When it comes to retirement planning, it’s the middle years of our lives that are the most important. It is at this stage that we plan our earnings and savings to ensure a comfortable old age.
However, many people don’t understand the need to start pooling funds for retirement early on. They delay their planning and start at a later stage in life.
This is perhaps the biggest mistake people make as planning early on means lower contributions towards your retirement corpus. If you start late, the contributions need to be higher to make up for lost time and money.
As no one would like to alter his or her lifestyle after retirement; it is necessary to come up with a concrete figure to maintain the same lifestyle during retirement. Undershooting projections could lead to a shortfall later on and starting early ensures that your retirement needs are met in the future.
There are two phases of retirement planning — the accumulation phase and payment of annuities. The accumulation phase involves building a sufficient corpus to take care of retirement needs. Simply keeping aside some part of income every month in a fixed deposit does not qualify as accumulation of corpus.
You need to remember that inflation will catch up along the way and the money will prove to be inadequate unless invested properly. You need to make optimum use of the money you set aside to maximise benefits before retirement begins.
A slew of retirement plans by insurance agencies have been hitting market shores. These agencies have also realised the importance of retirement planning. Due to aggressive sales pitches and excessive advertising, individuals are often drawn towards them, many a times opting for a flawed product.
This is mainly due to a lack of awareness about other products in the market. This lack of knowledge helps insurance agencies market their products easily.
Also, marketing agents often use the fear factor to their advantage. Especially vulnerable are those who have not thought about their retirement.
One should realise that every individual has different needs for retirement and the same product doesn’t work for all. A case-by-case approach needs to be adopted and products should be suggested based on their needs.
For instance, during the annuity phase, a majority of pension plans provide only a fixed sum of money on a monthly or yearly basis. As they do not take into account the effect of inflation, the amount could prove inadequate in a few years.
Also, a majority of pension plans have high administration charges and often high load structures. This gives your money little chance to appreciate, as these charges eat away the corpus. Though the charges seem small at face value, a closer look reveals that they could be significant.
The table gives a comparison of the cost structures associated with various products. One of the better retirement plans from an insurance company has been taken and compared with retirement plans offered by mutual fund houses and other diversified index funds.
Only pure equity funds are considered here, since equity is the best asset class for sustained long-term investment. However, the results and observations are valid for debt schemes, too.
A couple of things are evident from the table.
First, there is nothing ‘special’ about the so-called retirement plans. Even though they lack special benefits, they are high-cost products with lower flexibility and liquidity. The name ‘retirement plan’ is actually a misnomer and does not bring anything special or additional to the investor.
Second, index funds have the lowest cost structures among all the options available. Their performance too has been on par with retirement plans-making them even more desirable.
If investors want to seek further upside, diversified equity funds may be the best option available to investor.
Though their cost structure is similar to retirement plans, mutual funds offer greater flexibility to choose across fund houses and have a greater upside in the long run.
Individuals should widen their horizons and explore better options while choosing the instrument to plan their retirement. Though it requires efforts, it is definitely worth the hassle.
With a little bit of attention and awareness, you can make the entire planning process painless and extremely beneficial in your golden years.
However, many people don’t understand the need to start pooling funds for retirement early on. They delay their planning and start at a later stage in life.
This is perhaps the biggest mistake people make as planning early on means lower contributions towards your retirement corpus. If you start late, the contributions need to be higher to make up for lost time and money.
As no one would like to alter his or her lifestyle after retirement; it is necessary to come up with a concrete figure to maintain the same lifestyle during retirement. Undershooting projections could lead to a shortfall later on and starting early ensures that your retirement needs are met in the future.
There are two phases of retirement planning — the accumulation phase and payment of annuities. The accumulation phase involves building a sufficient corpus to take care of retirement needs. Simply keeping aside some part of income every month in a fixed deposit does not qualify as accumulation of corpus.
You need to remember that inflation will catch up along the way and the money will prove to be inadequate unless invested properly. You need to make optimum use of the money you set aside to maximise benefits before retirement begins.
A slew of retirement plans by insurance agencies have been hitting market shores. These agencies have also realised the importance of retirement planning. Due to aggressive sales pitches and excessive advertising, individuals are often drawn towards them, many a times opting for a flawed product.
This is mainly due to a lack of awareness about other products in the market. This lack of knowledge helps insurance agencies market their products easily.
Also, marketing agents often use the fear factor to their advantage. Especially vulnerable are those who have not thought about their retirement.
One should realise that every individual has different needs for retirement and the same product doesn’t work for all. A case-by-case approach needs to be adopted and products should be suggested based on their needs.
For instance, during the annuity phase, a majority of pension plans provide only a fixed sum of money on a monthly or yearly basis. As they do not take into account the effect of inflation, the amount could prove inadequate in a few years.
Also, a majority of pension plans have high administration charges and often high load structures. This gives your money little chance to appreciate, as these charges eat away the corpus. Though the charges seem small at face value, a closer look reveals that they could be significant.
The table gives a comparison of the cost structures associated with various products. One of the better retirement plans from an insurance company has been taken and compared with retirement plans offered by mutual fund houses and other diversified index funds.
Only pure equity funds are considered here, since equity is the best asset class for sustained long-term investment. However, the results and observations are valid for debt schemes, too.
A couple of things are evident from the table.
First, there is nothing ‘special’ about the so-called retirement plans. Even though they lack special benefits, they are high-cost products with lower flexibility and liquidity. The name ‘retirement plan’ is actually a misnomer and does not bring anything special or additional to the investor.
Second, index funds have the lowest cost structures among all the options available. Their performance too has been on par with retirement plans-making them even more desirable.
If investors want to seek further upside, diversified equity funds may be the best option available to investor.
Though their cost structure is similar to retirement plans, mutual funds offer greater flexibility to choose across fund houses and have a greater upside in the long run.
Individuals should widen their horizons and explore better options while choosing the instrument to plan their retirement. Though it requires efforts, it is definitely worth the hassle.
With a little bit of attention and awareness, you can make the entire planning process painless and extremely beneficial in your golden years.
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