Why is retirement planning important?

Retire from work. Not from life.

A retirement plan is an assurance that you will continue to earn a satisfying income and enjoy a comfortable lifestyle, even when you are no longer working. To understand why an increasing number of individuals have already started planning for their retirement, and why you should too, read on.

Independence is the new way of life: An increasing number of young Indian professionals are moving away from the traditional joint family structure. Since support no longer comes easily, parents have realized the need to provide for themselves during their retirement years.

Costs set to soar: Skyrocketing costs throw even a well-salaried person off balance. With rates rising everyday, you can imagine how high they will be when you are ready to retire. A retirement plan provides you with a steady income every month, to arm you in the face of rising costs.

To understand how inflation can impact your monthly expenses, use our special tool, the Inflation Index calculator.

Non-earning retirement phase is now longer: Only 4% of India working population- mostly government employees – are covered by pensions. The remaining 96% comprises self-employed and salaried professionals who do not have a formal, mandated provision for pensions.

Why start planning for retirement right away?

Both Ramesh and Vikram want to retire at the age of 60 years. To take care of his post-retirement requirements, Ramesh invests a total amount of Rs. 35 lakhs towards his retirement corpus. On the other hand, Vikram invests a total of Rs 50 lakh towards his retirement. Despite investing less, Ramesh accumulates Rs 298 lakh, compared to Vikram's accumulation of Rs 216 lakh!. Read on to find out how..

What Ramesh had in his favour was TIME. He began investing a sum of Rs 1 lakh p.a. earlier, at the age of 25 years, up to the age of 60. Ramesh, to compensate for lost time, saved twice the amount invested by Ramesh i.e. Rs. 2 lakhs every year from the age of 35, till the age of 59 years.

It is for this precise reason you should plan for your retirement now-and not later; so you get the advantage of investments that multiply quickly each year, giving you the added advantage!

How to plan for retirement?

5 simple steps to arrive at an ideal retirement plan

Step 1: Decide how much income you require to live comfortably in your post-retirement years. Remember to take into account aspects like increased medical costs, vacations and gifts for family, but reduce costs like children's education and rent, if you own your home.

Step 2: Determine how much you need to save regularly, starting today. Use our Retirement Calculator to determine how large a kitty you will need and how much you need to save each year.

Step 3: Select the right retirement plan that enables you to meet your post-retirement requirements. Preferably invest in market-linked plans, which can provide you with potentially higher returns in the long run.

Step 4: Start saving now so you have time on your side and can enjoy the power of compounding.

Types of Insurance Plans - Traditional or Unit Linked

Insurance Plans - At a glance

Broadly, insurance plans can be distinctly divided into ULIPs and traditional plans. A brief detail of both segments:


Unit Linked Insurance Product

ULIPs have gained high acceptance due to attractive features they offer. These include:

1. Flexibility
1. Flexibility to choose Sum Assured.
2. Flexibility to choose premium amount.
3. Option to change level of Premium /Sum Assured even after the plan has started.
4. Flexibility to change asset allocation by switching between funds
2. Transparency
1. Charges in the plan & net amount invested are known to the customer
2. Convenience of tracking one’s investment performance on a daily basis.
3. Liquidity
1. Option to withdraw money after few years (comfort required in case of exigency)
2. Low minimum tenure.
3. Partial / Systematic withdrawal allowed
4. Fund Options
1. A choice of funds (ranging from equity, debt, cash or a combination)
2. Option to choose your fund mix based on desired asset allocation

Traditional Plans
These are the oldest types of plans available. These plans cater to customers with a low risk appetite. Some of the common features of traditional plans are:

1. Steady Investment
1. Major chunk of investible funds are in debt instruments
2. Steady and almost assured returns over the long term
2. Features
1. Death benefit is Sum Assured + guaranteed & vested bonus
2. Helps in asset creation as they are for a long tenure
3. Premium to Sum Assured ratios are fixed for each plan and age.