Retirement Planning: Do you have a financial plan if you outlive expected life?2 min read . Updated: 02 Oct 2020, 09:16 PM IST
- Allocate some portion to equities
- consider 'payout till lifetime' option in Annuities
Every financial plan is based on certain assumptions. A basic assumption for a retirement portfolio is 'life expectancy' where you assume to live up to a certain age and all the investments are planned around that assumption. What if you outlive that age? Have you factored in longevity in your financial plan? Unpreparedness can be a huge financial threat. It is crucial to make provision for those extra years.
Make your money work harder to earn extra returns?
We have learnt that equities are for long term. Most financial plans assume that the person would retire at the age of 60 and live for 20 more years till 80 age. These 20 years post retirement are long enough to invest in equities. The allocation will depend on the risk profile and needs in general but some equity in your portfolio is necessary to give boost to your retirement income.
"Understandably, senior citizens and people nearing retirement are most likely to be conservative investors. They would look for stability and would prefer not to take a lot of risks. But, to give their hard-earned money an overall stable growth, one should always consider minor diversification into equity ETFs as well as alternative investments like REITs & InvITs," says Arpit Arora, founder, AskTheWiseGuy.
Do not underestimate annuities
One of the best options that annuities provide is payouts for lifetime. Annuities can prepare customers in the event when they outlive their expected life. You can also choose annuity payout to your spouse after your death. You can select the annuity option to pay you till lifetime to ensure a smooth inflows till your life.
"The idea of investing in an annuity is to receive a steady stream of income, in the form of disbursements, especially during retirement. Annuities are an insurance product that enables the insured to receive a regular income well past their retirement age, helping them meet their needs without being dependent on anyone. Some annuity plans also have the option of covering the individual for the rest of his life," says Parag Raja, MD & CEO, Bharti AXA Life Insurance.
The income payout depends on several factors including the tenure of the annuity, prevailing interest rate. Income received from annuities, however, is taxed at regular income tax rates.
Make provision for medical expenses
Health-related expenses tend to be high as we grow older. Ensure you have an adequate health insurance cover to live without worrying about hefty medical bills, just in case. The health insurance options though become narrow at that age, you may discuss with your insurance advisor or financial planner to choose a product that best suits your needs and standard of living.