Do people who get a pension need financial planning? Where should they invest their retirement corpus? What is annuity?
After retirement, when one receives a corpus (pension, gratuity), what is the best way to invest? Should I buy an annuity?
Just like a person’s retirement corpus differs from his or her colleagues’, the best way to invest your corpus depends on many things. And this is where a financial planner will be of help. He or she will customize your financial plan to suit your goals and needs. A financial planner will not only look at how much money you have received after retirement but will also evaluate your goals (weddings of children, education of children), liabilities, other retirement goals (pursuing a hobby, travel, pilgrimage) and tell you how to allocate your money.
An annuity is like a pension scheme. You invest a corpus and every year you get a fixed sum of money paid out to you like a pension. Whether you must buy an annuity or invest in line with your asset allocation – how much in debt, how much in equity, a financial planner will evaluate on a case by case basis. Financial plans cannot be one-size-fits-all. They have to be personalized to your needs. What works for your neighbour or friend will not work for you because you have different needs and goals.
2. Even if I get a monthly pension, will I have to be careful with my money and invest wisely?
Of course. After retirement, it’s good if you get a pension because your income will not become zero. It reduces from what your CTC used to be. However, what does not decrease are your expenses. These keep rising due to inflation and also because of your goals – education of children, weddings, health expenses… In this period, you will need to depend on assets you have created because just a pension will not suffice.
3. Should a couple have the same financial plan or should each have a different one?
When we are making a financial plan for a couple, we insist on both the husband and wife being present because we look at them as a family with the same goals and dreams. But there are instances when couples want independent plans for each of the partners and we facilitate that too.
4. A family welfare fund is created to take care of future expenses – wedding, college education or to achieve some other goals. How do I know how much I will need for each of these goals?
Depending on your goals, a financial planner can help you arrive at an amount to set aside for each of these goals. For eg, if you want to plan for your child’s undergraduate studies, this is how we will go about it. (School expenses are something parents can afford to pay with their income so we look at planning for higher studies, the costs of which are significantly high.) If you come to us when your child is 5 years old, we assume that your child will start undergrad at 18. This gives you 13 years to plan. If the cost of an undergraduate course is Rs 10 lakh today, we will inflate it by a certain number and then arrive at a figure. Let’s assume that figure is Rs 60 lakh. Once we arrive at this number, we will advise you on which asset class is best suited for you, how much you should invest, how long and so on. Each client’s situation is evaluated before we give them a plan.