Sun. Jun 23rd, 2024

Have you made your retirement plan yet? Have you planned your future pension? These things may seem alien and strange to you if you are in your early professional years. However, advance pension planning is a must in order to successfully combat inflation and retire with a sizable corpus to cover future needs. A few statistics will drive home the point more effectively.

A leading life insurance provider had an India Retirement Study, where the retirement index for the country was at 44 on a scale of 100. 35% of people in the survey did not have any retirement plan investment in any financial product. 23% of people had not even thought about planning for their retirement in the future. An overwhelming 52% of people were expecting children to offer them financial security in old age, while 28% were still to begin saving for retirement. These are alarming statistics, considering growing life expectancy, higher inflation and soaring living costs. You should not delay your retirement planning until you are in your late 40s or early 50s; since time is crucial for your investments, delaying your retirement planning would leave you with a very small investment horizon. As a result, you will need to invest a larger amount to achieve the required corpus for your retirement. You can use a retirement planning calculator to determine the amount you will require in the future. 

How can pension plans help? 

A successful retirement plan involves building a corpus that can cover your basic needs and a future monthly income stream or pension that will take care of your expenses. To this end, you can choose to invest in a financial product like a pension plan. These investment plans enable saving money over a particular duration so you can enjoy greater financial security after retirement. In addition, these plans help you earn a steady monthly income after you retire that can take care of your lifestyle needs with aplomb. 

Pension plans need you to contribute specific amounts monthly for a particular period. After this concludes, you can get an annuity, i.e. a fixed monthly (or quarterly, half-yearly, or even yearly) amount for your lifetime. This payment will significantly replace your loss of regular income and will cover your expenditure for your lifetime. 

What are the main features and benefits of pension plans?

Pension plans come with several features and advantages. Some of them are outlined below for your perusal. 

  • Pension plans have several types, such as:
  • Pension Funds
  • Whole Life ULIPs
  • Defined Benefit
  • Defined Contribution
  • Deferred Annuity 
  • Immediate Annuity
  • Annuity Certain
  • With Cover and Without Cover Pension Plans
  • Guaranteed Period Annuity
  • Life Annuity
  • National Pension Scheme(NPS)

You can learn more about these pension plans online and choose a suitable one for yourself. 

  • You should start investing in pension plans as early as possible to enjoy the benefits of compounding. It is the process of reinvesting an asset’s earnings, whether through capital gains or interest, to generate further profits over time. You can start investing in a retirement plan right when you start earning. 
  • There are many pension plans that come with accompanying life coverage. You should look for comprehensive financial protection in this regard. If you feel that your life coverage with a pension plan is insufficient, you can get another term insurance policy as well. 
  • Pension Plans come with the benefits of multiple tax deductions. You can get up to Rs. 1,50,000 in tax deductions under Section 80CC of the Income Tax Act of 1961. You can also get exemptions upon contributions towards NPS under Section 80CCD (up to Rs. 50,000). 

While you can considerably lower your tax liabilities with pension plans, your monthly annuities will be taxed as per your applicable tax bracket and rate. As can be seen, pension plans are a great way to begin your retirement planning drive from an early age itself. You can consider pension plans that invest money in various instruments to earn you returns while giving you life coverage simultaneously. Getting two benefits for a single premium is always a welcome move. This will also help you earn market-linked returns that can ultimately outstrip inflation in the long run. 

Choose your pension plans carefully and arrange your future pension today without hassle. Life is uncertain and so are living costs. Therefore, it is always better to stay as prepared as possible for the future. 

By Manali