Retirement planning can be an overwhelming process. Since it might be a long procedure, it would usually take years of planning in advance to reach a successful retirement period. Securing your future after retirement can mean having adequate funds. Many of you might not only accumulate your hard-earned savings but also invest in pension plan to receive a retirement income when the flow of your professional income stops.
While planning for your retirement, you might face numerous difficulties. Apart from social security, you might find it difficult to sustain without any source of income irrespective of the guaranteed retirement income from pension plans. Unlike Gen Y, you might not be covered by your employee pension plan therefore; you might have to depend on your efforts to overcome the following challenges mentioned below:
- Can the invested corpus grow aggressively?
When it comes to retirement investment, many of you might prefer an Employee Provident Fund (EPF). Although EPFs are a good way to save for your retirement, its biggest drawback is that it is used for the investment of income assets to generate defined returns. Another popular option of retirement investment is the National Pension System (NPS) that has failed to familiarize the concept of equity investments to gain high returns.
If you might not be able to follow the rules of EPFs, you should diversify your investment portfolio with the help of other plans. A unit-linked pension plan is a flexible option of investment, which can allow you to invest in an equity fund based on your risk appetite. With a unit-linked pension plan, you can not only grow your retirement corpus but also earn more yields in return for your investment.
- Have you thought about your income requirements?
Many of you might be under the wrong notion that retirement can be the beginning of spending your money sparsely. However, this is not true since you can make use of a retirement planning calculator to evaluate your expenses and invest prudently to build a secure future. If you have financial dependents even after retirement, you should consider their financial requirements in advance before reaching the retirement period.
Since you might focus on achieving your post-retirement goals like exploring new cities, pursuing new hobbies, and so forth, you should plan your budget accordingly. Moreover, you should build an emergency fund to deal with unannounced contingencies like loss of income, critical illness, physical disability, and so on. That way, you can receive financial assistance without depleting your savings for fulfilling the post-retirement goals.
- Is there a balance between the withdrawn corpus and the invested capital?
There is a vast difference between the invested capital and the withdrawn corpus. When you buy a pension plan, you have to initially park all your funds to grow a retirement corpus, which is termed as the invested capital. During an emergency, the amount that you withdraw to fulfill your financial objective is the withdrawn corpus. Therefore, you should maintain a balance between the invested capital as well as the withdrawn corpus.
When you purchase a retirement investment plan, you should partially withdraw a specific proportion of it and let the remaining amount to grow over the due course. Keep the withdrawal percentage as a single-digit number only to avoid wastage of funds. For instance, if your corpus is Rs. 1 crore and your annual expenses are Rs. 6 lakh; your withdrawal amount should be approximately 6%. However, see to it that you maintain the withdrawal percentage to 3%-4% to ensure you don’t run out of resources in the future.
To sum up, retirement planning can end up in a daunting task if not known how to do it the right way. Since it is a serious business, you should take the help of a financial expert. With professional assistance, you can not only avoid these challenges mentioned above but also meet your post-retirement goals without any financial constraints.