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How life insurance helps you plan for a worry-free retirement?

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Nearing your retirement age and still wondering how to plan for your financial future? Is inflation, pandemic, dipping interest rates worrying you? You are not alone. We all dream of a perfect retired life but sleepwalk through most of earning years without adequate planning.

So, is it too late? Time to wave goodbye to this dream? Thankfully, not yet.

One of the fundamental ways to ensure financial independence during retirement is to plan a steady and secure source of regular income. Here are a few thumb rules on how life insurance can help an individual to get started on this much-needed journey

What are your retired life goals?

Retirement means different things to different people, while some want to take a trip around the world, some want to pursue their hobbies or maybe even turn it into career 2.0. Your retirement years are your golden years and a well-planned retirement can allow you to do what you love the most without worrying about rising prices, increasing health care costs, higher life expectancy, and so on. Another key point of consideration is your ability to continue enjoying your current lifestyle, even after you retire.

The ultimate goal of robust retirement planning is to be able to peacefully meet every financial goal post-retirement. Therefore, it is crucial to enable an adequate flow of income which will pay for essential needs, lifestyle wants and sudden contingencies, without rendering any economic dependence on others.

Hiccups you may encounter?

Economic inflation is a certain reality and less of a risk. However, problems like longevity may derail you because your withdrawal rate may be too low to support your desired lifestyle. To add to this woe, rising medical costs, variable investment returns and the ever-volatile stock markets will be your constant companions. 2020 has been a difficult year for many, especially for retirees or those close to retirement. The retirement phase calls for investing accumulated corpus in financial avenues to ensure a regular stream of income. With interest rates at multi-year lows, retirees do not have enough risk-free investment options to generate a regular flow of income.

How do you provision?

People who are retiring in the coming 8 – 10 years typically look for a secured investment option that guarantees them fixed income, post-retirement. Retirement planning includes two key phases. Accumulation of corpus while an individual is earning and investing the same post-retirement, to receive a regular income, is one way.

While every individual aims to continue the same standard of living post-retirement, their risk-taking ability becomes low or nil in absence of a regular income stream. Here is where a retirement solution from life insurance comes handy. One can plan and save for retirement corpus during the earning years and use this sum to buy an immediate retirement product. As the income is guaranteed, it is not impacted by any market fluctuations, which makes it an ideal investment option for senior citizens.

Additionally, these days such retirement products also offer the flexibility to choose increasing options at the rate of 5 -1 percent 0per annum, which can further help in mitigating the inflation impact. Some plans are also allowing withdrawal in case an individual is in dire need of a lumpsum fund owing to a serious illness, which was not available earlier.

Making an implementable plan

Once armed with a solution that guarantees planned retirement, all that is left is to start as soon as you can. The general rule of thumb is to start investing early, allowing an individual more time to substantially increase his/her corpus. Making small contributions at regular intervals ensures that the corpus grows and starts earning for an individual at an early stage. Hence, starting to invest earlier allows one to create a bigger retirement corpus with smaller contributions, instead of straining their finances in the later stages of work life.

To know how much money is sufficient and figuring out the year of one’s retirement, requires a lot more specifics followed by an annual review. Calculating how much an individual needs to spend monthly to live comfortably and seeking out a good retirement advisor to run a couple of scenarios is the way to go.

Over the years, one can adjust his/her retirement plans if needed, minimize losses in the investment portfolio during an unstable market, and plan the tax liability carefully. Timely and prudent planning allows one to enjoy many years of good health in retirement without financial fear or worry. With a bit of forethought and good retirement advice, it can be done in a jiffy.

The author, Anilkumar Singh, is Chief Actuarial Officer at Aditya Birla Sun Life Insurance. The views expressed are personal

First Published: Aug 25, 2021, 09:24 AM IST