Why Retirement Plan and How to Choose the Right Plan?
A Retirement plan, also known as a Pension plan, aims to provide financial security once the active income stops. These investment plans, help accumulate a regular savings over a period of time to ensure a guaranteed, steady flow of income post retirement.
In this plan, the customer contributes a specific amount on a regular basis until retirement. The accumulated corpus along with accumulated growth is returned to the insured as annuity or pension plus lump sum. This acts as a financial cushion and ensures that the insured lives a stress-free retirement life without being dependent on anyone.
Why invest in a Retirement Plan?
- Regular Income - Retirement plans serve as a source of fixed income, that can be used to take care of all your post-retirement requirements - be it day-to-day expenses or any long-awaited desire or goal.
- Financial Independence - With the right retirement plan, you won’t need to depend on anyone to meet your financial needs. It assures of financial stability that will make the golden years of your life ‘atmanirbhar’, stress-free and relaxed.
- Disciplined savings - Staying invested in a retirement plan by ensuring regular payment of premiums requires financial discipline. Such disciplined behavior ensures accumulation of sizeable retirement corpus.
- Life cover - Some retirement plans also include a life insurance cover. In the event of your unfortunate demise, before reaching retirement age, a lump sum pay-out, which is calculated as 101% of the total premiums paid till that date, will be made to your nominated beneficiary, thus securing their financial future.
- Withdrawal in case of emergency – You can make adjustments to your pension policy to access a lump sum payout in case of an emergency. This can be used to cover any critical and unexpected events or situations.
- Tax benefits - Premiums paid qualify for a tax deduction - the maximum allowed deduction on life insurance premiums for a pension plan is Rs 1.5 lakh under the Income Tax Act, 1961.
Also, on reaching the vesting age, you can withdraw up to 66% of your retirement corpus in lump sum and remaining must be used to purchase an annuity plan, which would be exempted from taxes under section 10 (10A) of the Income Tax Act, 1961 (subject to prevailing tax laws).
How to choose a Retirement Plan?
While choosing a retirement plan, you must consider factors such as current monthly income (from all sources), rate of inflation, financial needs of yourself and the number of dependents, assets and liabilities, future goals etc.
Three things to keep in mind -
- Start early - The earlier you start, the sooner you achieve your retirement corpus, or the larger it gets.
- Invest enough - To spend a comfortable and financially independent retired life, first calculate the retirement corpus correctly, and then accordingly start investing. You should keep in mind that the retirement corpus must outlive your spouse and other dependents (if any).
- Consider relevant factors - Make sure to take into consideration factors such as inflation, future goals, life expectancy as well as tax benefits.
A dedicated financial advisor will get in touch with you soon after.
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