The Basics to Know Before Buying a Retirement Plan

The first thing to know before beginning to invest in a retirement plan is to know your time horizon. The earlier you start saving, the more time you get to build your retirement corpus. If you are young, earning, and expect to have over 30 years until retirement, you can afford to make riskier investments to gain more returns. Any losses can be covered by the long investment duration.

Besides, here are a few other things to know before buying a pension plan.

How Does a Retirement Investment Plan Work?

It works in the following 2 stages:

• Accumulation stage: This is when you should start investing in a pension plan to build a significant corpus. Using a retirement calculator, you can decide an estimated amount you wish to get once the plan matures. For this, you must consider various factors like your desired age of retirement, long-term goals, retirement expenses, your risk appetite in investment, and any pre-existing assets. The premium payable to receive the plan’s benefits is based on your expected returns. If you wish to invest a lump sum, you need to pay the entire amount at once.
• Vesting stage: This is when your retirement plan begins to pay out. So, you can avail the generated corpus as per the annuity options selected by you.

Inflation

Inflation reduces your purchasing power and, therefore, requires you to invest or save more to get the expected returns. The rate of inflation in India went up from 5.52% to 6.08% from 2021-2022 in India. Research the rates of inflation projected in the coming years. Think about how much money you require to attain the quality of lifestyle you desire. Accordingly, decide the amount you should invest in a retirement plan over years. The returns should be adequate to beat inflation and allow you to maintain your purchasing power post-retirement.

How Much Do You Want?  

You need to set your retirement goals to determine the expected returns. During the years of hard work, you usually don’t get much time for activities like traveling. However, you can fulfil your wishes post-retirement when you lead a relaxed life. Consider how much that can cost. If your loved ones will remain financially dependent on you after you retire, you need to look after their expenses and take that into account already. Most importantly, the risks of chronic illnesses increase as you age. So, consider your regular and irregular medical costs in the distant future. Other goals can include getting your child married and buying your dream home.

How to Choose a Retirement Investment Plan?

Think carefully about the following factors when you pick a pension plan:

• The availability of investment options
• Estimated retirement income and current annual earnings
• Risk and returns of different assets and schemes
• The age at which you wish to retire

Nothing is more satisfying than being financially independent even after you stop working. Therefore, don’t delay in choosing an appropriate retirement plan from a reputed insurer and begin to invest right away for your golden years.