Retirement plans are life insurance products designed to act as investment plans to allocate a part of your savings to accumulate over a period and provide financial security after retirement.
Retirement pension plans help you invest your earnings over the years and create a fund which you can withdraw as a whole or in parts during your retirement years. Further, with dual benefits of protection with investment, these plans are ideal for covering your financial needs in the golden years of your life. Given the high cost of living and rising inflation, retirement planning has become more necessary.
We tend to invest our hard-earned money in meeting our day-to-day needs so much so we pay little attention on securing a comfortable and prosperous life for ourselves in our later years.
Most of us have demanding jobs and even demanding lifestyles. In the daily hustle bustle of out stressful lives, do we even give a thought to life after retirement? But we owe it to ourselves to take a deep breath and think about the future too. What would be the point of working so hard if we are not able to enjoy the fruits of labour in our retired life? Apart from lifestyle, we have responsibilities towards our families that may not go away with retirement.
To ensure that your post-retirement life is smooth and peaceful, and your family is still well looked-after, planning for retirement now is very important. Basis your current age, income, lifestyle and life goals, you can choose an investment amount and plan for your retirement.
Retirement from professional life should not mean that you stop getting a regular income. Retirement plans allow you to allocate a part of your savings and let them grow over a period of time. You can then opt to get regular pay-outs after you retire.
When you’re young, the idea of retirement hardly comes to your mind. The most prevalent thought is that ‘Retirement is so far away!’ ‘Why would I need to save for it right now?’
Even though your income may not be a lot when you’re younger, you also have fewer responsibilities such as house loan, child’s education etc. and these responsibilities just keep on growing with age. Hence, saving for retirement becomes easier, early in your professional life.
The biggest advantage of kick-starting your retirement planning is the power of compounding which provides the foundation for time value for money. Even if you invest a small amount for several years consistently, it will grow into a large corpus for your retirement.
Between saving small amounts early in life or saving big chunks of your income close to your retirement age; which one would you prefer? Saving little early does seem like the easier and more sensible option, doesn’t it? With big expenses and a lifestyle to maintain, it would be harder to save large amounts of money when you’re middle-aged or close to retirement.
Most retirement plans give you tax benefit on both the investment amount and the maturity amount. You may invest in pension plans, guaranteed returns plans or market-linked plans, all of these have different provisions for tax benefits.
On an average, a working Indian professional would retire around 60 years of age. Given that you lead a healthy life and considering the increased life expectancy, your retired life could span up to 40 years! How do you possibly imagine of saving for a long tenure of 40 years in just a couple of years before your retirement? Starting in your twenties is the only practical solution to save for a long retired life.
(Critical Illness Plan)
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: accumulation phase and income phase. At the end of 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 an investment in annuity. However, the pensions are taxed.
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.
A ULIP is a life insurance plan with an 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
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 employee’s salary to the employee’s
PPF is a popular long-term investment option which offers capital preservation and attractive interest rates. A minimum of Rs 500 to a maximum of Rs 1,50,000 can be invested each financial year.
Contributions to NPS can be made from a young age of 18. NPS offers investors: the 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.
No matter what your premium paying term or policy term is, after the lock-in period of 5 years, you can fully or partially withdraw funds from your account whenever you need it for your child’s education.
Get a life cover for you and your family for as long as you want. You can choose a life cover up to the age of 80 or above too.
Add on a host of benefits and riders such as accidental cover, critical illness cover, etc to your plan. These modifications only make your term plan stronger.
ULIPs let you choose the premium amount, as per your requirements. They also give you the option of selecting funds as per your choice. Many ULIPs also offer the possibility of increasing your premiums during your premium paying term.
No matter what your premium paying term or policy term is, after the lock-in period of 5 years, you can fully or partially withdraw funds from your account when you are in need of urgent funds.
Premiums paid are deductible from taxable income under Section 80C. The interest earned and maturity amount received is also exempt subject to conditions under Section 10(10D) of the Income Tax Act, 1961.
ULIPs give you the benefit of putting aside a chunk of your income and save it for future use in a systematic way.
ULIPs not only let you save your earnings, but also help in growing wealth for retirement by allocating it to market-linked funds.
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:
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. Assuming that you withdraw the money after retirement, the rate will be relatively low.
There are two phases in a deferred annuity plan: Accumulation Phase and Income Phase. In 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.
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, 196.
Here the few tips to choose the best retirement pension plan to suit your retirement needs:
Start Early : Retirement planning is most effective when you start it as early as getting your first salary. It is fine if you start saving with small amounts. You can grow your contribution towards your retirement corpus as you progress professionally and financially.
Don’t Put All Your Eggs in One Basket : It is always advisable to diversify your portfolio by investing in different types of market instruments when it comes to your retirement planning. Equity fund, debt funds, fixed deposits etc. are some of the instruments you can invest in to fulfil your post-retirement goals.
Keep Vesting Age in Mind : Vesting age is the age by which you start receiving your pension from a retirement plan. It is not necessary that each one of us will retire at the age of 60 years. Some of us may have plans to retire at 45 years and some of us may want to continue working till 70 years. It’s important to choose a plan options that suits your requirements and aspirations.
Compare Plans and Expenses before Buying : Don’t just compare plans in terms of returns, also factor in the expenses and charges that come with retirement plans. Pick a plan that is economical and viable on all fronts.
Don’t Just Rely on Traditional Schemes : Traditional Retirement Schemes like PPF or EPF may be reliable and time-tested, but they will hardly suffice as a steady income post retirement. Hence, always thing of other retirement plans such as ULIPs.
A pension plan or a retirement plan are insurance products designed with double benefits of the best saving plan along with an investment scheme to cover retirement financial need.
Unit-linked retirement plan or Pension ULIP plans are market-linked pension products offered by life insurance companies. They are suitable for individuals looking for a long-term retirement plan that doubles up as an investment.
Yes, a retirement plan acts as an additional financially security secure your retirement needs. The growth of inflation has been at a rapid rate, so your PF account might not be sufficient to cover your complete expenses in the future.
Retirement plan offers dual benefits of savings and investments for your retirement needs. Equity exposure in pension plans can go up to 75 percent. In pension plans, you can select fund according to your requirements with both capital safety and appreciation of investments.
With increasing costs of lifestyle, medicines, and healthcare, the amount required for ensuring a financially independent retirement, becomes quite huge. Retirement planning becomes a crucial part of the earning years. Starting early on the journey will help you build a significant corpus (lump sum amount) for meeting your future needs.
Retirement planning can be summarised as save and invest as much as you can. Remember that planning for the future is a mixture of both fiscal and investment prudence. Using a retirement calculator is an easy way to decide on the retirement fund.
Calculating the pension fund using retirement calculator are beneficial for several reasons:
• It helps you calculate how much you need to save each month to retire with a large sum at the end of one’s professional career.
• A retirement benefits calculator will also help you determine the precise investment opportunities which you must take advantage of.
• Compare the various retirement options and plans that most competent financial organisations provide. Nowadays, even listed entities have their own retirement planning sections.
• It helps you identify the various retirement planning strategies which exist and helps you review and compare them too. • If you have any high value plans post-retirement, our calculator will help you save accordingly for such exigencies and planned spending sessions.
• Lastly, an online retirement calculator is useful when you are short on time and you need to take decisions on such important aspects as future investment options.
Along with future security and insurance protection, investing in a retirement pension plan also qualifies for some tax benefits under Section 80CCC. Following are the tax benefits provided by pension plan-
• Immediate annuity is a guaranteed pension plan with tax benefit on the premium payments. All the premium payments under this plan are fully taxable once you have received the principal amount in full.
• The tax benefit of a deferred annuity is that it lets your income grow tax-free during the Accumulation Phase. This means you will not have to pay any taxes on the money that accumulates during the time of premium payment.
Some retirement plan provides flexible death benefits along with pay-out options. Immediate annuity plan and easy pension plan by Edelweiss Tokio offers death and survival benefit.
No, retirement or pension plan does not end after the policyholder's death. Depending upon the type of pension plan selected, either the spouse or a chosen nominee is entitled to the pension after the policy holder's death.
A participating plan enables the policyholder to share the profits of the insurance company in the form of bonuses or dividends. In a non-participating plan, the profits are not shared, and no dividends are paid to the policyholder. Both these types of plans provide guaranteed life cover.
Yes. A person can have multiple pension plans with private banks and other commercial pension plan policy providers.