The last thing that anyone would want to bear is the pain of having to worry about money after retirement. Everyone longs for a peaceful retirement life after having worked for many years, and you will be no exception. However, this peaceful life will not come to you automatically. You will have to plan and invest properly in order to grow your wealth. Only then this accumulated wealth will generate enough returns which will sustain you through your retired life.
Whether you want to accumulate money for retiring early or want to save enough to ensure that your daily and monthly expenditures are met through your investments, a Pension Plan will be ideal for you.
Overview of Pension Plans
Pension Plans are also known as Retirement Plans in India. When you invest in one of these during your working life, a retirement corpus is accumulated steadily. Upon retirement, this corpus will start to yield returns which will provide a steady income to you. This income can be then used to meet the daily household and other expenditures.
Thus, a Pension Plan will help you to plan and act today to secure your future. The effect of compounding of money will ensure that every Rupee that you invest today will grow manifolds, giving you high returns over the years.
Different Pension Plans in India
There are several types of Pension Plans which are available in India at present. These plans can be classified according to their product structure, investment style and the various benefits that the yield. Some of the most common types are:
- Deferred annuity: In this, the investor can accumulate the corpus by paying multiple installments over several years, or a single installment over the entire policy period. The pension will start after the policy term gets over.
- Immediate annuity: In this plan, the pension start immediately and the investor does not have to wait for a certain number of years. He can make a lump sum amount and start receiving the pension payouts immediately.
- Annuity certain: Anyone who invests in these Pension Plans will get a fixed sum of money paid out to them for a certain number of years. In case the pensioner dies before the specified number of years, then the remaining pension is paid out to his nominee.
- Life annuity: In this scheme, the pensioner continues to receive the pension amount until he dies. After that, no payout is made to his nominee.
- Guaranteed period annuity: This combines features of the annuity certain and life annuity Pension Plans. In this, the pension is received over a certain number of years, say 10 years or 20 years. If the pensioner dies before the expiry of this certain number of years, then the nominee will continue to receive the pension for the remaining period.
- Pension Plans with and without life cover: If the investor wants to get a combination of a Pension Plan with a life cover, when he can choose a ” with cover” Pension Plan, it means that upon the death of the pensioner his dependent will get a sum of money paid out to them. A “without life cover” Pension Plan provides wealth accumulation only.
Determinants of Best Pension Plan for You
Like in the case of every other investment, you have to choose your pension plan very carefully, so that you can reap the maximum benefit out of it. The following are some of the things you need to consider while choosing the best Pension Plan for yourself:
- The amount you need after retirement: The starting point of Retirement Planning is to determine how much you will need to meet your running expenses after you retire. Estimate this very carefully, since a wrong calculation will jeopardize the process and purpose facilities of Retirement Planning.
- The amount you want to invest during your employment: Once you have determined how much you would need after retirement, do a back calculation to estimate the amount you would have to invest during your working years. It is suggested to invest as much as possible so that the maximum amount of money can get accumulated and compounded to give the best growth of your retirement corpus.
- Benefits provided under the plan: While estimating the comparisons between the different Pension Plans that are available today, you need to evaluate the various benefits that each plan provides.
Important Jargons used in a Pension Plan
- Annuity: This is the fixed sum of money that is paid out as pension to the investor.
- Vesting age: This is the age at which the investor starts receiving the pension payouts.
- Sum assured: This is a life insurance cover that the Pension Plan contains. Upon the death of the pensioner investor, the sum assured is paid out to the nominees.
- Accumulation period: This is the duration for which the investor pays the premium for the Pension Plan.
- Payment period: The duration of time for which the investor receives the pension payouts. As mentioned earlier, there are several plans offering payments for a limited period, while the others pay the pension until the investor dies.
- Inflation: Inflation reduces the value of money, and this, in turn, diminishes the value of your retirement corpus. This is the reason why you need to carefully estimate the inflation rate while you are calculating your future fund requirements and the amount of premium that you should pay. If you do not estimate the inflation correctly, then your accumulated corpus will fall short of the required amount, resulting in difficulties during your retirement years.
Diversify Your Pension Plan
It is best to choose a pension plan that will invest your money in various assets, instead of keeping it invested in a single one. For example, you may look for funds which will distribute your investment corpus equally in equity and debt instruments in order to balance out the risks of the two. This diversification will help to cushion your investment from market fluctuations that can cause losses to your corpus. Also look out for the investment policy of the plan, as well as its past performance in order to find out the right Pension Plan for yourself.
A Pension Plan is extremely important for every individual who has a plan to retire, either at the right age or any age earlier than that. It will give you the right avenue to plan your retirement strategically so that you do not face any monetary problems after you retire. Start investing in a Pension Plan as soon as possible, and spend a worry free retirement life.