Retirement Plans

Retirement plans are financial policies that enable you to plan for the future, even when you no longer have a steady income. There are two types of plans:

Pension Plans – These investment plans allow you to systematically save money over the years so that you can enjoy a steady income once you retire. With a pension plan, you can maintain your financial independence, even when your income stops post retirement. Most importantly, a pension plan allows you to deal with inflation without compromising on your standard of living.

Annuity Plans – Annuity Plans
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, you put 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 as per the terms and conditions of the plan you purchased.

Retirement plans allow you to plan your finances so that you always have a steady source of income. They help you grow your money for the future, ensuring you can maintain your standard of living, despite inflation. Annuity plans also come with a joint life option within which in case anything happens to you, your spouse will continue to enjoy lifelong pay-outs.

How Do Pension Plans Work?

When people invest in pension plans, they hope to financially secure their future. The idea is to have a steady inflow of cash even after retirement. But how do these plans work? You have to put money towards your pension in the form of an investment or premium. The money you pay gets invested in assets or funds that you select. The investment lasts for a pre-determined period and on maturity, you can receive pension benefits. You can opt to commute a partial amount and purchase an annuity with the remaining funds.

A retirement plan is a multi step process that evolves with time. The following steps will help you map out a retirement plan:

Set a budget – list out 30 things in order of priority breaking them into short, medium and long term goals. Allocate your current income to get an estimate.

Evaluate your current financial position – examine your current financial position versus your financial goals, be more proactive about savings, investments and income.

Identify your income sources – consider all your income sources including insurance, investment portfolios, assets, and an option to do a part-time job to take charge of your retirement funds.

Are you running short? Re-evaluate your investment, make catch-up and bite-sized contributions to fill the gap.

If you’re deciding whether a retirement plan is a good option, here’s a look at the features they offer:

Steady Flow of Income – Retirement plans offer you a guaranteed1 income on retirement, so you don’t have to worry about not having a steady income once you retire. Additionally, depending on the policy you opt for, you can secure your spouse’s financial future even if something happens to you.

Vesting Age – The vesting age is the time from when you become eligible to start receiving your pension payments. In India, most plans offer a minimum vesting age of 40 or 50 years since people retire and start receiving their pension when they are 60. You can find a plan that offers you what you need based on your retirement plans and goals

Surrender Value – If you opt to surrender your pension plan before it matures, you will forfeit any additional benefits it offers. Your plan will be considered a limited value plan, and you can commute a portion of the fund value and purchase an annuity with the remaining amount.

Accumulation Period – You can opt to make a lump sum investment into your pension plan or make regular monthly or annual payments. Over time, your wealth grows since the money gets invested for you. The longer your accumulation period, the more money you will likely enjoy at maturity. If you start the accumulation period at the age of 40 and want to start your pension payments at 65, you invest for 25 years. The corpus you build up over that time will provide you with the bulk of your pension payments.

Payment Period – Once the accumulation period gets over, you start receiving your pension payments. This phase is called the payment period. With annuity plans, the payments continue for as long as you are alive. So, you choose when you’d like to start the payment period.