What is specifically a Retirement Plan?By Okbima 16 Jan 2023
You’ve worked hard to create a life for yourself and your family that is full of dreams, accomplishments, and joy. You may have new ideas and goals in mind as you approach retirement.
You might desire to spend more time with your family or travel around the world. You may also need to meet obligations such as your child’s further education or wedding.
You may fulfil your dreams while retaining your financial independence with a little retirement planning.
You may have other means to meet your retirement demands, but investing in pension plans allows you to plan ahead.
Take advantage of insurance benefits while putting money aside for the future.
Ensure the protection of your funds as they develop.
How do the Pension Plan work?
Pension plans are designed to help you save for your retirement, so it’s a good idea to get one as soon as you start working. Starting early will give your funds more time to grow.
When purchasing a pension plan, you must consider your current age as well as your retirement or vesting age. For example, if you are 25 years old and expect to retire at the age of 60, you should invest in a pension plan with a 35-year accumulation period.
There are two phases to every pension plan: accumulation and annuity. You save and invest in the first phase, and then you receive what you have saved, invested, and earned in the second phase. You have the option of receiving your annuities in one single amount or in three equal instalments over the course of your retirement.
What are the various types of Retirement Plans?
Not everyone begins to plan for retirement at a young age. Some people choose to acquire annuities right away rather than wait for them to accumulate. Keeping this in mind, insurance companies provide two types of pensions:
Deferred Annuity Plan: You specify the number of years you wish to defer the annuity in a deferred annuity plan. This is also referred to as the accumulation phase.
Immediate Annuity Plan: There is no accumulation period in this pension plan, therefore you must contribute cash in one lump payment.
Pension Plans can be further classified into-
Traditional Pension Plan: Your assets are invested in conservative fund instruments such as government bonds and fixed deposits if you choose a Traditional Pension Plan.
Unit Linked Pension Plan: Your funds are invested in market-linked products such as bonds, stocks, and securities in this plan.
It can be further classified based on the term or the period for which the insured wants to keep receiving the annuities:
Lifetime annuity plan: The insured chooses to receive a specified sum as an annuity for the rest of his or her life, and the nominee is entitled to the purchase price of the annuity as well as any earned bonuses in the event of the insured’s death.
Guaranteed period annuity plan: The insured decides to purchase an annuity for a set length of time. In the event of his death, annuities are paid to the nominee in the insured’s place until the specified time, as agreed by the insured.
Annuity certain plan: The insured receives a set quantity of annuities for a set period of time. However, if the insured lives longer than the policy duration, the plan includes a life-time annuity provision.
Joint life/last survivor annuity plan: The insured continues to receive annuities as with any other plan, but there is an additional provision that states that following the insured’s death, the insurance company will pay annuities to the spouse or joint life of the insured for the rest of their lives.
What are the benefits of Retirement Plans?
Yes, there are numerous benefits of the Retirement Plans. Some of it are postulated below: –
You can start saving for your retirement in a systematic way, reducing your reliance on others and giving you peace of mind.
The safety of your assets is guaranteed, as is the insurance coverage.
You have more time to increase your money or you can obtain rewards right away, whichever you like.
You have the option of selecting the number of years for which you want to invest.
You have the option of receiving annuities in a lump payment or in instalments.
You can choose to insure your spouse on the same insurance.
One- third of the sum insured is not taxable.
Annuities received for the fixed period or for life-time, in both ways serve as income source for the retired
U/S 80CC(D) of the Income Tax Act allows for a tax deduction of up to Rs 50,000 per year under the National Pension Scheme (NPS). This can be claimed in addition to the Rs 1,50,000 maximum under Section 80C.