Ramesh, 50, does not have many years left to retire. He has been diligently planning for his retirement, saving a part of his income and investing in various savings schemes and financial instruments. On the advice of a friend, he had invested in an equity fund, but the returns have been dismal for a long time. Additionally, a sustained inflationary economic environment may affect the real returns from his investments. Market and inflation risks to retirement plans are common and can be managed efficiently.

Market Risks

Nearly all financial products are prone to market risks. You can have exposure to the equity markets through mutual funds or government-backed savings schemes like the National Pension Scheme. Though funds invest in bonds and fixed-income instruments also, equity markets are the most turbulent. Equity-linked schemes tend to perform better in the long run, but you should not be solely dependent on equity markets. The key to managing market risks is to diversify your portfolio. If you have invested in equities to have a substantial sum after retirement, balance the risk with investments in relatively stable debt .

Inflation Risks

The risks associated with price rise can never be ignored when planning for retirement. Inflation is the rate at which prices of products and services rise in a country. One should always look for the real rate of return when investing for retirement. When you deduct the inflation rate form returns, you get the real rate of return, which provides a clearer picture. For instance, if you are receiving 7 percent from a savings scheme, and the inflation rate is 5 percent, then you are actually earning just 2 percent on your investments. If the withdrawal is taxable, the returns may diminish further, turning the real return negative in the long run.

Health Risks

With the rise in pollution, health ailments in the country are rising. Simultaneously, the cost of healthcare is also rising, creating a dangerous predicament for retirees. Most people avoid purchasing health insurance when they are young. Delaying could prove to be costly. As the age increases, the chances of health problems rises and so do health insurance premiums. A health insurance policy bought at a young age will cost substantially less than one taken at an advanced age. People tend to rely on group health insurance policies provided by employers. But that may rob you of certain accumulated benefits like waiver of waiting period as employers keep changing the insurer. To avoid spending from the retirement corpus for a costly hospitalisation, buy individual health insurance at the earliest.

Inadequate Insurance

The family of an earning individual is the biggest sufferer in the case of his/her tragic death. People often fail to plan for unforeseen circumstances like death. Having adequate life insurance can help in allaying the difficulties to an extent. The quantum of the required cover confuses many people. The thumb rule is to have a life insurance policy equal to at least ten times the annual salary. It is also important to take into account existing liabilities like a home or car loan and plan accordingly. Having life insurance after retirement gains greater importance as your children may be dependent on you for a few years even after your retirement. Future Generali Care Plus term plan can provide you with a cover of Rs 1 crore starting at just Rs 618 per month1. You can buy the policy online and save on monthly premiums.

Tax Obligations

While planning for retirement, many people fail to plan for the tax obligations that may arise from the current investments. A heavy tax burden has the potential to derail your retirement planning as it may make a serious dent to your monthly income or the retirement corpus. To manage tax obligations, you should plan carefully and invest in tax-efficient instruments like various life insurance products.

Conclusion

Having a clear idea of your post-retirement expenses and liabilities can help you plan efficiently for retirement. Map your potential post-retirement expenses and add inflation, which will give you an accurate estimate for retirement planning. Retirement plans may have various planned and unplanned risks, but active planning can help you avoid and manage them.

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Disclaimer:

Future Generali Care Plus (UIN:133N030V05)

Individual, Non-Linked, Non-Participating (without profits), Pure Risk Premium, Life Insurance Plan

Tax Free- Subject to qualifying conditions as specified under provisions defined under Section 10(10D) of Income Tax Act 1961, as amended from time to time.

For detailed information on this plan including risk factors, exclusions, terms and conditions etc., please refer to the product brochure and consult your advisor, or, visit our website before concluding a sale. Tax benefits are as per the Income Tax Act 1961 and are subject to any amendment made thereto from time to time. You are advised to consult your tax consultant. Future Group’s and Generali Group’s liability is restricted to the extent of their shareholding in Future Generali India Life Insurance Company Limited.