RETIREMENT AND ITS FINANCIAL CHALLENGES. GUARANTEED INCOME PLANS CAN BE A GOOD OPTION! MAXIMUM TAX BENEFITS ON OR BEFORE 31 MARCH 2023.

Each life stage requires adequate finances because each stage brings with it different financial needs and challenges. Retirement is a particularly critical life stage that requires adequate finances because it is a time when people no longer earn a regular income from work and must rely on their retirement savings, pension plans, or social security benefits to cover their expenses.

During retirement, people typically have more time to enjoy their hobbies and interests, travel, and spend time with family and friends. However, retirement can also bring significant financial challenges.

If people do not have adequate finances during retirement, they may not be able to meet their basic living expenses or pursue the activities that they enjoy. This can lead to stress, anxiety, and reduced quality of life during retirement.

 To ensure that they have adequate finances during retirement, you need to start planning and saving early in life. By the time you are about to enter retirement, a definite strategy through the right investments needs to be in place to manage daily expenses, leisure and travel expenses, healthcare costs, inflation, longevity, debt, etc. 

Taking the right investment decisions beforehand becomes very critical. Retirement brings significant changes to one's financial situation.

Some of the challenges that people face during retirement include:

• Reduced income: Upon retirement, the regular paycheck stops, and retirees have to rely on their retirement savings, pension plans, or social security benefits. The reduction in income can lead to a significant change in lifestyle, especially if retirees have not saved enough or have not planned for their retirement.
• Healthcare costs: As people age, their healthcare needs tend to increase, and healthcare costs can quickly become a significant expense during retirement. Retirees may need to pay for health insurance premiums, deductibles, copayments, and other out-of-pocket expenses.
• Inflation: Inflation can erode the purchasing power of retirement savings over time. Retirees need to ensure that their retirement savings and investments can keep pace with inflation and still provide enough income to meet their expenses.
• Longevity: People are living longer, and retirement can last for several decades. Retirees need to ensure that their retirement savings and investments can last for the duration of their retirement.
• Debt: Debt can be a significant financial burden during retirement. Retirees may have to continue to pay off mortgages, credit card debt, or other loans, which can limit their ability to save for retirement or meet their expenses during retirement.
• Market volatility: Investment returns can be unpredictable, and market volatility can have a significant impact on retirement savings. Retirees need to ensure that their investments are appropriately diversified and aligned with their risk tolerance.

Tax Exemption Taken off (in Budget 2023) on Traditional Plans

As per the announcement in Budget 2023, there came a change in tax exemption for Life Insurance that might have an impact on the tax exemption of some of the traditional plans (except ULIPs). The change/ruling will apply from April 1, 2023, onwards to the traditional plans taken post April 1, 2023 (other than ULIPs) and are exceeding a premium of Rs. 5 lacs, making them taxable. However, the death benefit remains same as was before.

How can the change in Life Insurance tax exemption (as proposed in the Budget 2023) effect you?

Guaranteed Income Plans can be a useful investment option for retirement planning, and the change in tax exemption might apply to these plans, discouraging buyers to take this plan.

 Some of the benefits of Guaranteed Income Plans for retirement include:

• Regular Income: Guaranteed Income Plans to provide a regular and guaranteed stream of income to the policyholder during their retirement years. This income can help cover the policyholder's daily living expenses and maintain their standard of living.
• Safety and Stability: Guaranteed Income Plans to provide a safe and stable investment option, which can be attractive to risk-averse investors. Unlike other investment options, income payments are not wavered by any market fluctuations or other external factors.
• Tax Benefits: Premiums paid towards Guaranteed Income Plans qualify for tax benefits u/s 80C of the Income Tax Act,1961. The income received from these plans is also taxed as per the prevailing tax laws.
• Flexibility: Guaranteed Income Plans offer flexibility in terms of premium payment frequency, payout frequency, and policy term. Policyholders can choose the plan that best suits their financial goals and needs.
• Death Benefit: In case of the policyholder's untimely demise, the Guaranteed Income Plan offers a death benefit to the nominee. This can provide financial support to the family during a difficult time.
• Inflation Protection: Some Guaranteed Income Plans offer inflation protection, which means that the income payments increase each year to keep up with the rising cost of living.

Buy before 31 March 2023 for Maximum Tax benefits!

Guaranteed Income Plans can be a helpful investment option for retirement planning, and the best to buy this would be on or before 31 March, 2023. However, irrespective of the benefits, a proper analysis of one’s requirements needs to be done for correct decision-making.