How to select a retirement plan from an insurance company ?

by Gary Bennett, Managing Director & CEO, Max New York Life Insurance Co. Ltd. .

Retirement is a new life, a life different from what we have lived through out our life. Retirement is about doing what you always wanted to do but the life did not permit. Retirement is a life full of bliss but with a few ifs and for many with numerous ifs. This is true about retired life world over and is becoming a reality in India too.

The economic and demographic landscape of India has changed over the last one decade or so. The economic growth has given more disposal income in the hands of Indian households. At the same time the improved healthcare has significantly improved the life expectancy. Today an average Indian lives 8 years beyond the retirement age of 60 years. A great news for the country but it also brings with it new challenges especially in a country like India where no real social security system exist.

This brings a new angle to the financial planning, which was earlier limited to children education & marriage, building house, expanding business and creating corpus for emergencies. Max New York Life – NCAER India Financial Protection Survey revealed that 69% of Indian households save for their old age, the third most important reason for savings after emergencies and children education.

The chart shows how Rs.5000 invested at the age of 25 at 6% return can give a corpus 10 times the invested amount but just a delay of 5 years makes it 7.5 times and 10 years makes it 5.5 times. Hence it is never too early to invest.

The biggest mistake anyone can make in planning for retirement is to consider retirement far off. In fact it is correctly said that the day you earn your first money, start planning for retirement. Is it taking the logic of starting early too far? In my opinion a big no. I also believe, retirement plans from Life Insurers should form an important part of any financial plan because retirement planning requires the discipline of saving for long-term.

With multiple retirement plans from life insurers available and many more to come in the market, the decision making many a time becomes a difficult task. While selecting a life insurance plan for retirement, one needs to focus on just a few things. The first and foremost is the allocation of funds for investment over a period of time because more the invested funds more would be the return. Retirement planning is a long-term game hence even a small incremental allocation in the first few years could lead to significantly higher return at the end of the period. The second thing to be kept in mind is the various charges deducted by the life insurer such as fund management charges, policy admin charges, the top up allocation etc.

The fund management charges charged every year may again seem to be a small amount but cumulatively over the long-term can make a difference, which certainly would be a significant amount. Another thing to be kept in mind is an understanding of your own risk profile, a periodic review of that to consider any change in your profile and management of your funds accordingly. Depending on the time horizon of the investment and your personal risk taking ability you may choose between fixed income funds where 100% of the fund is invested in fixed income or a fund, which has the mandate to invest 100% in equity or a balanced fund having a mix of fixed income and equity. Everyone cannot be financially savvy to judge one’s risk profile and thus should ideally leave it in the hands of the experts. I would always suggest that one should go in for a retirement plan which has the automatic risk management facility in fund management i.e. it will change your fund options based on your life stage. This will take away some of the hassles though I would add that one should always keep one’s financial advisor informed about the changes in one’s life. And last but not the least look for a company that understands financial planning, has a good track record and is financially robust.

Just keeping these few things in mind and starting early can be the trick to a fun filled retired life – a life to live, a life to enjoy and a life to remember for the lifetime.