Insurance firms these days offer to handle all of your life’s financial needs through a broad spectrum of insurance policies across investments, retirement planning and tax savings. Sure, these products are nicely packaged with benefit illustrations depicting your future returns. So, we need to analyze whether insurance products are really “effective” in realizing your investment, retirement & taxation needs.
What constitutes Retirement planning?
Retirement planning is all about accumulating a corpus to take care of your retirement life. Other important life goals such as children’s education, marriage and travel expenses too falls under the retirement planning needs of an individual. The main thread running amongst these needs is that they are all big-ticket items and are placed further out in your life.
Is insurance best suited for accumulating retirement corpus?
Investments for retirement planning are required to provide the best yield in its risk group so as to help you get to your goals without causing significant shortfalls/deficits. The returns of popular insurance products marketed for children education, marriage and pension plans offer much lower yields even when compared to no-risk instruments such as EPF (Employee Provident fund) & PPF (Public Provident fund). The yields from such insurance products barely beat inflation, making insurance policies effectively poor choices for retirement planning. The main criteria for choosing an instrument to meet your retirement goal is, it must accumulate the corpus by compounding at (positive) real rate of return (inflation and tax adjusted return).
You could avail the services of a financial planner to understand the kind of returns to expect from insurance policies that specifically target retirement planning areas such as pension plans, children education and marriage policies. Based on your risk profile the planner would recommend investments in a suitable asset mix and build a customized retirement portfolio which would grow at the required rates to meet your retirement goals. In effect the retirement planning process ensures that you do not hit any major negative surprises at the end of your income earning stage (or) commencement of your retirement!!