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It is common knowledge nowadays that you require a solid retirement plan to sustain your financial responsibilities and monthly expenses after retirement. This has to be done as early as possible to ensure that you have a sizable corpus at the time of retirement. You can utilize a free online retirement calculator to calculate how much you will need to save for a comfortable and stress-free retirement. This will help you get an idea of the steps you need to take accordingly to achieve the same. 

To understand how crucial this calculation is, let us take the example of a 28-year-old professional, Ruchi. She is currently spending around Rs. 35,000 a month and plans to retire early at 50. Moreover, she wants to save enough money to last her for at least 25 years after retirement. Using a retirement calculator, we can see that she will require at least Rs. 1,36,00,000, taking 5% inflation and an 8% rate of returns on her investments into account.

This sum is substantial and will require her to not only save but also invest her money in a diverse range of financial products like pension plans, mutual funds, bank deposits, etc.

Hence, you need to take your requirements into consideration and then decide on your preferred investment plans. Two of the most sought-after types of plans that can help you achieve your targets are endowment plans and ULIPs. These can be taken in addition to the various pension plans available in the market. Their versatility makes them helpful in other situations as well, making them suitable for fulfilling multiple long-term life goals before and after retirement. Here’s learning more about them. 

How do ULIPs help you?   

ULIPs or unit-linked insurance plans offer a great opportunity to build a sizable future corpus for retirement. You can get life insurance coverage throughout the plan tenure, with a sum assured paid out to the nominee in case of your untimely demise in this period. At the same time, your money is also invested in market-linked instruments. You can choose the types of funds to invest in, i.e., equity funds, balanced funds, debt funds, or liquid funds, taking your risk appetite into account while making your decision. 

Another feature is fund switching, which allows you to keep up with shifts in market performance. You can periodically switch your allocation across funds to safeguard your portfolio from volatility or maximize your returns when the markets are on a bullish run. Here are some of the inherent advantages of ULIPs for your retirement portfolio: 

  1. You get the dual benefits of insurance and investment 
  2. Higher returns from ULIPs often surpass other types of retirement plans in combating inflation. With higher risks come higher rewards; likewise, long-term investments in ULIPs can reap greater rewards. 
  3. As mentioned, you get a diverse pool of fund options for investments and can switch across them
  4. You can boost your coverage with multiple insurance riders and maximize returns through top-up premiums
  5. ULIPs have a 5-year lock-in period, after which you can partially withdraw from the accumulated corpus
  6. On your premium payments, you also get tax benefits up to Rs. 1,50,000 under Section 80C of the Income Tax Act, 1961. The maturity benefits are also exempt from taxation (under Section 10D) if the yearly premiums are lower than 2.5 lacs. they shall be taxed as Capital Gains. 

How do endowment plans help you? 

Endowment plans are suitable for risk-averse investors and can help build up a corpus for retirement. They also provide life insurance coverage as a means of financial security for your family members. You can invest for the long haul, and this will ensure sizable benefits through bonuses (if applicable) and accumulated benefits. These are low-risk options for diversifying your retirement portfolio. Here are some of the advantages of choosing endowment plans: 

  1. You can build up your future savings for retirement
  2. You will get the maturity benefits and the guaranteed sum assured if you survive the policy tenure
  3. Your profits and applicable bonuses are guaranteed and accumulate over time, thereby gaining value through the power of compounding
  4. These plans have no or minimal market risks, depending on the type you go for 
  5. You can add riders to enhance coverage, including critical illness insurance, accidental death benefit, accidental total/partial disability rider, etc
  6. You can customize premium payment frequencies as per your preferences. You can choose from monthly, semi-annual, quarterly, or yearly choices 
  7. You get tax benefits up to the set limits under Sections 80C and 10D of the Income Tax Act, 1961

Which one should you choose? 

Your choice will mostly depend on the kind of investor you are and your financial situation. If you have a higher appetite for risk and are confident of weathering out market fluctuations in the long run to earn higher returns, then you can go for ULIPs. However, you can go for endowment plans if you are a conservative investor who does not want to take any market-linked risks and desires guaranteed returns. 

The latter is more suited for those who require a higher degree of safety, while the former is ideal for those investors who want higher returns with moderate or slightly higher levels of risk. However, it should be mentioned that because ULIPs have fund-switching features, you can always tweak your portfolio to lower your market risk exposure. However, both these plans have their distinct benefits for helping you save up for retirement. Taking them in combination with a suitable pension plan can boost your retirement savings and ensure ample financial stimulus for your golden years.

Consult a professional or financial expert for guidance on choosing the right option for your retirement needs, depending on your financial situation, investment ability, risk appetite, and other factors.  

Disclaimer: This article is a paid publication and does not have journalistic/editorial involvement of Hindustan Times. Hindustan Times does not endorse/subscribe to the content(s) of the article/advertisement and/or view(s) expressed herein. Hindustan Times shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the view(s), opinion(s), announcement(s), declaration(s), affirmation(s) etc., stated/featured in the same.

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