Why is a Periodic Review Needed?
Financial planners and experts strongly advocate the practice of periodic review of a financial portfolio. Be it investments, health or retirement, it is a much needed task. We go through various stages in life, from being single to starting a family, to acquiring assets. Our priorities and preferences change with course of time. Thus at every such juncture in life a check on our insurance portfolio helps us to understand if our risks have been adequately covered. You should at any point in time be well prepared to face the unexpected, without having to take a major financial blow.
What to look at When Reviewing your Retirement Plan
a) Changes in disposable income and spending patterns:
It sure does pay to start planning for retirement at an early age. Nevertheless what one needs to bear in mind is that, disposable incomes and spending patterns show significant changes as one grows older. What may be priority expenditure at say 30 may seldom be of importance at the age of 40. Thus, look into your spending habits. Would it continue to be a priority even after retirement? Question yourself and review your plan accordingly. Retirement plan review must be linked to your annual spending.
b) Acquisition/sale of assets and liabilities:
Sale of an asset or inheritance, a new source of income/ asset should be incorporated in your retirement plan. Would you be utilising it completely or partially for retirement, or for goals towards children's education or marriage? Also, remember an increase in liability calls for an increase in your sum assured. Recalculate your Human Life Value, considering all outstanding liabilities.
c) Income Changes:
As you climb up the ladder in your professional life, your income too may rise up significantly. An increase in income would mean increased cash flow, thus a higher standard of living. To maintain this standard of living in your retirement years ahead, you would need to cater to an increase in your retirement corpus. Have an annuity plan in place, adequate insurance to meet medical emergencies and an emergency fund. Similarly, in case of decreased cash flow due to loss of job, you may consider reducing your contribution to retirement plan temporarily, till the situation improves.
d) The effect of inflation:
Inflation is one of the most important factors that need to be taken into consideration when calculating your retirement requirements. With inflation rate showing an upward trend, the value of your savings may not be the same say 5-10 years ahead. If the inflation rates show frequent fluctuations, take a look at your corpus. Check to see if it would be enough meet your requirements, post retirement.
e) Insurance check:
A retirement portfolio must broadly comprise of life insurance, health insurance and a substantial corpus to meet day to day living. You may opt for an annuity plan for a regular source of income or a lump sum amount as per your requirement. The choice you make greatly depends on your needs and goals. Check to see if the type of policy you hold is still as per your individual financial goal. Health Insurance policies protect you and your family against costs related to medical care. So don't miss out on their renewal dates. You may also opt for riders such as critical illness or personal accident to provide additional benefits.
f) Investment check:
Many a time's changes in your financial standing or risk profile may require you to modify your investment preferences. Review your fund performance periodically to ensure the portfolio is as per your risk appetite. You may wish to switch between equity and debt in times of market volatility, or may opt to move from debt to equity when the markets show signs of stability.
g) Health insurance:
A very important part of your retirement corpus is to incorporate a health insurance for medical expenses. Have an adequate and comprehensive medical plan in place. Opt for one when you are young and health. This brings the premiums down substantially low. Check to see if your plans are renewed on time. Insurers maintain a history of policy holder's transactions and reward consistency in policy renewals by way of discounts. Consider lifelong renewability policies so that the policy is available even after retirement.
8) Years post retirement
The perfect retirement life is one with no financial stress. Having a plan in your earning years to achieve this sure is a stepping stone. And post retirement here is what you should consider doing.
Start retirement with zero debts: Your aim should be to pay off all debts and liabilities in your earning years. This ensures your retirement corpus is to meet your financial needs for the years ahead.
Your saving should not stop: Don't stop saving even if you have retired even if your regular source of income is no longer there. Save and invest to meet any kind of emergency. You could opt for safer investments such as fixed deposits, post office monthly income plans etc...
Have a healthcare management in place. As you grow older, it is your body that requires care the most.
Written By: Deepak Yohannan
The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal
For more articles by Deepak Yohannan, please visit MyInsuranceClub.com
You may contact him directly on Twitter: @dyohannan