Retirement Insurance Plans

Features and Benefits of Retirement Plans

You should start planning for your retirement from a young age so that you are financially secure in the non-working years of your life.
Here are the topmost features and benefits of retirement plans:

• Annuity option: Retirement plans or pension plans generally come in two types – immediate and deferred annuity. In an immediate annuity start, the insurer starts paying the money back immediately right after receiving the lump sum premium. In a deferred annuity, the insurer receives your payment and promises to pay you a regular income or a lump sum, in the future, as per your preference. You can choose the period for which you wish to receive the income. The most common type of deferred annuity retirement plans comprises of ULIPs (United Linked Insurance Plans) that invest a part of your money in the market while also offering you a secure life cover. Different retirement plans give your different annuity options. You can choose one that best matches your needs and as per the premiums that fit your budget.
  
  
• Sum assured: Each retirement plan has a defined sum assured, which is a pre-determined amount offered to the insurer during the policy tenure. This sum is given as a death or maturity benefit under this plan. Each insurance company follows a different approach to calculate the sum assured.
  
  
• Vesting age: Vesting age is the age when you begin to receive your pension payment. You can choose to get these payments monthly or as per your preferred frequency. Most insurers keep the minimum vesting age as 45 or 50, whereas some insurance plans can go up to 90 years.
  
  
• Accumulation period: You can choose to invest in the policy as a lump sum or through regular periodic payments. Your funds are accumulated over a long tenure, as per your preference, to create a substantial financial corpus for your future. 
  
  
• Payment tenure: This refers to the period during which you start receiving payments from your retirement plan. In most cases, the accumulation and payment period is different, whereas some plans allow you to take partial or full withdrawal in the accumulation period.
  
  
• Surrender value: This is the amount the insurer will pay in case you surrender your plan before its maturity, provided you have paid the minimum premiums as specified. If you surrender your plan, you lose out on the benefits, including the life insurance cover.

Why choose Retirement Plans offered by Edelweiss Tokio ?

Here a few reasons why you should choose retirement plans by Edelweiss Tokio:

• Lifetime financial assurance: Edelweiss Tokio offers different retirement plans such as deferred annuity plans, Employee’s Provident Fund (EPF), Public Provident Fund (PPF), National Pension Scheme (NPS) that also give attractive returns, allowing you to accumulate a strong corpus for your future. 
  
  
• Choose when to retire: If you start investing at an early age, you will benefit from the power of compounding. This will allow you to build a strong sum within a considerable time. This will help you choose when you wish to retire without worrying about your financial security.
  
  
• Flexible payments: Edelweiss Tokio allows you to choose your premium payment mode and frequency as per your preference. You can either pay premiums as a lump sum throughout the policy tenure or a fixed period. You can also choose if you wish to make the payments yearly, half-yearly, quarterly or monthly.
  
  
• Regular income: With retirement plans from Edelweiss Tokio, you can choose how to receive income. You can get a lump sum amount or get income on a yearly, half-yearly, quarterly or monthly basis throughout the retirement tenure.

How to calculate the return of a pension or retirement plan?

You should plan for your retirement, and accordingly, generate a retirement corpus. However, the plan you select must offer adequate returns for this purpose. To calculate the return of your pension scheme, you can use an online pension calculator that will only need basic information like your savings, current financial liabilities, monthly expenses, etc.

How to use a retirement planning calculator?

Retirement planning is important for a secured life. You can use the below steps to precisely know the amount you will need for a happy retired life.

• Step 1: Visit the retirement planning calculator online.


• Step 2: Fill in the details such as your current age, when you want to retire, expected returns, monthly savings, monthly expenses and rate of inflation.


• Step 3: Click on ‘Calculate’.

After entering all the details, you will get the sum you need to live a comfortable retired life. Or, you can use the calculator given below:

Types of retirement plans or pension plans

Immediate annuity: 

 These types of annuity start paying you income immediately after you purchase the policy and pay the lump sum.

• Annuity certain: In this type of annuity, a specific amount is paid via a series of payments over a defined period, as per your preference.


• Life annuity: In such an annuity, you get to pay premiums for a defined duration but get income for your lifetime. In case of your unfortunate demise, your spouse will get the pension.


• Deferred Annuity Plans: A deferred annuity is a long-term investment in which you invest a sum of money, then receive payments several years down the line after the initial sum has accrued interest. In a deferred annuity plan, there are two phases: the accumulation phase and the income phase. At the end of the accumulation phase, you can withdraw 1/3rd of the corpus and buy an annuity plan with the remaining 2/3rd of the corpus. You can claim tax benefits under Section 80CCC for investment in an annuity. However, the pensions are taxed.

THERE ARE 2 TYPES OF DEFERRED ANNUITY PLANS:

• Traditional Retirement Plans: The premiums paid towards these plans are mostly invested in debt instruments like government securities. These are best suited for individuals who are low risk-takers.


• Unit Linked Insurance Plans: A ULIP is a life insurance plan with the additional feature of investing your money in the market for future financial goals such a retirement. This means that you get the dual benefit of protecting your family as well as retirement planning.
  A ULIP also provides tax benefits as the premium or amount invested into the ULIP is exempted from tax under Section 80C. The amount received on maturity of this investment plan is also tax exempted under Section 10(10D) of the Income Tax Act, 1961, if the annual premiums are less than ₹2.5 lakhs or if the policy is purchased prior to February 1, 2021.
  If the policy is purchased on or after February 1, 2021, and the total annual premium exceeds ₹2.5 lakhs, then the ULIP maturity benefits will be taxed as ‘capital gains’ and taxed accordingly.


• Employee’s Provident Fund (EPF): EPF is available to all salaried employees, subject to the rules laid down by EPFO. In this case, the employer and employee contribute a percentage of the employee’s salary to the Employee’s Provident Fund.


• Public Provident Fund (PPF): PPF is a popular long-term investment option that offers capital preservation and attractive interest rates. A minimum of ₹500 to a maximum of ₹1,50,000 can be invested each financial year.


• National Pension Scheme (NPS): Contributions to NPS can be made from the young age of 18. NPS offers investors: active choice and auto choice. In active choice, 50% of the contribution is invested in equity, while the rest is in government and corporate bonds. In auto choice, investments are made in a mix of equity, corporate and government bonds, depending on your age. In an NPS, you can withdraw 60% of your NPS funds at retirement, while the 40% must be used to purchase an annuity.

How much do I need to save for retirement? 

The amount you need to save for retirement depends on your financial needs during retirement and the amount you need to maintain your standard of living as well as take of your medical needs and any other expenses that might occur during retirement. You can use our retirement calculator online, or the quick calculator provided on this page to know the exact amount you will need to save for a happy retirement.

Who should invest in retirement and pension plans?

Retirement and pension plans are ideal for the following people:

• People who wish to maintain their current standard of living even during retirement.


• People who want to build a corpus to cover their potentially high medical costs in the future.


• People who want their spouse or other family members to stay financially independent in their absence.

Retirement planning goals

A critical part of retirement planning is to begin early in life. A failproof retirement plan allows you to start saving way before retirement. The amount one needs for a secure retirement depends on person-to-person. However, experts specify certain parameters that will help you save for retirement adequately.Here is an example that can help you understand how much one needs to save for retirement:

Mr Rajesh Nayyar is 30 years old and is married. Mr Rajesh works in a multinational private firm as a senior manager and earns ₹80,000. His wife is dependent on him for financial support. Mr Rajesh wishes to retire at the age of 60.

His monthly expenses total ₹35,000, including the insurance premium and other investments. He also has an emergency corpus for urgent needs and is financially stable.

By the time Mr Rajesh is 60 years, his monthly expenses will be ₹2.66 lakhs, assuming a 7% inflation rate. To meet these future expenses and maintain a secure life after retirement, Mr Rajesh will need a monthly saving of ₹27,000 in the present.

Five tips for retirement planning

Retirement is the golden period of your life. You can live the life of your dreams, but only if you plan during the working years of your life. To ensure you create a failproof retirement plan, follow these five tips:

• Start saving for retirement now: During retirement, you will not have a reliable source of income. However, to ensure your retirement is financially safe, you should start investing in a feasible retirement plan as early in life as possible. When you invest at a young age, you benefit from the power of compounding for a longer period. This helps you accumulate a large sum to fulfil future needs. 


• Accommodate your retirement needs: When planning for retirement, have a futuristic approach. Think of your retirement needs and financial assistance required in the future and plan likewise. For example, your medical expenses will rise with time. So, it is good to invest in a secure health insurance plan well in time. Moreover, pay close attention to which city you will live in post-retirement, retirement lifestyle and plans, etc.


• Be prepared for financial emergencies: Most people only have one source of income. However, in case of financial or medical emergencies, it is beneficial to have a retirement corpus to fall back, especially during retirement. The sum should be enough to sustain your future financial emergencies.


• Explore your options and make an informed decision: When it comes to choosing your retirement plan, always make an informed decision after conducting a comprehensive analysis of all the available plans. It is also good to have a secure insurance plan in place in case you have dependents. So, it is best if you choose a plan that offers insurance cover and investment support. Moreover, buy an insurance plan at a young age because it comes at much lower premiums and offers relatively higher coverage as compared to a plan bought later in life.


• Diversify your investments: Diversification is important to create a failproof retirement plan. You can choose to invest some of your funds in secure investments like insurance while directing the rest of your savings in market-linked securities such as equities, bonds, etc. The market-based investment can be made as per your risk preference and retirement goal. An optimally diversified retirement portfolio minimises risk and potentially maximises returns.

Eligibility for retirement plans or pension plans in India

Each pension plan has a different eligibility criterion depending on:

• Minimum and maximum entry age: All pension plans have a minimum and maximum entry age. Usually, the minimum age of entry is 30, and the maximum entry age is 75.


• Minimum and maximum vesting age: Generally, the minimum vesting age is for pension plans is 45 years, and the maximum age is 80 years. However, the limit varies from company to company.


• Policy tenure: Each pension plan has a defined tenure, which is usually between 10 years and 30 years.


• Annual premium amount: All pension plans have a minimum annual premium limit. However, there is no maximum premium restriction.


• Premium payment term: Generally, pension plans require you to pay the premium for the same period as that of the chosen policy term. Some plans also allow for lump-sum premium payment.

How to Save Tax³ with Retirement Plans?

Apart from securing your family’s financial future and your own future income, a Retirement Plan also offers tax benefits under section 80CCC.

Let us look at the tax benefits offered by different types of retirement plans:

• Immediate Annuity - While the interest you get is taxed as ordinary income, the principal amount is exempt from taxes. However, once you receive the principal amount in full, the payments will be fully taxable. The good thing about this is that the income tax rate will be based on the income earned at the time. If you withdraw the money after retirement, the rate will be relatively low.
  
  
• Deferred Annuity - There are two phases in a deferred annuity plan: Accumulation Phase and Income Phase. In the case of the deferred annuity plan, your income grows tax-free during the Accumulation Phase, which means that you won’t have to pay any taxes on the money that accumulates during the time of premium payment.
  
  
• ULIP - The premium or amount invested into the ULIP is exempted from tax under Section 80C. The amount received on maturity of this investment plan is also tax exempted under Section 10(10D) of the Income Tax Act, 1961.

Factors to consider while buying retirement or pension plans

When investing in a pension plan, be careful of these factors:

• Monthly expenses: Your pension plan must be adequate to cover your monthly expenses in the future.


• Inflation: The corpus accumulated by the pension plan must be sufficient to combat inflation in the long run.


• Life expectancy: Your pension plan should ensure that you remain financially independent throughout your life and not outlive your savings.


• Medical expenses: Your pension plan should provide enough sum to meet your medical expenses in the future.


• Outstanding loans: Your pension plan must be sufficiently pay off your outstanding loans and still provide for your future income.

Best time to invest in a pension scheme

The best time to invest in a pension scheme is now. As per experts, it is good to invest in a pension scheme early in life to encash on the power of compounding. This will allow you to get higher returns from your policy upon maturity. So, the ideal time to invest in a pension scheme as soon as you get your first paycheque. You can start small and gradually increase your investment as you earn better in life.

Documents required to buy a pension plan/retirement plan in India

Here are the most important documents required to buy a pension plan in India:

• Proof of age including Birth Certificate/Passport/Driving Licence/Voter ID/High School Certificate


• Identity proof including Aadhaar Card/Passport/Driving Licence/Voter ID/PAN card


• Address proof including Aadhaar Card/Passport/Driving Licence/Ration Card/Electricity Bill/Telephone Bill


• Income proof including Bank Statements/Salary Slip/Income Tax Returns (ITR)


• Medical reports, in some cases