When it comes to retirement planning, two “I” s form a crucial part of one’s portfolio – insurance and investment. Most find themselves in a dilemma as to choosing between them and gauge how much weight should be put on each. If you too feel the same, read on to find out which “I” deserves how much priority.

Insurance

Most people feel the need to discard insurance during retirement planning. True, that most of the liabilities are generally taken care off when you retire, yet there’s a different kind of challenge which makes insurance an absolute must.

For most retirees, health care expenses constitute a significant portion of the monthly expenses. With rising medical inflation, a medical contingency has the potential to wipe out a large portion of the retirement corpus. An effective risk mitigating tool, health insurance prevents out-of-pocket expenses, thus cushioning your corpus from eroding in the event of a medical emergency.

Apart from a regular health insurance plan, which an indemnity plan covering only hospitalisation costs, it’s vital to have a critical illness insurance too. Critical illness plans are fixed-benefit plans which offer a lump sum upon diagnosis of a critical ailment and also takes care of pre and post hospitalisation expenses.

Investment

With the days of fixed pension gone, it’s essential to chalk out a strategy which would ensure you build a large retirement nest to take care of your needs when you hang up your boots. To do this, it’s important to select the right investment tools that help you achieve this.  At the same time, it’s vital to factor in inflation which will only push up your cost of living.

So, let’s say you are 30 now with a monthly expense of Rs. 40,000 and wish to retire by 60, even a modest inflation of 5% will push up the costs to a little over Rs. 1.7 lakh. Also, with life expectancy rate improving, there’s a chance of living a retired life which is almost equal to income years. So, it’s vital to build a corpus large enough which can sustain you throughout the retirement phase.

A combination of investments in various asset classes including equity and fixed-return instruments can help you build a sizeable retirement corpus. Once you calculate the amount you need to need post-retirement, you can start a SIP in either an all-equity fund or an aggressive hybrid fund. While the former investments solely into equities, the latter has a debt component.

Some investments can be parked in fixed-return instruments such as public provident fund (PPF) which is backed by the Government of India and enjoys an EEE (exempt, exempt, exempt) status. Make sure in the initial phase, your investment portfolio is tilted towards equities which can help you generate inflation-indexed returns. As you close on to retirement, you can slowly move towards debt to prevent a dip in the corpus due to market fluctuations.

Thus, both insurance and investment are critical for a stress-free retirement. Plan your retirement the day you start earning and choose the right mix of investment and insurance to spend your golden years with glee.

Click here to visit our Retirement Planning Calculator

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



Trending Articles

Article Links

How to Retire at 40

Life After Retirement

Retirement Age

Retirement Corpus

Retirement Planning

Latest Articles

abc-of-retirement-planning
abc-of-retirement-planning

What is PRAN (Permanent Retirement Account Number)

Read More
Posted on 27 March 2020
abc-of-retirement-planning
abc-of-retirement-planning

Key Highlights in Transferring Your EPF Balance to NPS

Read More
Posted on 25 March 2020
abc-of-retirement-planning
abc-of-retirement-planning

Why Ignoring to plan for Retirement can be Financially Damaging?

Read More
Posted on 25 March 2020

Featured Articles

image abc-of-personal-money
abc-of-personal-money

Are Millennials Any Different When It Comes To Planning Financials?

Read More
Posted on 05 February 2020

Relevant Articles

image abc-of-personal-money
abc-of-personal-money

Is Any Dream Too Big If It Is Born Out of Passion and Ambition?

Read More
Posted on 30 March 2020
image abc-of-personal-money
abc-of-personal-money

Free Access to some Amazing Content Online

Read More
Posted on 30 March 2020
image abc-of-personal-money
abc-of-personal-money

Free Access to Online Music

Read More
Posted on 30 March 2020