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Planning for retirement at an early age puts you in a very advantageous position, thanks to the power of compounding.
Although several investment instruments help you save for retirement, the ULIP Pension Plan is one of the most effective tools to achieve your goal. (Representative image)
By Vivek Jain
It is that time of the year again – festivities in the air marked by Diwali and Dhanteras. It is also the time that symbolises wealth and prosperity; and also new beginnings. Most people wait the entire year for Dhanteras to make big purchases. Moreover, it is also the festival when people find it auspicious to make new investments, be it in gold, property or even a new venture. However, it is also the time when one should look beyond traditional purchases and focus on an even more critical investment that often gets overlooked.
We are talking about investing for our retirement. Yes, this Dhanteras, take that crucial step to secure your future by investing towards your retirement. How? Let’s find out!
The power of compounding
When we look at securing our financial future, our best friend in this planning is the power of compounding. Yes, it’s true that at a young age, retirement is thought of as a distant dream – a milestone that is too far away. However, planning for retirement at an early age puts you in a very advantageous position, thanks to the power of compounding. Let us understand this through an example.
If you start saving and investing at the age of 35 and invest only Rs 10,000 every month, then by the time you are 60 years old, you will have a corpus of over Rs 1.7 crore. This is assuming an average return of 12 per cent. Out of that amount, you would have invested only Rs 30 lakhs. The rest would have been purely your return on that investment. Think of the retired life that you can enjoy. Now, if you delay the decision by just 10 years and start investing for your retirement at 45 years, your corpus would be only Rs 0.47 crore with the same monthly investment and the same rate of return. You would need to increase your monthly investment to almost 35,000 to save a similar corpus. That is how the power of compounding works. It rewards those who start early even if they invest a lower amount.
The power of ULIP Pension Plan
Although several investment instruments help you save for retirement, the ULIP Pension Plan is one of the most effective tools to achieve your goal. It leverages the power of compounding and applies it to market-linked returns, thus multiplying your investment substantially over a long period. So you get the double-engine of flexibility and market-linked growth compounded over the course of your life, making it a powerful tool to build a solid retirement corpus.
These new-age ULIP Pension Plans offer a range of benefits. First and foremost,
these plans offer you the flexibility of choosing how and where your money is invested. You can choose to invest your premium into equity funds, debt funds or even a combination of the two based on your risk profile and risk appetite. The Pension plans gives you the flexibility to invest up to 100% of your premium into equity.
It is often suggested that at younger age you go heavy on equity and focus on wealth creation. In your middle years, you should have a balance of debt and equity. And in your twilight years when you actually need to withdraw the money, you should have a largely debt portfolio and focus on wealth preservation. ULIP Pension Plans give you the flexibility of switching between funds to achieve the right balance at all stages of your life within the same plan. Instead of a fixed portfolio, you can choose a lifecycle-based strategy wherein your funds are re-distributed based on your age as you move from one age band to another. You can also switch between the funds depending on the market circumstances to maximize your returns.
Another benefit of these plans is that after you complete five years of investment, they allow you to make partial withdrawals in case of emergencies. So you have access to the money when you need it even while your policy remains active. And once you retire, you can withdraw up to 60 per cent of your corpus tax-free while the remaining 40 per cent is invested in an annuity. This gives you a regular income stream after your retirement, making it one of the best retirement planning tools.
Another benefit of choosing a ULIP Pension Plan is that some of them offer features that help you boost your retirement corpus. This basically adds an extra layer of returns to your investments by giving extra loyalty additions after certain number of years or by refunding some of the key charges that you paid during the policy term.
So this Dhanteras, when people focus on making wise investments, compounding through a ULIP Pension Plan offers a magical way to grow your retirement savings effortlessly over the long term.
-The author is head, Investments, Policybazaar.com. Views expressed are personal.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Readers are advised to check with certified experts before making any investment decisions.