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With modern times comes its challenges, which were not pondered upon in the past. The increase in the average lifespan of an individual in the contemporary era sounded a very pertinent alarm. How does one make ends meet in the twilight phase of their life, after retirement?
Many of us have heard of fairy tale retirements, wherein people travel the world after their children have settled down. At the same time, many have horrific sunset years where they run out of savings to support their lives.
Let us look at some of the ways which may help in avoiding a situation of penury in retired life:
- It is never “too late”: Begin financial planning without delay. One may not know how long they’ll live. But, that should not deter plans to invest and build wealth for old age. A golden rule is to start saving while young. More time reaps more savings.
- Eliminate debts: While the impulsive purchase of goods, availing holidays on credit cards are natural tendencies, it makes a dent on an individual’s net worth.
Debts for appreciating assets like home or gold are welcome, as returns will always outperform the debt. It is advisable to narrow down the loan bucket as an individual grows old. Ideally, a person should be debt-free by the late fifties or early sixties.
- Invest: Cutting down on expenses helps improve the net disposable income, which can be used for investments that will bear fruits when a person needs it at old age. As a general thumb rule, a sum equivalent to three to six months of salary should be set aside as emergency funds. Emergency funds should be replenished periodically.
- Avoid withdrawal from retirement savings: Retirement savings are for the stage of life when regular income stops. Therefore, it is advisable to leave them untouched and save them for the right time.
- Invest in plans with retirement benefits: There are various types of life insurance policies that come with a guaranteed income. One could decide to pay a premium for a prefixed tenure and get guaranteed annual income for life or adopt a life insurance policy that assures a guaranteed sum when the policy ends. There are investment cum life insurance plans whereby the sum assured is disbursed to the nominee after the death of the insured, the fund value is held back and paid off on maturity.
It can be confusing to decide which asset is right for investment so that one may be free of financial worries when the inflow of regular income stops. The plans discussed above offer this insulation. The guaranteed returns that are tangible at the time of investment give clear visibility on the final maturity value.
The guaranteed pension plans that are available in the market are a comely option to invest in. While still earning, meticulous investment in pension plans can make wealth grow exponentially.
There are also policies that offer investors annuities. These are pre-decided amounts that the beneficiary receives every month for life. Another option is to choose a single life annuity policy. In this case, the insured gets paid until they are alive, and in the event of the death of the insured, the investment amount gets disbursed to the nominee.
An investment option to be considered during earning years is Unit Linked Insurance Plans, popularly called ULIP. They are an investment instrument that combines a scope of high returns, which are market-linked, and provides protection like life insurance. They are a tool for wealth creation and are helpful in post-retirement life.
Despite its uncertainties, retirement can be a fun-filled phase of life if planned for. The key is to enjoying retirement benefits is to start planning early and invest in assets that create wealth to eventually help create a corpus for the retired life.
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