Understanding Retirement plan


Are we prepared to live long?

Yes, most of us want to live long, but the question is are we prepared for it?

Expenses provision method (EPM) as the name suggests it is providing a cash flow adequate to take care of the expenses post retirement. While it might appear to be a simple idea, our agents/divisors/consultants should not presume a figure for expenses and quickly work to find the corpus required. Many times even the clients estimate a rough figure and say it will be more than enough if we have about 20,000 rupees a month to cover our expenses, “we both of us at our old age may not have big expenses.

We are very simple people so, we will also lead a simple life”. We must not get carried away by these seemingly simple statements, because while we adopt an Expenses provision method (EPM) for retirement planning we are making a tight rope walking thereafter. There will not be much scope left later to re-adjust the corpus.

The following points have to be taken in the mind before estimating the corpus required:

1) The Family size2) Health history3) Spouses needs
4) Current levels of expenditures5) Liabilities and Assets in values and terms

The assumption that after retirement there will be only the couple to be provided is a wrong assumption. There are at time aged parents living with them and at times dependents with special needs, and even at times grand children need to be supported.

So while adopting the EPM a dialogue with the client about various possibilities in his personal circumstances is necessary. It can not be a “Questionnaire-fill-instant-plan”

Health history is a very vital information to plan adequately for the expenses required.
While at old age the likely hood of falling ill is ascending, people with certain history has to take special care. So health history gives some idea of two types of expenses normally associated with health. The first is related to preventive or maintaining activities like physical exercises, specific diet etc, the second is related to the treatment part like the insulin, puff, dialysis etc.,

There are some special needs of spouse which also need to be addressed. Many times religious attachments and commitments are contained under this head. Pilgrimages, religious discourses, etc. also will require cash provisions. Apart from these, they can still be some special needs which are not very obvious and the same can be found out only by engaging

into a conversation with the client about those “SMALL” things that give “BIG”satisfaction or happiness to them. Taking all the current expenditures and reducing those of which is not relevant post retirement, and then adjusting to inflation we must arrive at the value required to meet the same in those days, we must work out corpus that can generate this value on a regular basis.

Many times what is forgotten in the din of these working on a tight rope is the liabilities to be fulfilled. The current balance sheet must be carefully studied and all those liabilities should be valued at the future date and the amount required to settle them also to betaken into consideration. So also the future value of the assets and its sufficiency to meet out the outstanding dues. The excess asset can be used to build into the corpus for retirement planning. While doing this care must be taken in terms of the physical assets, that the cost of maintenance also should be provided in the cash flow.

The total of the above aspects will be the amount required to meet out adequately the post retirement needs. It is also advisable to provide for cash surplus for emergency needs.

We have seen both the RRM and EPM ways of retirement planning. One of the important aspect of both these methods is that we must quite early to provide adequate capital for our own golden days. If adequate capital can be provided then retirement can be truly an entry into a life of freedom to do what we desire to, and need not be an exit from dignified life.

The Life Insurance marketing personnel can make this world truly a paradise to live long. There are not many alternatives in term of long term instruments, that encourage disciplined regular savings to life insurance. So use this magic wand to bring about happiness and a great sense of freedom.

Term vs. Permanent Life Insurance

Permanent life insurance premiums are more expensive than term premiums because some of the money is put into a savings program. Term life insurance protects you for a defined period of time.

Term vs. Whole of Life Insurance

Choosing between term and whole life insurance policy really depends on the stage in life the buyer is in. Whole life plan would take care of the savings aspect of the person allowing him to withdraw the amount as and when he requires it.

Term life insurance is designed to provide death protection for a definite and limited period of time such as One Year Term, Five Year Term, 30 year Term, or Term to 65. If the insured dies during the term, the policy matures and the insurance company pays the face amount of the policy to the beneficiary. If the insured doesn’t die during the term, the policy expires.