Risk is part and parcel of an individual’s life. The risk in human life arises out of two situations – dying too early and living too long. So, there should be proper planning in both of the above cases in order to secure yourself against any adverse circumstances. As longevity is increasing, the concern of living too long is acquiring greater importance. The number of old persons is increasing considerably in almost all countries. Most of the older persons have no earnings due to a lack of proper retirement planning. Retirement planning is, in fact, the most neglected aspect of a financial plan.
The main source of income during retirement is what you save during your working life span. Sheer saving isn’t sufficient if you want to survive retirement happily and stress-free. Therefore, savings should be planned in such a manner that they will grow over a period of time and help you survive happy sunset years. Insurance companies offer retirement insurance plans to the public at large so that individuals can plan their retirement and receive regular amounts postretirement. Retirement insurance plans are also called pension plans. They are a category of annuity plans which are specially designed to cater to providing regular post-retirement income.
When a person buys an annuity contract, he pays the insurer a specified capital sum, maybe in installments, in return for a promise from the insurer to make a series of payments to him as long as he lives. This plan is like life insurance; it is a risk-sharing plan based upon the group of insured of the same age. The risk is of living too long. The contributions are made by all and the insurer applies the law of large numbers. The contributions of a large number of individuals are pooled and each member is paid an annual or monthly amount.
Features of Retirement Pension Plans
This story is from the September 13, 2021 edition of Dalal Street Investment Journal.
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This story is from the September 13, 2021 edition of Dalal Street Investment Journal.
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