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November 8, 2012

Retirement Planning for Employees- A must for non pension and private organizations

What is Retirement Planning?

Retirement planning literally means planning for the time when one stops working. Earlier, the Pension scheme helped the elderly to continue their lifestyles. This facility is no longer popular at present. Thus it becomes crucial for employees of non – pension and private organizations to be aware of planning for the days ahead after one calls it a day at work.

The Pension Scheme

You must have seen the aged people queuing up in banks and post offices to collect their monthly pension. Pension is a benefit given to retired employees by an organization, usually a government body or public sector undertaking, for their livelihood. Payment for a month is usually a function of the salary drawn at the time of retirement. The best part is that the beneficiary is eligible to receive this honorarium as long as he is alive.

Present Scenario

The Pension Scheme has been discontinued as on date in most organizations in public, semi public and private sectors. The employers of today usually deduct a fixed percentage or amount from the monthly salary of an employee towards his “Gratuity Fund”. An employee is eligible to receive the amount only when he works continuously with the same organization for a minimum period of five years. He has to forego his gratuity if he leaves his job before that timeframe.

Upon retirement, a person gets all the money that has been accumulated in his account in one go. He is free to do anything he wishes – invest, spend, whatever.

Then, what is the problem?

One may have retired, but life does not stop after that. In fact, with inflation, it often tends to become difficult for a person to meet his regular household expenses.

Moreover, obtaining a large lump sum of money upon retirement may confuse an individual if he has not planned for it. One tends to spend freely, only to find his funds draining out after some time.

What to do?

Plan. That is the key word.

Whatever profession one may be in, he should have an idea about when he is likely to retire. It is not always that one retires at 60 years of age - some people take early retirements voluntarily to follow different interests. On the other hand, professionals like doctors and lawyers continue as long as they can. Maybe you can term it as planning how long one wishes to work.

Realize that life would not cease post hanging up of your boots – and to keep going, you would need funds flowing in. You may take up another job, but even that has to stop at some point of time.

So, start early. Putting away some amount every month or year helps in building a large corpus by the time you choose to retire, without being too heavy on your pocket.

What are the options?

There are many policies available in the market for Retirement Planning. Usually named Pension Plans, they come with or without life insurance and other features, as per your needs. The premiums may be paid monthly, quarterly, half yearly or yearly – and the funds are put aside as long as the policy is in force, gaining interest all the while.

If the plan is linked with the share market, funds usually grow significantly over a period of time, but there is an element of market risk involved. Guaranteed plans and non – market linked plans are also available. The good thing about these policies is that one gets monthly payments after the term of the policy is over all throughout his life. He can also obtain tax benefits on the premium paid every year during the plan tenure.

One may also go for one of the Systematic Investment Plans (SIP) that are offered by various financial institutions. One pays his desired amount every month, which is allocated to buying units from the share market. The tenure of such plans usually starts at a minimum of three years. By the end of the specified duration, one has a multi-variant portfolio that is managed by qualified financial advisors. Even if a sector is experiencing drop in prices, growth in another nullifies the negative impact. As a result, the corpus of an individual grows, and at the end of the plan, he gains significant profits. If one continues to remain with the scheme till he retires, his portfolio would be strong and benefits would be high. Some SIPs also offer tax benefits.

If you are the traditional type and want to keep away from the uncertainties of the stock market, opt for a recurring deposit with a bank of your choice. Banking technologies have improved significantly and one can book a term deposit through a few clicks of the mouse. The amount of specified by you gets debited from your bank account every month and gets accumulated in your funds. Interest is also paid at a specified rate periodically. Thus, by the end of your chosen tenure, you are able to put aside a fair sum of money. You may put the maturity amount in a fixed deposit to earn better returns.

What if there is any emergency?

Unforeseen incidents take us off guard, and leave us at a loss if large sums of money are required. Whichever mode of saving money for retirement that one may have adopted, he can withdraw funds, either partially or fully, from his corpus after certain “lock in” periods. A nominal fee may have to be paid for partial withdrawl or premature closure. In case of bank deposits, one may liquidate the funds anytime.

Can I do without Retirement Planning?

No. If you don’t, there may be too many if’s and but’s. You may have dependants – a housewife, children who may be studying, aged parents or relatives to look after. Your next generation may be working, but why should you depend on their supporting your livelihood? Planning for life after retirement gives you the opportunity to live the last innings of your life at your own will, with your head held high in self esteem.

Tags : Retirement plan, pension plan, retirement plan for employee in private organization

About Anupama

I am an Architect and a blogger. I have been blogging for about six years now; and have got into professional content writing for the last two years.