the rate of retail inflation in 2019. Diagnosis of a serious illness and subsequent hospital expenses could deal a significant blow to your savings. This is when a nest egg could help you tide over the crisis.

Protect your assets

Often families are forced to sell their property and assets during emergencies such as illness and injury, or just to support their lifestyle. A retirement plan built with foresight could help avoid such additional financial burden on you, your spouse, and your family. Assets such as land and buildings may also be difficult to liquidate during a pressing emergency. Your retirement corpus will ensure that your possessions are protected for your family’s future.

Enjoy benefits as your wealth grows

Retirement planning comes with a number of tax benefits1. Certain pension plans qualify for such benefits under Section 80CCC of the Income Tax Act. Some plans also offer customisations with options on payment, maturity benefits, life insurance, and death benefits -- something that features in term plans as well. You may strategically diversify by allocating funds to various accounts that are taxable, tax-free or where taxes are deferred.

Some retirement plans are a combination of investment and insurance. Depending on a policyholder's risk-taking ability, money is invested in relatively safer assets such as bonds. Other plans, however, invest in equity funds as well to multiply the investors' wealth.

1 Tax benefits are subject to changes in tax laws.

Inflation

In developing economies, consumer inflation continues to rise. Its effects, although small now, can be significant by the time you have retired. The sting of price rise will be felt sharply, especially when you do not have an active source of income. A comfortable sum of money set aside for the future, therefore, should be essential to your financial planning.

Conclusion

After years of employment, every person deserves to live their retirement life comfortably, respectfully, and with the knowledge that their loved ones are taken care of. Early investment in a retirement plan will promise benefits that term plans cannot provide, and make it easier for you to plan major life decisions now.

ADV/3/20-21/2643

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