Investing in a pension plan- The hows and whys of the matter

Posted by amrina alshaikh on March 3rd, 2020

People are often not conscious about their retirement portfolios although they should definitely remain in the loop about the same. There arise questions of investing in a retirement corpus when people are usually about to retire in a few years’ time. However, this question should have been asked way earlier in order to properly secure the years after retiring from active service. You should thus start checking out retirement plans as early as possible.

The right pension plan in Indiawill help you fall back on a handsome sum of money every month once you retire. If you depend only on your savings and have not invested in any pension plan, then there are reasons to worry as far as a smooth retirement journey is concerned.

There was a time when we did not withdraw anything from our pension fund because that was the norm. However, things have changed drastically in the current scenario. Though we remain averse to risks, they are everywhere. We cannot be over-dependent on the promises of the Government to keep our investments and pension safe and sound. The security of a fund is a lesser concern than enhancement and diversification of the fund. The Government will not be bailing us out in a crisis or helping us diversify our money through the right investments.

Today’s generation is better off because unlike people of the past, they live in their own houses for decades before their retirement. They don’t depend on their provident funds for taking loans. During the past decades, inflation was much higher than it is today. It has been tamed to a single digit today. Moreover, unlike in the past, one doesn’t need to leave considerable cash and property behind for the next generation. Today’s generation is better off and they are earning handsome amounts of money. They are smarter in terms of investing and building assets.

We should include equity in our retirement portfolio because it offers long-term and handsome growth. This growth in the portfolio is insulation enough against inflation. When you grow old and your income generation dwindles, this fully matured portfolio will protect you. If you wish to leave behind a legacy of wealth, it can be in the form of investments in equity which necessitates a longer horizon.

Your first requirement is steady income but your portfolio could be invested in risky assets. Most people don’t invest in equity due to fear of risks. This risk can be averted if we have pension plans set up earlier. We then do not have to fully depend on the pension corpus and eat it away. If we finish up the retirement corpus, we will once again have to start working. It is like embarking on a second career all over again since it is not clear whether a senior citizen will be employable elsewhere or whether he/she will earn enough to meet future requirements in terms of expenses.

So, the equity investment should be mostly in large-cap funds. Otherwise, one may invest in balanced funds where the money is mostly invested in debt. We can opt for systematic withdrawals during our old age to give us a better-retired life.

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amrina alshaikh

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amrina alshaikh
Joined: April 24th, 2018
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