Retirement planning: 5 important points to consider before choosing a retirement plan

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Planning for retirement: There are several retirement plans, also known as retirement plans, in which individuals can invest. Representative image

Rapidly changing social realities and the rising cost of living have made retirement planning a must for everyone. Whereas in the past when joint families existed, the older generations were taken care of by the younger family members. However, small families and nuclear families are becoming the norm now as the younger generation continues to relocate to cities in search of better income opportunities. It has therefore become important for every individual to have an independent retirement income.

Experts say that with proper planning and investments during active income years, one can accumulate enough for a peaceful retirement life without financial problems. However, few people seem to have taken retirement planning seriously.

A recent study found that one in four people hadn’t even thought about retirement, while 50 percent of those polled believed their savings would run out within 10 years. In addition, for most respondents, saving or investing for retirement was not a top financial goal.

“In view of the ever-increasing inflation, investing in these schemes has become paramount and therefore, even though there are considerable savings in a bank account, a pension scheme will always be a prerequisite for maintaining retirement”, Sundara Rajan TK, partner at DVS Advisors LLP, said FE Online.

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There are several pension plans, also called retirement plans, in which individuals can invest. The primary objective of these schemes is to ensure a regular flow of income after retirement.

An investor can choose any retirement plan. However, experts suggest that before choosing a retirement plan, individuals should keep in mind several factors like positive return after inflation, tax implications and more. Here are five key points that a person should consider before choosing a retirement plan.

1. Positive post-inflation returns

While investing or saving for retirement, it’s important to be aware of inflation. Such investments should guarantee a positive post-inflation return.

“Long-term investing must guarantee a positive return after inflation. For example, if the inflation rate is 6% per year, the value of Rs. 100 today will equal Rs. 94 after one year. So if the investment in the pension fund yields a return of 6% or less, it will not be a viable option for planning for retirement, Rajan said.

2. Don’t look for more risk

Retirement planning experts say investors shouldn’t be looking for more risk when it comes to retirement. It is important to stick with a guaranteed return on investment and furthermore, investments should reflect the low risk corpus to combat the increasing volatility in the market.

3. Ensure an adequate pension

Rajan said that when choosing a retirement plan, one should make sure that you receive adequate retirement income after retirement, which should be sufficient to cover expenses as well as backup for emergency needs.

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4. Take into account the amount of the annuity offered

Pension plans differ in terms of the annuity offered. While some plans may provide the annuity for a certain period only after retirement, others may provide regular payment for life.

“Another relevant consideration is the amount of annuity offered. There are different pension plans which differ in terms of the annuity offered. Some plans may provide for the payment of an annuity only for a certain period after retirement and some may provide for regular payment until the person’s death. There are plans that provide annuity to applicants even after the death of the insured person, ”said Rajan.

5. Tax implications

Taxes are probably the most important factor to consider when choosing a retirement plan. The tax aspect differs depending on the type of pension plan and the risk appetite of the investor.

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