Five years before retirement is a critical period in your financial journey. It is during this time that you need to make important decisions about your retirement plan and ensure a comfortable future. One of the key aspects to consider is term policies. A term policy is a type of life insurance that provides coverage for a specific period, known as the term. This policy offers financial protection to your dependents in the event of your untimely demise.
Let’s delve deeper into why term policies are crucial and how they can help secure your retirement.
1. Financial security for your loved ones
During your working years, you may have accumulated various assets and liabilities. In the unfortunate event of your demise, these debts could become burdensome for your family members. This is where a term policy plays a vital role. By opting for a suitable term policy, you can ensure that your loved ones are financially protected even after you are gone.
2. Cost-effective solution
Term policies offer significant coverage at affordable premiums, making them an ideal choice for individuals nearing retirement. Since there is no maturity benefit associated with term policies, the premiums are relatively lower compared to other life insurance policies. This cost-effectiveness allows you to allocate more funds towards building your retirement corpus.
3. Flexibility and customisation
Term policies provide flexibility in terms of policy duration and coverage amount, allowing you to tailor the policy according to your specific needs. You can choose a policy term that aligns with your retirement plans and select an appropriate sum assured based on your financial obligations and goals.
For instance, let’s say Mr. Verma, aged 45, plans to retire at the age of 60. He anticipates that his financial responsibilities will reduce significantly over the next 10 years as his children become financially independent. Therefore, he decides to opt for a term policy with a shorter duration of 10 years and a sum assured that covers his outstanding liabilities and future expenses for his spouse.
4. Tax benefits
Term policies also offer tax benefits under Section 80C of the Income Tax Act, 1961. The premiums paid towards the policy are eligible for deduction up to ₹1.5 lakhs per year from your taxable income. Moreover, the death benefit received by your nominees is tax-free under Section 10(10D) of the same Act.
Steps to take 5 years before retirement
Now that we understand the significance of term policies in securing our retirement, let’s explore what else we should do five years before retiring.
1. Assess your financial readiness
Five years before retirement is an opportune time to evaluate your financial preparedness. Start by examining your sources of retirement income such as Employee Provident Fund (EPF), Public Provident Fund (PPF), National Pension System (NPS), fixed deposits (FDs), rental income, etc. Calculate the expected income from each source and assess whether it will be sufficient to meet your post-retirement expenses.
2. Review your existing insurance policies
Take a close look at your existing life insurance policies and assess if they align with your retirement goals. Consider factors such as the coverage amount, policy terms, and premium payments. If you find any gaps in coverage or if the policies no longer meet your requirements, consider purchasing additional term policies or modifying the existing ones accordingly. To calculate the premium suitable for your needs, you can use a term plan calculator. It will help you to determine the ideal coverage amount and premium for your specific needs.
3. Estimate your retirement expenses
As you approach retirement, it is crucial to estimate your future expenses accurately. Consider factors such as housing costs, healthcare expenses, travel plans, and other lifestyle choices. By having a clear understanding of your expected expenses, you can better plan and allocate your retirement corpus.
4. Optimise your investments
Review your investment portfolio and ensure that it is well-diversified to mitigate risks and maximise returns. Consider consulting with a financial advisor who can guide you in making informed investment decisions. Explore investment options such as mutual funds, stocks, real estate, etc., based on your risk appetite and financial goals.
Conclusion
As you approach retirement, it is essential to take proactive steps to secure your financial future. By understanding the importance of term policies, assessing your financial readiness, estimating your expenses, and optimising your investments, you can build a solid foundation for a comfortable retirement.
Remember, a term policy acts as a safety net, providing financial security to your loved ones and ensuring that they are taken care of even in your absence.
Start planning for retirement early, make informed choices, and seek professional advice when needed. By taking these steps five years before retirement, you can pave the way for a financially secure future filled with peace of mind.
