Life post-retirement should ideally be about leisure and peace, free of financial worries. However, the absence of a regular income can become a cause for concern. That’s where pension plans come in. Pension plans are long-term investment plans that ensure a steady income flow post-retirement, so you can enjoy your golden years to the fullest. This beginner’s guide will provide an overview of pension plans in India and how and why you should invest in them.
Understanding Pension Plans
Pension plans, orretirement plans, allow individuals to allocate a part of their savings to collect over a period and provide a steady income after retirement.They are specifically designed to satisfy your financial needs during golden years, such as living and medical expenses. However, the ideal pension plan does more than just cover your daily spending and medical needs. It makes you financially independent enough to pursue your post-retirement goals.
Types of Pension Plans
Thethree primary types of pension plans that are available are-
Immediate Annuity Plan:
In this type of plan, the pension starts immediately. The investor invests a lump sum amount, and the pension payout starts from the very next month or year, depending on the chosen payout frequency.
Deferred Annuity Plan:
This plan involves a certain accumulation period. The policyholder pays the premiums for a specified term, and the pension payout starts after this term ends. This type of plan is beneficial for individuals who start planning for their retirement at an early age.
Joint Life Annuity:
This plan provides financial security for your loved ones. With this retirement plan, you are eligible for a lifetime pension. And if you die, your spouse will continue to get the pensions.
Regular Income:
Pension plans provide a regular income stream after retirement, ensuring that individuals can maintain their lifestyle without a regular paycheck.
Financial Stability:
By offering a steady flow of income, pension plans provide financial stability and security in the later years of life, reducing dependency on others.
Tax Benefits:
Pension plans come with tax benefits. Contributions towards a pension plan can be deducted from taxable income, reducing your tax liability.
Encourages Saving:
Pension plans encourage long-term saving and disciplined investment, helping individuals build a substantial corpus for their retirement years.
Flexibility:
Most pension plans offer a range of options regarding investment period, payout period, and type of investment, allowing individuals to choose as per their financial goals and retirement age.
Choosing a Pension Plan
When selecting a pension plan, several key aspects need to be thoughtfully considered. Here are a few important points to consider:
Retirement Age:
Your chosen retirement age can greatly impact your pension plan. If you plan to retire early, you’ll need to start building your retirement fund sooner and might need to contribute more to reach your goal.
Post-Retirement Expenses:
An accurate estimation of your expenses after retirement is essential. Consider living costs, medical expenses, travel plans, and any other goals you wish to finance during your retirement years.
Life Expectancy:
Although it’s not pleasant to think about, considering your life expectancy is important when choosing a pension plan. You’ll want to ensure enough savings to support yourself for your projected lifespan.
Start Early:
The earlier you start investing in a pension plan, the larger your retirement fund is likely to be. Starting early allows you to contribute smaller amounts over a longer period, which can be less financially stressful.
Investment Risks:
Understanding the risk associated with your pension plan is also crucial. Plans with higher risk might offer larger potential returns, but they also come with the chance of losing money.
Inflation:
Consider the impact of inflation on your retirement savings. The cost of living will likely increase over time, so it’s important to choose a plan that accounts for inflation.
Aviva India, with its comprehensive pension plans, provides multiple options to cater to different retirement needs. Their pension plans are designed to provide a comfortable post-retirement life by ensuring a regular income flow.Furthermore, versatile features allow you to alter the pension plan for optimal security and financial rewards while saving significantly on taxes.
Remember, selecting a pension plan is a significant decision that requires careful consideration. So, take your time, research, and consider seeking advice from a financial advisor if needed.