The Story of a Man Nearing Retirement!

While travelling to Bangalore, Shijoy a 55-year-old experienced professional was contemplating all his thoughts. The first thought that crossed his mind was that the conference at Bangalore is going to be the last one in his career. His thoughts travelled back to those days when he struggled to inculcate the habit of financial discipline.

He was a carefree bird when he just started earning at 25. He was enjoying the financial freedom of not being financially dependent on his parents. However, at 27 when he got married, he realized the importance of financial planning.

It was back then with the support of his wife he listed down the following life goals to ensure the below:

• Retire rich: He knew that once he retires he will not get a recurring income. So, he took steps to ensure that he will have enough money to live exactly the way he has been living so far.
• To meet all medical expenses: He set aside enough money to afford huge medical expenses that may arise for him and his family.
• Freedom from debts: He decided to clear off all outstanding loans, well in advance, before he retires.
• To get a monthly income even post-retirement: Obviously, by the time he retires, his family would be used to a particular standard of living. He wanted to choose a good retirement plan that will provide monthly income so that he and his family can continue the same standard of living.

Now, having listed these goals, the next step was a good financial planning. For that, he decided to make a sound investment portfolio. He realized that it was important to keep a long-term horizon and ensure that he doesn’t put all his eggs in one basket.

So, this is how he went about it.

• Provident Fund:

12% of his salary, every month, was contributed by his employer, as the employer’s contribution towards recognized Provident Fund. However, what really helped him in building a big corpus was the additional contribution towards PF that he made voluntarily known as VPF, at 12% of my salary, every month as an 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.

• Term plan

Being a responsible husband and a parent, the future of his family was a constant worry for him. What would happen to his family in his absence or in case he meets with an accident or a critical illness. His wife was a homemaker and he was the sole breadwinner of the family with huge liabilities like a home loan. To ensure that his family won’t have to struggle in his absence, he decided to take a term plan that covered him against death, disease, and disabilities. He opted for a plan that not only covered him but also his wife after his demise. This decision gave him complete peace of mind.

• Savings Plan or an endowment plan

During his time plans that provided guaranteed returns were quite popular. He invested in them too. It helped him in fulfilling goals such as his daughter’s marriage. Along with guaranteed returns, it also provided some amount of life cover. Liquidity and protection this money-back policy fulfilled both my needs.

• Health Insurance

A life insurance policy covers your life, not your health. With the increase in life expectancy, there is an increased cost of medical exigencies as well. He and his wife are covered through a medical insurance policy taken by his employer. But, once he is no longer associated with his employer this benefit would be no longer available to him. Keeping this in mind, he had purchased an additional medical insurance plan, which offers a higher financial protection, if there be such a need.

• A regular source of income through Pension and annuities

He was covered under the Employee Pension Scheme (EPS). Though he knew this pension plan earned only a fixed rate of interest annually and there was no sufficient growth of savings, there was not much he could do back then. It was only in the later years of his 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. He invested some his lumpsum amount in annuities so that it would serve as a regular source of income and managing the household and other utility requirements would be simpler for his wife and himself.

He was silently proud of the wise financial planning that enabled him to take a decision to retire in two weeks’ time.

When he looked back at his life, he was quite satisfied with his retirement planning. He thought about his peers who are still regretting and struggling to chalk a plan to pool their funds for retirement. Shijoy was peaceful that his ‘silver’ years post retirement would be stress-free without financially depending on others.