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How To Plan Retirement with a Life Insurance Policy @ Aditya Birla Sun Life Insurance

You can choose a pension plan according to your risk profile. For example – if you do not wish to take any risk, you can opt for a debt oriented plan. In case your risk profile is high, choosing an equity plan or diversified funds makes sense as equities

How to plan your retirement with a life insurance policy

A recent research on retirement planning conducted by a leading asset management company in association with IMRB international reveals some shocking data on the percentage of Indian populationwho have actually done retirement planning. With an increase in the overall life expectancy rate, it is expected that the percentage of people falling in the retired category by the year 2050 will form above 20% of the total population in India. In was found that out of the total working population, over 40% of the people stated that they would be taken care of by their family post retirement, while 35% did not want to invest as they felt that invest for future will reduce their current liquidity of funds. Another 21% were surprisingly unaware at all about retirement planning.

How to plan your retirement with a life insurance policy.jpg

Now that you have seen the above chart, do you know that only around 15% of the working population (people between ages of 30-35 years) has actually thought about retirement planning?Another surprising fact is that out of this 15%, only 35% are active investors. That means, only 6 people out of 100 are actually investing regularly.

India's per capita retirement and pension assets are not up to the desirable mark.This is either because we are not interested to invest for retirement or we do not know the importance of retirement planning and also how if not planned early, it could be disastrous for our golden years.

We all wish to have a happy retired life but fail to plan for it during our working years. The reason is, in India we typically depend on the corpus we get post retirement from the employer and think it will be sufficient during retirement years! But it is no so due to rising inflation, changing lifestyle and social obligations.

The chart below shows how the cost can increase after 25, 30 or 35 years. For example, your annual household expenses after 25 years could be as high as Rs 43 Lakhs compared to the current cost of Rs 10 Lakhs.

Annual Household Expenses 
Monthly Household Expenses after 20 yrs (6% inflation)
Monthly Household Expenses after 25 yrs (6% inflation)
Monthly Household Expenses after 30 yrs (6% inflation)
Rs 4.00 Lakhs
Rs 12.83 Lakhs
Rs 17.17 Lakhs
Rs 22.97 Lakhs
Rs 10.00 Lakhs
Rs 32.07 Lakhs
Rs 42.92 Lakhs
Rs 57.43 Lakhs
Rs 15.00 Lakhs
Rs 48.11 Lakhs
Rs 64.38 Lakhs
Rs 86.15 Lakhs
Your retirement planning can be made easy through life insurance policy.

There are many plans in life insurance to meet your various life goals. But retirement and pension plans help you save for your retirement and reap the benefits post your retirement. Under this plan, you pay a premium in lump sum amount or regular mode for a specific period of time and then geta regular stream of incometill you or your spouse survive.

Life Insurance 'Annuity Plans' or 'Annuities' offer regular income to people who have retired from work till such time they are alive.You can also buy annuity plans post retirement by investing a lump sum amount.
What is a pension plan and how it works?

You can choose a pension plan according to your risk profile. For example – if you do not wish to take any risk, you can opt for a debt oriented plan. In case your risk profile is high, choosing an equity plan or diversified funds makes sense as equities typically beat the returns of all other asset classes.

You can start accumulating premiums along with returns into a retirement corpus. You can start accumulating your retirement corpus from the start of working career in order to build a significant amount. You can choose a vesting (retirement) age after which youraccumulated corpus is used to purchase an annuity plan. You get a regular stream of income from this annuity payable throughout your life.

The period in which you build this corpus is known as 'accumulation phase' and when the corpus is vested, to buy an annuity to get a regular income is known as 'income phase'.

In case of your unfortunate death, your nominee gets the Guaranteed Death benefit and / or Fund Value, whichever is higher. The nominee can choose to withdraw the entire benefit or utilize the entire proceeds or a part of it to receive a regular income as per the policy term.

Income Tax benefit under section 80CCC of the Income Tax Act 1961 is available on the amount you are saving for your retirement through the 'accumulation phase'

Therefore, you should first do your retirement planning, choose right premium amount, appropriate term and then choose the right pension plan suiting you retirement planning through a life insurance policy.

What is annuity plan and how it works

  • An annuity plan is an insurance product which aims to provide you a regular source of income to you after your retirement till such time you are alive. The premiums to be paid towards purchasing this plan can either be made in a lump sum or regular installmentsover the defined premium paying term.

  • The annuity is payable to you till the time you die. Most of the companies pay annuities in the frequency chosen by you – monthly, quarterly, half yearly or yearly. Thusitensures a lifelong security and the longer you live, thel cheques or direct credit into your bank account.

  • You can decide the amount of premium (lump sum amount) you want to pay to purchase the annuity, depending on the amount of regular income you wish to receive post retirement.
The different payout options in an annuity plan

Individual annuity plans are offered by the insurance companies with different payout options and features. Let us now see some of the features –

  • A guaranteed annuity payable to the annuitant at a uniform rate. Upon the death of the annuitant, the payout ceases.
  • There are annuity plans which return the purchase price to the nominee on death of the annuitant.
  • There are annuity plans wherein you can receive annuities with a certain increasing percentage rate per annum. Upon the death of the annuitant, the annuity payments are stopped
  • There are annuities called 'Joint annuities'. These annuities offer regular payments till the time of death of the first annuitant. After the death of the first annuitant, the second annuitant continues to receive the annuity till his or her lifetime. On death of the second annuitant, the nominee or the beneficiary gets the purchase price of the annuity.
Retirement planning can be made easy by taking a Life Insurance policy. Choosing the right plan for you is the key to a happy retired life. By keeping certain factors such as the monthly amount you need post retirement, the inflation rate and the life expectancy, you must select the most appropriate annuity plan for yourself. After all the years of hard work you deserve to have a happy and comfortable retired life.