Retirement brings an end to the daily struggles of a salaried employee. You can utilize the retirement as a way to relax, pursue your hobbies and passions, or spend time with family and friends. However, to enjoy the retirement time without any financial stress and to be able to enjoy a blissful time in a carefree manner, it is important that proper retirement planning is done. Planning beforehand for this period will be helpful in maintaining daily expenses as well as fulfilling your retirement goals. This is required because you will not be receiving any regular income through monthly salary, but you will continue living and following your dreams and goals. And the mere savings that you would have done in the bank might not be enough for the complete post-retirement period. Hence, in order to be independent and active, it is important to save and invest in the future planning from now onwards.
What is Retirement Planning?
Retirement planning is the process of setting retirement income goals and following them by pursuing actions that are necessary to achieve those goals. As opposed to the past generations, retirement is now not just limited to sitting back and living off the monthly pension. It is so more than that, where people continue to live with new set of goals and more dedication to personal life. With the help of best retirement plans, you can tackle all the financial issues that would arise post-retirement, and you can live your life on the achievable and enjoyable path as planned. Once you start investing for retirement from early on, your savings would get compounded and you will gain the benefits of the growth. Though retirement planning is a life-long process, it is better to start planning from the beginning.
As per the rule of thumb, one needs to accumulate 70-90% of the pre-retirement income for leading a secure and relaxed post-retirement life. In order to be able to use 70% of the pre-retirement income after retirement, one must start saving from a young age. Moreover, it is also important to invest in the right instrument to be able to multiply your funds and generate wealth for the long-term.
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Why do you need Retirement Planning?
Here are some of the most crucial benefits of retirement planning:
Cover daily life expenses :
Lack of a regular monthly income could be a nightmare in grappling with daily life expenses. With the best retirement plans, you can avoid this nightmare from becoming a reality.
Cover medical expenses :
Retirement comes with age, as do health issues and emergencies. Retirement investment plans help cover emergency expenses.
Fight inflation :
As you reach the age of retirement, you would have to pay a lot more for daily life goods and services due to inflation. Without a sound retirement investment plan, this could be very difficult.
No state-sponsored pension :
Private sector employees in India do not receive state-sponsored pension, which means that they are self-dependent post-retirement. Thus, investing in a retirement plan helps.
Meet retirement goals :
Retirement goals are one of the most precious objectives of one’s life, which can be fulfilled using best retirement plan.
Types of Pension Plans in India
Deferred Annuity :
A deferred annuity plan allows you to accumulate the corpus through either single premium payment or regular premium payment over the period of policy term. It offers different benefits to the insured. Moreover, tax exemption benefits can also be availed under this type of pension plan.
Immediate Annuity :
In the immediate annuity plan, the insured can receive pension immediately. On payment of a lump-sum amount, the policyholder can receive instant payment of pension. Under this scheme, policyholders can choose from different annuity options, and can also avail the benefit of tax-exempted premium. The nominee of the plan becomes the receiver of money in case of the demise of the policyholder during the policy tenure.
Annuity Certain :
Under this type of pension plan, the annuitant gets the annuity paid for a specific number of years. The annuitant can select the period of payment and thus receive the payment accordingly. In case of the annuitant passing away, the amount can be received by the beneficiary of the policy.
With and Without Cover :
The pension plans with cover have the component of life cover added in the plan. On the death of the policyholder, the beneficiary gets paid a lump-sum amount. The pension plan without cover offers no life cover to the insured policyholder. On the death of the insured, the nominee receives the corpus.
Guaranteed Period Annuity :
Under guaranteed period annuity pension plan, the policyholder receives annuity for a certain period like 5 years, 10 years, 15 years, or 20 years, regardless of the survival of the insured.
Life Annuity :
Under life annuity plan, the annuitant is paid the pension amount until death. In case of the death of the policyholder, and under the chosen option of ‘with spouse’, the spouse of the policyholder can receive the amount.
Pension Funds :
This type of pension plan remains in force for a long period of time. It also provides a better return upon maturity.
National Pension Schemes (NPS) :
The government of India has introduced a new pension scheme, wherein the policyholder can put the amount of savings in the National Pension Scheme. The money put in this scheme is invested in equity and debt funds and the returns on investment can be generated. Under this scheme, the policyholder can withdraw 60% of the amount at the time of retirement, and 40% of it is used to purchase annuity. The proceeds of maturity under this scheme are not tax-free.
Whole Life ULIPs :
Under this type of pension plan, the money stays invested for the whole life of the insured and at the time of retirement, the policyholder can make partial withdrawals and get a tax-free income. They can also make additional withdrawals whenever necessary.
Defined Benefit :
Under the defined benefit type of plans, the policyholder can pay a specific amount from their retirement income. This is decided on the premise of the pension amount, that is determined on the basis of the employed policyholder’s earnings as well as number of years of service.
Benefits of Retirement Planning
In modern times, it is highly necessary to do efficient retirement planning to be able to deal with any kind of shortages and emergencies in the retirement days. By investing for retirement from now onwards, you can assess and evaluate how quickly you can achieve your retirement goals. Moreover, you can control the cash flow, in terms of the earnings and expenses, and analyze the risks involved. Hence, mentioned below are the benefits of retirement planning and investing for retirement:
As an individual gets old, their health-related problems and expenses are likely to get increased. Ageing and health problems are the two aspects that go hand-in-hand. Thus, medical expenses can be a huge dent during post-retirement period, when there is no regular permanent income on a monthly basis. Moreover, the medical and health expenses are rising rapidly. Therefore, with the best retirement plan, you would be able to accumulate money that would be enough to cover all medical expenses post-retirement.
Life is full of uncertainties. It becomes more difficult to tackle the sudden risks and uncertainties when you do not have sufficient financial resources. It would also make you more prone to stress and financial burden post-retirement. Hence, this is another one of the crucial benefits and reasons of buying retirement investment plans and keeping yourself financially secured and burden-free.
Be Prepared for
Inflation is the constant and rapid rise in the price of goods and services. India faces high rate of inflation in all the fields. Hence, it requires us to plan for long-term financial needs of ourselves as well as our family. Proper retirement planning is one of the most efficient ways of long-term planning and overcoming the risks of inflation.
Looking at the lifestyles of people in modern India, it is evident that it is not always possible for parents to rely on their children for monetary support. There is a culture of nuclear families growing rapidly, with retired parents living on their own. It is with the help of retirement savings and planning that individuals can be financially independent and tension-free.
Features of Retirement Investment Schemes
Retirement represents a milestone in a person’s life. It is the beginning of a new life of the retired. They can pursue the other plans and goals in life, which were earlier burdened and disturbed by the daily work routine. But life still goes on, and they do require financial resources to fulfill these dreams and goals as well as life’s basic necessities. Hence, it is important to choose the best retirement plan for yourself. Here are some of the general features of retirement investment policy plans and schemes that are offered by insurance providers in India:
Retirement plan is the gateway to receiving regular and guaranteed income post-retirement. The fixed and steady income ensures a financially independent lifestyle even after retirement. You can use the retirement calculator to have a rough estimate of the amount you will require post-retirement.
The nature of retirement plan benefits is either immediate or deferred. The annuity payouts depend on the nature of the plan, wherein the payouts begin immediately after the plan is purchased in the immediate mode, and the amount gets accumulated for a fixed number of years before being paid out in the deferred mode.
The main fund coverage is also known as the sum assured, which indicates the total coverage to be received. Make sure to check the total sum assured before purchasing the plan.
Retirement plans are a product of low liquidity. However, there are plans available that allow withdrawal during the accumulation stage as well.
Duration of the
This feature indicates the number of years for which the policy plan allows you to build up the fund corpus. This accumulated fund is from which the regular pension payouts will be made post-retirement.
The annuity instrument under the retirement plan must offer you the choice of fund option, especially if the returns are market-linked.
Some retirement/pension plans offer tax exemption under section 80C of the Income Tax Act of India. Investing in a pension plan allows you significant tax exemptions under Chapter VI-A.
Vesting age is the age from which you begin to receive monthly pensions. In most of the pension plans the vesting age is starts from 45 to 50 years. Though some companies also allow the vesting age up to the age of 90 years.
Partial withdrawal is a flexibility that is offered in the plan. It does not have rigid inflexible terms and conditions pertaining to withdrawal during the policy period of fund accumulation. Under this feature, you can withdraw a particular percentage of the main corpus in times of emergency requirement.
Payment period is often confused with accumulation period. Payment period is the period in which pension is received post-retirement. Most of the retirement plans keep the payment period and accumulation period separate.
How to Calculate Retirement Corpus?
Retirement corpus can be calculated in a simple manner in order to calculate your needs and compute them to reach your goals. However, the seeming complexities of calculating the expenses can be intimidating. Hence, in order to know the most rightly estimated expense amount, you must follow certain steps. Firstly, you must split your current monthly expenses in two. Then, you must calculate the expected post-retirement income, in terms of EPS of the pension scheme. After that, calculate the net income required in retirement, along with the future value of the additional income required during your retirement. Then you must calculate the retirement corpus that would be needed at the age of 60. After this, find out how much fund is accumulated through various instruments like PPF, EPF, bonds, pension plans, debt funds, insurance policies, bank deposits, NPS, etc. Based on that, calculate how much your current retirement corpus will grow out to be. Later, calculate the additional corpus required for retirement. Also calculate how much saving is required per month for meeting the additional corpus requirement. Lastly, add up the on-going investments to know how much more is required to invest. By following these steps, you can get the estimate of your expenses and finance required post-retirement.
Who should buy a Retirement Policy Plan?
Anyone who is willing to lead a comfortable post-retirement life, would require to save up and plan for it well in advance. Having financial self-sufficiency and planning in the second innings of life can prove to be a great boon. As you age, you may develop hobbies and passions that you might want to pursue. Due to the tight schedule and constraints of work life, you might not be able to fully realize them. In such a case, you are most likely to put those dreams into the backseat until retirement and pursue them successfully then. Retirement plans and schemes are the best for you if you want to live your post-retirement life without any financial burden and live it to the fullest. These schemes are also most suitable for you if you live in a nuclear family. Moreover, if you are someone who wants lifelong security even after retirement, and want to live according to the quality of life that you expected by working all your life, then having a retirement plan/scheme is a must. It will not only help you relieve financial stress, but also fulfil your biggest dreams, liabilities, and responsibilities out of the savings and fund collected from your lifelong earnings.
How to Choose Best Retirement Plan?
Choosing the right retirement plan for your future needs is the most crucial part of finalizing your best retirement plan. In order to know what plan suits you best, there are certain factors to be considered and steps to be followed. They are as mentioned below:
- Consider the following factors:
- Your current age
- Your current income
- Amount of income you wish to receive post-retirement
- Maximum amount of premium you can afford to pay
- The period for which you will pay the premium
- Do an in-depth research of the available plan options.
- Understand the product thoroughly and make an informed decision.
- Do not choose a product only for the tax benefits.
- Consider having the following documents for the process:
- Proof of age like PAN card, driving license, passport, etc.
- Proof of address like Aadhar card, driving license, passport, etc..
- Proof of identity like passport, driving license, Aadhar card, voter ID, etc.
- Proof of income like salary slips, ITR V for the past 3 years, etc.
- Passport size photograph
Retirement Insurance Frequently Asked Questions (FAQs)
*‘Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale