Retirement plans also known as pension plans are investment plans in which one can invest a part of their savings to accumulate over a particular span of time. The sole purpose is to provide people with financial security after retirement. Retirement planning lets you live with pride without compromising on the standard of living after you have stopped working. With reference to the cost of living and inflation going by leaps and bounds, retirement planning has become an imperative part of our lives lately.
One might run out of savings as there are some emergencies that are inevitable, so, going with the best retirement plans nowadays helps ensure a seamless lifestyle after retirement. Investing continuously in the right pension plans provides you with a multiplied amount of money owing to the compounding effect hence adding up a lot of differences to your final savings aggregation. Therefore, it is advisable to choose from the best retirement plans which you think aligns with your income and expenses
Importance of Retirement and Pension Plans?
A lot of people overlook the benefits of a retirement plan and don’t emphasize much on what happens once they stop working. A retirement plan is not something that can be started when one gets older; rather, it is imperative to start acting it on today itself. Starting early can ensure a substantial retirement corpus for the golden years.
Types of Pension Plans in India
Good retirement planning is impossible without a good retirement scheme from a trustworthy and renowned retirement plan scheme provider. Based on the scheme structure and benefits, these plans have multiple classifications. These plans can be further divided into 8 categories:
- Deferred Annuity
- Immediate Annuity
- Annuity Certain
- With cover and without cover pension plans
- Guaranteed Period Annuity
- Life Annuity
- National Pension Scheme
- Pension Funds
- Whole Life ULIPs (Unit Linked Insurance Plan)
Let’s have a look into each of these in detail:
Deferred Annuity: A deferred annuity is a type of pension scheme that allows building a substantial retirement corpus through regular premium or single premium payment over a policy term. In a deferred annuity, one can enjoy the tax benefits associated with this pension scheme. You start receiving regular annuities at the end of the accumulation phase.
Immediate Annuity: Under this scheme, the pension is provided immediately to the policyholder. One needs to pay a lump sum amount and the annuities start immediately. If the policyholder dies, their nominee is entitled to get the money.
Annuity Certain: In annuity certain plan, the annuity is paid to the policyholder for a specific number of years. It’s up to the policyholder what period of time they want to choose and if they die before receiving the complete payment, the annuity is paid to the nominee.
With cover and without cover pension plans: With life cover pension plans are the type of plans that pay the lump sum amount assured to the nominee of the policyholder in case of his or her untimely demise. Without cover pension plans, on the other hand, do not assure any guaranteed lump sum in case of the death of the policyholder. However, all the premiums are paid back to the nominee.
Guaranteed Period Annuity: Under guaranteed period annuity, as the name implies, the annuity is provided to the policyholder for a certain specific period of time like 5 years, 10 years, 15 or 20 years. It doesn’t matter whether or not the policyholder survives that duration.
Life Annuity: In the life annuity plan, the pension amount is paid to the policyholder till death. If you choose the ‘with spouse’ option, the pension amount will be provided to the spouse of the policyholder, in case he/she has died.
National Pension Scheme: The National Pension Scheme is a pension program initiated by the Central Government in January 2004. Employees from public, private and even unorganized sectors with the exception of armed forces can invest in this scheme. Under this scheme, people can invest in a pension account at particular intervals of time while they are employed. Post-retirement, the policyholder can withdraw a certain percentage of the accumulated amount. The remaining amount you will receive as a monthly pension once you are retired.
Pension Funds: Pension funds are types of pension scheme that pay for employees’ retirement commitments and remains into effect for a long period of time. What’s best about this scheme is it offers comparatively better returns upon maturity.
Whole life ULIPs (Unit Linked Insurance Plan): As the name implies, the invested money stays for the whole life of the policyholder and during retirement, he/she can make partial withdrawals and get tax free income. Additional withdrawals are allowed whenever needed.
Retirement planning is one of the most important parts of our financial planning. You can’t run from the reality that sooner or later your professional life will come to an end and you will be relying on the savings and investments you have made. So, planning your retirement judiciously can make wonders and let you spend your golden years peacefully. Also, with the advent of technology, it is no longer a tough task to get the best retirement scheme by researching it on the internet.