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Unit 9: Retirement Planning-I

It’s generally advisable for you to exhaust the contribution room you have for your government- Notes
sponsored accounts before you begin looking at other avenues, as whatever securities you
invest in are more likely to deliver enhanced returns through compounding of tax-sheltered
earnings or otherwise beneficial accounts.

9.5.2 Company Pension Plans

While private businesses have shifted from offering defined-benefit pension plans to other
forms of employer-sponsored plans, such as defined contribution plans, there are still plenty
that do offer defined-benefit plans to employees.

9.5.3 Other Products

There are a host of other retirement vehicles available as well. For example, retirees are able to
purchase annuities through insurance companies, which essentially provide them with a defined
pension for the rest of their lives, or for a fixed period. There are many different annuity types
and various options for each, so if you are considering this route, be sure to carefully assess your
options.
There are many other investment products that may or may not be useful for you, depending on
your individual circumstances. Term life insurance can be an effective way to guarantee that
your spouse or loved ones will have a sufficient nest egg if you suffer an accident or early death
and cannot continue earning income to contribute to your retirement fund.
Generally, you may need life insurance if you are the primary breadwinner in the family and
you need to ensure your income will be replaced should you pass away. Term life insurance is
usually limited to income replacement, while whole life insurance also includes an investment
component and builds cash value against which you can take a loan out. Whole life is usually a
lot more expensive, and some financial professionals project that it may be wiser to purchase
term life and use the extra funds to fund a retirement plan. Before purchasing any form of life
insurance, consult with your financial planner to ensure you purchase the insurance that is right
for you.
There are also long-term care and medical cost plans that can be tailored to specifically ensure
that significant medical expenses won’t affect your retirement years. All of these types of products
can be useful, but it is unlikely that all of them are needed. Consider consulting with a professional
financial planner to help determine what specialized products may be required or useful for
your retirement plan.

9.6 Retirement Planning: Tax Implications and Compounding the
Early Bird Gets … the Nest Egg

While it’s not difficult to understand that building a sufficient retirement fund takes more than
a few years’ worth of contributions, there are some substantial benefits to starting your retirement
savings plan early.
One of the most important determinants impacting how large your nest egg can get is the length
of time you let your savings grow. The reason for this is that the effects of compounding can
become very powerful over long periods of time, potentially making the duration of your
retirement savings plan a much more critical factor than even the size of your monthly
contributions.
The bottom line is if you don’t start saving for retirement early on in your working life, it will
be more costly trying to play catch-up later on. It’s much easier to put aside a small amount of

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