Retirement Planning with Life Insurance

The average life expectancy in India has seen a rise in the last couple of years. This is heartening, revealing that our lives will be longer on the average; giving us more time with our loved ones, to pursue our dreams and live life to the fullest. On the other hand, it also poses a very important question: “Have you planned for your post-retirement years?”

Increased life expectancy implies that the number of post-retirement years that one has to plan for increases significantly. For most people who are managing the complexities of everyday business or a high-profile job, planning for the future may take a backseat due to the pressures of the present. While you reap the benefits of your hard work and live a lifestyle that you have worked towards all your life, it is also important to plan for your golden years to ensure that you do not have to make any compromises after your peak earning years have passed you by.

To come up with a complete Retirement Plan, the most important factors that need to be carefully looked at are:

• Time Horizon available for saving: ‘The benefits of starting early’ – the phrase rarely fits any other construct better than a retirement plan. Deferring the start of your retirement plan can end up eating into your final savings available post retirement. The earlier you start, the more you gain from the benefits of compounding. Over a longer period of time, you gain a substantial amount of money for a nominal difference in the time horizon.
• Savings: This is the primary factor under consideration when one starts to plan for his retirement years. The amount of wealth that one would require to ensure that he does not compromise on his quality of life after he has stopped working. Individuals need to carefully analyze their lifestyle, estimate their needs going forward in life and accordingly come to an amount that would be necessary in order to fulfill their goals.
• Expected Rate of Inflation: In order to understand the amount of funds that is required for an individual, the most important parameter would be the expected rate of inflation. While inflation does not fluctuate too much on the shorter term, in the long run, it is of paramount importance while trying to valuate any investment. Underestimating inflation can mean that although you have saved some amount, it may not be enough to take care of your needs after you retire.
• Risk Appetite: This is a subjective parameter and will vary from person to person. Out of the multiple instruments available in the market, one needs to construct his portfolio depending on the risk that he is willing to take. For instance, equities have a potential for higher returns while debt has stable but lower returns. Selecting the right instruments in the right proportion in one’s retirement plan portfolio goes a long way in helping one reach his financial goals
• Transfer of Wealth: The final consideration in a Retirement Plan would be to ensure that one’s wealth and legacy is passed on smoothly and efficiently to his heirs. A legacy plan should also be in place to outline the heirs and the amount of wealth that will be passed on to each of them.

Role Of Life Insurance:

Life Insurance as a retirement planning instrument is ideal. Life Insurance is a long term financial tool which makes the premiums very affordable. The premiums that are invested are tax deductible as is the maturity/vesting benefit from the insurance plan. The Life Cover component is also taken care of with an insurance plan and it also gives immense flexibility in terms of the avenues one would want to invest in.

For financially savvy people, unit-linked insurance plans offer the options of switching funds and redirecting premiums which gives him a great amount of flexibility. For beginners who do not have time to actively manage their funds, there are other options whereby one can keep saving to get a desired lump sum value at maturity. Money Back plans and Annuity plans can also be used to ensure a steady stream of income after retirement.

To know more about retirement plans you can log into HDFC Bank NetBanking (Life Insurance section), HDFC Bank website (Life Insurance section) or you can contact your nearest HDFC Bank branch.

*The above mentioned tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.