Child plans and retirement plans are two important constituents of financial planning. The former is going to cater to finances concerning education or other discrepancies about your child, while the latter must provide financial security during the post-retirement years. The present blog discusses the basics of both these plans concerning their objectives, the benefits, and the selection of the appropriate choice.
Child Plans: Secure Your Child’s Future
A Child Plan is an insurance-cum-investment-oriented financial product for securing the future of one’s child. All the important turning points of one’s child, be it his or her education or marriage, or even setting up a business, ensure funds are readily available. These plans essentially are a combination of protection as well as saving that will give one all the peace of mind and contentment, knowing very well that even if you are no longer there, then all your child’s needs will be properly taken care of.
Plans for children
Child Unit Linked Insurance Plans: They are products that can be used for both investing and insurance purposes. The remaining amount is invested in the debt and equity markets, with a portion going towards life insurance coverage. High returns mean high risk, as the return on such a policy depends on market conditions.
Child Endowment Plans: These are traditional plans where the sum and the bonuses, if any, are guaranteed by the insurer. They are less risky compared to ULIPs since they don’t have a link with the markets. They give a stable return and hence would mostly suit conservative investors who are targeting guaranteed benefits.
How to Choose the Right Child Plan
Future Needs Assessment: You will need to be careful about various expenses that are likely to be incurred in the future by your child. A lot of children’s expenses these days come at the time of education, marriage, and other vital stages of life. This will help you decide the amount of coverage and the policy term.
Risk Appetite: This will be based on the quantum of risk taken. While they are much riskier in comparison to an endowment plan, Unit Linked Insurance can provide way better returns. Thus, pick one that matches your horizon of investment and risk.
Policy Term: Selecting a policy term in correlation with the age at which monetary requirements should arise. Keeping in mind the need for higher education, the most suitable becomes a policy term ceasing at the age of 18 years.
Retirement Plans: The Way to a Comfortable Post-Retirement Life
What is a retirement plan?
A retirement plan is also known as a pension plan. It refers to an instrument that provides for regular sources of income after retirement. To put it simply, it maintains a decent standard of living and shows expenses toward medication and other needs during old age. At an age where one is unable to earn any longer, retirement plans are primordially aimed at ensuring financial independence and stability.
Types of Retirement Plans
Deferred Annuity Plans: A corpus that is built up when one is earning during the policy term, used and converted into a regular stream of income in the post-retirement years. Systematic savings are facilitated in the accumulation phase; there is a guarantee of steady income in the pay-out phase.
Immediate Annuity Plans: Immediate annuity plans begin immediately upon investing a lump sum amount and offer periodic returns. These kinds of plans are most convenient for those who are close to retirement or have just retired and are in dire need of a periodic flow of money.
Benefits of retirement plans
They ensure an income that is bound to be regular even when one retires, hence helping the person to be in a certain position to run their daily expenses. Therefore, this regular income is very important for them in maintaining their lifestyle and other medical expenses.
Tax Benefits: This goes towards reducing your net taxable income and reducing your tax expense. Sec 80C: Contribution toward some retirement plans stands eligible for a tax deduction, while the maturity amount received is partly covered under this tax deduction plan.
How to Select the Perfect Retirement Plan
Retirement Goals: Evaluate what having to support retirement goals requires and the extent of regular income, along with an estimate of what your expenses will be like after retirement for health, living, leisure activities, etc.
Risk appetite: How much quantum of loss is one willing to take? While higher schemes having more equity exposure give greater returns, there is also greater inherent risk involved.
Annuity Options: Out of a range of options in an annuity—life annuity, joint life annuity, guaranteed period annuity—pick the one that would serve your purpose. Each of these annuity options has its good points and comes in handy in a diversity of situations.
Incorporate Child and Retirement Plans into a Financial Plan
Start Early: This would have started early with investments in child plans and retirement plans, coupled with the force of compounding. However, this also gives an extended investment horizon, thereby reducing the burden of high premiums at a later age when they are in the later stages of their lives.
Balanced Portfolio: Make sure there are Child Plans, Retirement Plans, and other financial products mixed up. Diversification will help manage risk and ensure that you’re not overexposed to one kind of investment.
Review: You need to review them regularly and modify them to keep them in sync with changing financial goals and market conditions.
Conclusion
While Child Plans secure your child’s future, Retirement Plans ensure a comfortable and financially free life post-retirement. Get to know them and apply the same to your financial planning, and you shall have an utterly secure and stable future for yourself and your child. Just like investing in such plans, in life’s vagaries, one can have protection and peace of mind that befits the desire, and to know you are financially safe with your loved ones. Make informed decisions; seek advice when required and give your family a head start toward financial security today.
