Unfortunately, some people thing about retirement when they are near to their retirement.

We should understand that, our earnings will stop once we retire. Now the question is, can we live with the same lifestyle post retirement?

YES..! It’s possible with proper planning. So what is this “proper planning”?

When we think of buying a car, will we go to showroom and buy just like that? No..! We need to plan which car to buy, budget for the car, color of the car, type and make of the car.

Similarly, for retirement, one needs to plan how he wants to live, how much money is needed each month and for how long.

Luckily, all employees save some amount every month for our retirement, Any guesses? It’s the Provident Fund contributed by both employer and employee which earns around 8.5 percent per annum.

So, it this enough to live happily once we retire. Some people even plan to retire early at 40. The money we need post retirement is arrived at by projecting our current expenses with the inflation rate.

Let us discuss on how to succesfully plan our retirement. Fortunately, we many pension plans in the market. So how do we choose a good pension plan?

Just like we emphasized in our insurance section that one should never club insurance and investment, here too, one should never club retirement and insurance. Agents of the insurance companies will tell you some logic and try to convince that you are getting “added” benefit of insurance cover.

One has to be cautious about high chargest that these companies levy during initial years. If you find a better product at a later stage or you loose your job and wanted to surrender, enquire how much will you get back. They will tell all crap that Retirement planning is a “long term commitment” and you gain only by staying with them till a long period.

One thing we need to remember is no body will give us insurance without charging premium. Just like no product is sold at 100% discount, we need to understand that they will always have their margins. These companies are here to do business not charity.

Many insurance companies come with these pension plans which has life cover attached.

To start with, we need to know when we wanted to retire and how much money do we need from the very next month after we retire and for how long?(Till we live?)

Consider, you have choosen a plan and have invested regularly till the age of 50, and once you retire, you need to decide how much money do you need as regular pension. This is called Annuity. Based on that, you need to see if the corpus accumulated is more or less. In case you have have accumulated more, then you can take that difference as lump sum. In case it’s less then you will get appropriate sum monthly based on your corpus.

You will also have options in choosing Annuity like you can choose to get pension from 50-70 or till you live etc.

* One thing to note is Annuity income is taxable under standard income tax rules. For example, if you have retired at 50 and during the financial year 2008-2009 and your annual income is more than 1,50,000 then you end up paying tax as per tax slab. (See our insurance section to find out tax slabs for 2008-2009.) So you need to see which products give returns that are completely tax free.

Now that the market is crashed, everybody is running for safety and is looking at investing in Debt instruments but if you are plannning for retirement which is after say 20 years from now, then you can consider investing in equity and undoubtedly this is the best time as markets are at low. Remember the thumb rule, equity will perform better than all other instruments in the long run.
Always choose pension plans after doing good research in internet. Don’t blindly believe in the agents of insurance companies.

There are two broad categories of pension plans from life insurers : Unit Linked and Traditional Endowment. While the former is linked to the market and is for the investors who are ready to take risk and believe that market will do good by the time he/she retires, the later is for people who do not want to take risk.

People who plan their retirement early say at 30 can opt for Unit Linked option and who start late say at 40 should look at Endowment policies.

Check yourself whether the pension plans have performed upto the bench mark or not and whether the effecitve yield is the best among the lot. Don’t get carried away by the impressive ads. India’s “top” private insurers are one among the bad performers in the area of Unit Linked Pension Plan (ULPP).

Disclaimer: These are only views expressed by the author and any investment decisions should be taken after consulting experts in the area.