No more money crunches, live your dream

Retirement is a time in life when you don’t have to work for money anymore. If you’re lucky, you’ll be able to spend those years doing something that makes you happy and enjoying life. But there’s another part of retirement that’s important, too: making sure your finances are in order so that you can live comfortably in retirement. That’s where superannuation comes in! Superannuation is a benefit provided by an employer to help their employees build a retirement corpus (a sum of money saved for the future). It is like a pension scheme provided by an organization for the welfare of its employees. Let’s learn more about what superannuation meaning holds.

What is superannuation?

Superannuation meaning is different for different people: For some, it is when they no longer feel like working for money anymore. For others, it could mean a time when they no longer feel like working for money anymore—but they still want to keep working! The age at which people retire varies across organizations and geographies. In India, most organizations and government departments have fixed either 60 or 65 as the age at which people can start drawing superannuation benefits. This age was increased from the earlier 58 due to increasing average life spans in India (the current average life span is ~70 years).

Types of superannuation

You’ve probably heard the term “superannuation” thrown around a lot. But what is the word superannuation meaning? Superannuation is generally classified into two types: defined benefit and defined contribution. Defined benefit superannuation schemes are the kind where the output can be easily calculated using a recommended formula. You know how much you’ll get when you retire, regardless of how much of your salary you put away or how long you work. Gratuity is an example of a defined benefit superannuation scheme. In contrast, defined contribution superannuation schemes depend on your input + market forces to determine your output—which means that the amount you receive upon retirement will vary depending on how much money has been invested into your account and what happens to interest rates over time.

How does superannuation work?

The great thing about superannuation funds is that you can invest as little or as much as you’d like. The general thumb rule is to invest about 15% of your base income into the fund, but you don’t have to do that if you don’t want to. You can choose to invest less than that if it feels like too much, or even just leave it alone until retirement if that’s what feels right for you. You’ll find that the interest rates offered on superannuation schemes are similar to those applicable to Provident Fund. Even if you change employment, you can transfer your fund to your new employer or even withdraw. You can choose to leave it as it is, as well, until retirement.

Retirement Benefits of Superannuation

If you’re thinking of making the most of your superannuation fund, you have options. You can choose from a variety of pensions that are suited to your specific needs.

Deferred Annuity or Pension:

You can avail of a lump sum amount or regular payouts in the form of annuities.

Payable for Life:

This is an ideal option if you want to maintain financial security for the rest of your life.

Return of Corpus:

With this option, you’ll receive a pension until the end of your life but will get back the corpus at some point in time.

Guaranteed for a Term (5/10/15/20 Years):

A guaranteed pension amount is paid out for the defined term.

Joint Life Pension (With or Without Return of Corpus):

This is an excellent choice if you are in a relationship and want to ensure that both partners have financial stability after death.

Joint Life with 50% Pension:

As the term indicates, pension amount to the tune of 50% of the amount paid to you will be paid to your spouse after your demise.

Increasing Pension:

Your expenses may gradually increase post-retirement. Healthcare costs go up along with age. If you opt for an increased pension, your pension will gradually increase with age.

Commutation:

You can opt to take a portion of the fund as a lump sum amount and the rest in the form of a pension

Using retirement calculator

Retirement planning can be quite complex, but luckily there are tools to help you out. A retirement calculator is one such tool that helps you figure out how much money you need to save in order to retire with the lifestyle you want. An online retirement tool asks for your personal details like your current age and desired retirement age, as well as your current monthly expenses and savings for retirement. You just fill out these details, click a few buttons, and voila! You have all the information you need about how much money you need to save for retirement. The retirement calculator does all the complicated math for us, in just a few clicks!

Retirement goal consists of two distinct stages of life:

Accumulation Stage:

You save and invest money in this stage to build a large corpus before you can retire.

Distribution Stage:

You build a regular income stream out of the corpus you have built in the Accumulation Stage. Although the distribution stage comes after the accumulation stage in real life, planning must happen in reverse. Your actions in the accumulation stage are defined by the requirements of the distribution stage

Final word

It’s true: retirement is a time of transition, and your wealth should carry the weight of your financial needs in this new era. The chances of earning from employment would be minimal, and you wouldn’t want to depend on anyone else for financial support. Achieving the goal of retirement requires careful planning and budgeting, but you can make it easier by using a retirement calculator.