Planning for retirement is crucial to ensuring a stable and comfortable future. Just because you stop working doesn’t mean your financial obligations cease. Retirement planning involves strategizing where your income will come from once you retire. This blog will explore the importance of retirement planning, different types of retirement plans, and focus on alternative retirement plans, highlighting their features and benefits.

Understanding Retirement Planning

Retirement planning is the process of determining your retirement income goals and the actions and decisions necessary to achieve those goals. It involves identifying sources of income, estimating expenses, implementing a savings program, and managing assets. Proper retirement planning ensures peace of mind and a financially secure retirement.

Why Retirement Planning is Essential

1. Peace of Mind: Knowing that you have a solid plan in place for your retirement reduces stress and anxiety about your future financial security.
2. Financial Independence: Retirement planning helps you maintain your lifestyle and financial independence even after you stop working.
3. Preparedness for Unexpected Costs: A well-thought-out retirement plan includes provisions for unexpected expenses, such as medical emergencies.

Types of Retirement Plans

1. Umbrella Retirement Scheme
2. Individual Retirement Plan
3. Annuity
4. Income Drawdown
5. NSSF (National Social Security Fund)
6. Alternative Retirement Plan

Alternative Retirement Plan

An alternative retirement plan is a pure endowment product with a guaranteed final maturity. It provides individuals with a structured savings vehicle to meet a wide range of financial obligations and goals, including retirement. This plan is designed to offer flexibility, allowing you to save for various purposes such as education expenses, inheritance, or specific events like a cruise or global event.

Features and Benefits

1. Issuance Age:
   • Minimum entry age: 18 years
   • Maximum entry age: 65 years
   • Maximum age on cover: 70 years
2. Term:
   • Minimum: 5 years
   • Maximum: 12 years
3. Maturity:
   • Free inbuilt waiver of premium on the death of the policyholder
   • Optional lump sum death cover
   • Surrender benefits
   • Tax relief

Benefits at Maturity

1. Living Benefits:
   • Waiver of premium on the death of the policyholder
   • Cash payouts remain payable when due
   • Lump sum amount at maturity
2. Critical Illness:
   • 50% of the applicable sum assured upon confirmation of a listed critical illness
   • Waiver of premium
   • Cash bonuses still payable when due
3. Tax Relief:
   • 15% of the annual premium

Payout Schedule

• 6 years prior to maturity: 15% of the sum assured
• 5 years prior to maturity: 15% of the sum assured
• 4 years prior to maturity: 20% of the sum assured
• 3 years prior to maturity: 20% of the sum assured
• 2 years prior to maturity: 30% of the sum assured
• 1 year prior to maturity: 30% of the sum assured
• At maturity: 100% of the sum assured

Best For:

• Individuals looking for structured savings to meet long-term financial goals
• Those seeking to leave an inheritance
• People planning for significant future expenses such as education or special events

Individual Pension Plan vs. Alternative Retirement Plan

Individual Pension Plan:

• Normal retirement age: 55-65
• Best started early for higher accumulated funds
• Funds accessible only at retirement age
• Guaranteed interest rate: 5% per annum
• Accumulated funds subject to 15% withholding tax at maturity
• Requires consistent contributions for active policy status

Alternative Retirement Plan:

• No specific retirement age; you decide when to retire
• Can start at any time with a maximum term of 12 years
• Contributions dictate the lump sum amount received at maturity
• Up to 50% of total savings accessible depending on entry age
• Not taxed at maturity; 15% tax relief on monthly contributions
• Flexible contributions based on availability

Example Plans

1. 5-Year Plan:
   • Quick accumulation period
   • Suitable for individuals close to retirement or with specific short-term goals
2. 12-Year Plan:
   • Longer accumulation period
   • Ideal for younger individuals or those with long-term financial goals
3. Annuity:
   • Provides regular income post-retirement
   • Various options available to suit different financial needs

Sample Return Based on a Person Born in 1989

Retirement Investment Plan