CONFESSIONS OF A MAN NEARING RETIREMENT

 Let me share my financial planning story with you.

I started earning from the age of 24 years, but I was as carefree as a bird then. I was enjoying the financial freedom of not asking for a ‘pocket money’ from parents. However, when I got married at the age of 27, I realized the importance of savings and investment. So, I listed the following life goals for myself by making sure that:

·         I retire rich: I am not going to get a salary once I retire. So, I’d take steps to derive the maximum worth out of my terminal benefits.

·         I can meet all my medical expenses: I will ensure that I was economically sound to afford huge medical expenses that may arise, either for me or my family.

·         I don’t owe anybody anything: I will aim to clear off all outstanding loans, well in advance, before the date of retirement.

·         I get monthly income even after I stop working: Obviously, by the time I retire, my spouse and I would be used to a particular standard of living. So, I will the same lifestyle to continue, even after retirement.

Now, having listed these life goals, my next step was to do a good financial planning. For that, I decided to make a sound investment portolio. I realized that it was important to keep a long-term horizon and ensure that I don’t put all my eggs in one basket. So, this is how I went about it.

 1. Voluntary Provident Fund (VPF)

12% of my salary, every month, was contributed by my employer, as employer’s contribution towards recognized Provident Fund. However, what really helped me in building a big corpus was the additional contribution towards PF that I made, voluntarily known as VPF, at 12% of my salary, every month as employee’s contribution. Due to the power of compounding, this has helped in building a reasonably huge corpus. The lump sum amount of VPF received at the time of retirement is tax free subject to conditions of section 10(12).

2.  Term Insurance Policy

After the birth of my son, life changed for better. But, I started worrying a lot. What would happen to my family if I were to die because of accidents, terrorist attacks or illnesses? My parents had already retired and my wife was a homemaker. I was the sole breadwinner of the family. Plus, I had a home loan liability on my head. To ensure that my family didn’t struggle should anything happen to me, I decided to take term insurance plan with critical illness and accidental death benefit. God forbid, if something happened to me, the sum assured from the policy would not only meet my family’s expenses, but also clear my home loan, if remained outstanding. I can’t tell you what peace of mind I got after buying term insurance. After all, I had secured the future of the people I loved the most!

3. Money-back Plan

During my 30s and 40s, money-back policies were quite popular. They still are. I invested in one money-back policy too. It enabled periodic payouts during the phase when I needed money the most –, child’s admission in an engineering college and then, his marriage. It also ensured that it helped in fulfilling the finer things such as my daughter’s dance classes and my son’s gym fees. For a middle class man like me, where every penny spent was important, I was glad that I could fulfil these small wishes of my children.. In addition to monthly payouts, it also guaranteed a lump sum payout to my family should I pass away.Liquidity and protection – this money-back policy fulfilled both my needs.

4. Health Insurance

A life insurance policy covers your life, not health. Thanks to advances in medical science, the life expectancy rates have improved. However, this comes with a price – the increased cost of medical exigencies. My spouse and I are covered through a medical insurance policy taken by my employer. But, since I am retiring, this benefit would be no longer available to me. Keeping in mind the fact that our financial resources dwindle very fast when faced with ailments, I had purchased an additional medical insurance policy, which offers a higher financial protection, if there be such a need. Also, this policy covers both of us upto the age of 75.

There are some points which anyone needs to note while planning to buy a health insurance policy:

The earlier, the better – as, the younger you are, the healthier you are. This translates into higher and varied coverage(which can include a vast array of diseases) with lower premium.

Ensuring that the policy offers coverage for eye, ear and dental ailments – as these are going to strike often as one ages.

5. Pension Policy

I was covered under the Employee Pension Scheme (EPS). Though I knew this pension plan earned only a fixed rate of interest annually and there was no sufficient growth of savings, there was not much I could do. It was only in the later years of my life that the market – linked pension plans such as government initiated National Pension Scheme (NPS) and private institutions led Unit Linked Retirement Plans from were launched in the market.

I wish these plans were available during my early income years to enable a completely stress free retirement planning. Well, that was then. I have advised my 35 year old son to invest in unit linked retirement plans. He is young, has limited financial commitments and can afford to have a high risk appetite with a long term investment horizon. Just as a term insurance plan financially equips a person to combat the threat of dying young, the retirement plans welcome the prospect of living long.

What else did I do right?

Pay off Outstanding Loans

One of my earliest life ambitions was to have a roof over my family’s head. I availed a home loan when I was about 35. But, I planned my finances in such a way that I was able to remit all the outstanding instalments by last year. Hence, I do not have the burden of any outstanding dues, which can otherwise, take a major chunk of my retirement benefits.

Systematic Investment Plans (SIPs)

For more than a decade now, I’ve been investing in equity through SIPs. Should say, I’ve been a late entrant into this. But still, SIPs seem to be better equipped to beat raising inflation by offering competent returns. However, at this stage of life, I am now planning to reduce the risk I take with my investmentsand shift to safer instruments such as fixed deposits and public provident fund.