Retirement plans are financial policies that allow you to plan for the future, even when you no longer have a stable income. There are two types of plans;
Pension Plan
These investment plans allow you to systematically save money over the years so you can enjoy a steady income once you retire. With a pension plan, you can maintain your financial independence, even when your income stops after retirement. Most importantly, a pension plan allows you to deal with inflation without compromising your standard of living.
Annuity Plan
An annuity plan helps you secure your financial future with regular income payments for the rest of your life. With a pension policy, you have something called an accumulation phase. During this time, usus deposits money into the policy periodically. When you choose to retire, you can purchase an annuity with these accumulated funds. The annuity then provides you with regular payments based on the terms and conditions of the plan you purchased.
Why do You Need a Retirement Plan?
Retirement plans allow you to plan your finances so you always have a steady source of income. They help you grow your money for the future, ensuring that you can maintain your standard of living, despite inflation. Annuity plans also come with a joint life option where, in the event something happens to you, your spouse will continue to enjoy payments for life.
How do the Pension Plans Work?
When people invest in a pension plan, they hope to financially secure their future. The idea is to have a steady inflow of cash even after retirement. But how do these planes work? You have to allocate money to your pension in the form of an investment or premium. The money you pay is invested in assets or funds that you select. The investment has a predetermined duration and at maturity, you can receive pension benefits. You can choose to switch a partial amount and purchase an annuity with the remaining funds.
What are the Steps to Buy a Retirement Plan?
A retirement plan is a multi-step process that evolves over time. The following steps will help you map out a retirement plan:
Set a budget: List 30 things in order of priority by dividing them into short-, medium-, and long-term goals. Assign your current income to get an estimate.
Assess your current financial position – Examine your current financial position against your financial goals, be more proactive about savings, investments and income.
Identify your sources of income – Consider all your sources of income, including insurance, investment portfolios, assets, and the option to work part-time to take care of your retirement funds.
Are you falling short? Reevaluate your investment, make catch-up and small contributions to fill the gap.
Features of Retirement Plans in India
If you're deciding if a retirement plan is a good fit, here's a look at the features they offer:
Steady Stream of Income
Retirement plans offer you a guaranteed income1 at retirement, so you don't have to worry about not having a stable income once you retire. Also, depending on the policy you choose, you can secure your spouse's financial future even if something happens to you.
Acquisition Age
Vesting age is the time from which you are eligible to begin receiving your pension payments. In India, most plans offer a minimum vesting age of 40 or 50 years from when people retire and start receiving their pension when they are 60 years old. You can find a plan that offers what you need based on your retirement plan and goals.
Rescue Value
If you choose to redeem your pension plan before it expires, you will lose the additional benefits it offers. Your plan will be considered a limited value plan and you can switch a portion of the fund's value and purchase an annuity with the remaining amount.
Accumulation Period
You can choose to make a lump sum investment in your pension plan or make regular monthly or yearly payments. Over time, your wealth grows as the money is invested for you. The longer your accumulation period, the more money you are likely to enjoy at maturity. If you start the accumulation period at age 40 and want to start paying your pension at age 65, you invest for 25 years. The corpus you accumulate during that time will provide you with the bulk of your pension payments.
Payment Period
Once the accumulation period ends, you start receiving your pension payments. This phase is called the period of.
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