5 Ways to Power Up Retirement Planning in Your 40s and 50s
5 stars based on
Pension plans also known as retirement plans are investment plans that lets you allocate a part of your savings to accumulate over a period of time and provide you with steady income after retirement. Even if a person has a good amount of savings, a pension plan is nevertheless crucial.
Savings get exhausted very fast and are sometimes used in emergencies, so selecting the best pension scheme helps you secure your cash flow for meeting basic daily needs post retirement. When you continuously invest in pension plans, the amount grows manifold due to the compounding effect which makes a lot of difference to your final savings corpus.
A right pension scheme lets you plan for retirement in a phased manner. So it is advisable to choose a best pension plan that can act as a savior in your golden years.
Pension plans are way better investment plans that ensure secure life after retirement. These plans have saving options for retirement india classifications, based on the plan structure and benefits. These plans can be further divideded. Guaranteed Period Annuity 6. A deferred pension scheme allows you to accumulate a corpus through regular premiums or single premium over a policy term. After the policy term is over, the saving options for retirement india will begin.
The advantages of deferred pension plans are saving options for retirement india and these include tax benefits that are associated with this pension scheme. No tax is levied on the money that an individual invests in the plan unless he withdraws it.
As deferred pension scheme can be bought by making the one-time payment or by making regular contributions towards it, therefore, the plan suits to all types of investors: In an immediate annuity scheme, pension begins immediately.
One has to deposit a lump-sum amount and pension will start instantly,basedon the lump-sum amountinvested by the policyholder. A range of the annuity options is available to choose from.
Moreover, the premiums paid are exempted for tax, as per Income Tax Act, After the death of a policyholder, his nominee will be entitled to get money. The "with cover" pension plans have life cover component in the plan. This implies that on the death of the policyholder, a lump sum amount is paid to the family members. However, the cover amount is not very high since a large part of premium is diverted towards growing the corpus rather than covering for life risk.
The "without cover" pension plan implies that there is no life cover. In the event of unfortunate death of the policyholder, the nominee will get the corpus till the date of the death. Currently, deferred pension plans are "with cover" and immediate annuity plans are "without cover". As per this clause, the annuity is paid to the annuitant for a specific number of years. The annuitant can choose the period and if he dies before exhausting all payments, the annuity will be paid to the beneficiary.
As per this annuity option, annuity is given to the life assured for certain periods like 5,10,15 or 20 years, whether or not he survives that duration. As per this annuity option, pension amount will be paid to the annuitant until death. New Pension scheme has been introduced by the government for people looking to build up pension amount.
You can put savings in the new pension scheme which will be invested in equity and debt market as per your preference. The maturity amount is not tax-free. In a way, investing in a pension plan is a good option indeed. As these plans remain in force for a long time, they offer comparatively better returns at maturity. Nowadays, people start planning for the retirement life at an early stage so that at a later stage they do not have to depend on others to make their ends meet.
The annuity is the most distinctive feature of pension plans and generally comes in two types, immediate and deferred. As its name suggests, immediate annuity starts immediately. The insurance company pays the annuitant the annuity pension plan amount right after the receipt of the lump sum premium. These plans offer the single premium route so that the insurance company can use the amount invested by the annuitant to build up a corpus for him or her. The deferred annuity plans are the normal plans that start paying a certain sum after a few years.
The insurance companies offer a diverse range of pension plans for various terms that allow the annuitant to choose the period for which they want to receive the annuity. If you are thinking of retirement planning then look for the best pension plan in India by looking at the annuity they offer vis-a-vis the premium you will pay. The sum assured is the life insurance cover that the insured receives during saving options for retirement india tenure of the pension plan.
It gives the insured the benefit of being able to provide for his dependents if the worst comes to pass. Such type of retirement pension plans give the mental peace necessary to carry on life without any worries. The life insurance companies in India calculate the sum assured in different ways. For instance, a few of them may offer pension plans with sum assured of say 10 times the premium amount, while others may provide a sum assured that equals the fund value of the policy taken by the individual.
The calculation varies from company to company. In case, there is no sum assured, then the plan is more in the nature of pure play pension plan rather than an insurance plan with retirement benefits. The vesting age is the age saving options for retirement india the investor starts receiving the pension income. Depending on when the policy was brought and the type of premium, the vesting age can be your current age if you saving options for retirement india for the pension plan payment to start right away immediate annuity — lump sum premium or after a few years such as years.
The minimum vesting age for most policies start from 40 years of age but on an average is around 50 years. The maximum vesting age saving options for retirement india generally around 70 years, though some insurance companies may offer plans that have a maximum vesting age of 65 years or even 79 years or saving options for retirement india. This refers to the period when the premium is being paid by the investor for the pension plans.
Some of the best pension plans in India offer the option to the investor to start paying off a part of the premium from any amounts due to be received by them. This decreases the outgo for the investor during the years leading up to retirement and helps them use their money on more urgent matters.
However, most pension plans keep the accumulation period separate from the pay-out period. This helps in building up a significant corpus for the investor to receive a pension. The payment period, as the name suggests, refers to the period in which the investor starts receiving the payments. This period is generally separate from the accumulation phase and helps the investor to increase his overall retirement corpus. The surrender value of pension plans is the amount the insurance company will pay the individual if they opt to surrender the pension plan before its due date, and if they have paid the premium for the required minimum period.
Though people may need to surrender a plan for various reasons, including not being able to continue with the premium payment or needing the money, most experts suggest not surrendering a retirement plan due to the loss the individual will face.
When the insured party chooses to surrender a pension plan, they lose all benefits attached to the plan, including the life cover, if any. Readers must note that the surrender value is a term associated only with insurance plans that have a savings corpus creation feature.
The plans that do not have a savings component such as term plans do not have a surrender value. Every pension plan needs to have a minimum guarantee. This should be no less than one percent of the premiums paid over the years. Though the minimum guarantee extends to all variable insurance plans, most of the companies offer various types of other pension plans that may offer better returns than the guaranteed plans.
This, of course, varies from plan to plan and you should make sure that you pick ones that makes sense to saving options for retirement india.
What the minimum guarantee of pension plans offers you is awareness of the amount that you will definitely receive at the end of the policy period. The participating pension plans are also called the traditional type of insurance plans, since the bonus in these products are similar to the reversionary bonuses of the standard insurance policies.
In traditional plans, the insurance company offers the insured a bonus that is a percentage of the sum assured of their policy.
This bonus is generally declared by the insurance company each year based on its performance in saving options for retirement india previous year. The reversionary bonus is generally of the nature of simple interest where the bonus of the previous period does not get added to the sum assured.
These bonuses declared in the tenure of the retirement policy get accumulated and the lump sum amount distributed to the insured party when the policy saving options for retirement india. The participating pension scheme in India allows for a planned approach to retirement planning. The non-participating plans declare their bonus amounts at the time of the investor signing up for saving options for retirement india plan.
The insurance company has no discretion in non-participating pension plans and have to deliver on the amounts promised under the pension plan. Most of the best pension plans in India offer retirement benefits or bonuses that are pegged to certain indices.
These may be the larger market index or smaller indices comprising of saving options for retirement india few securities or government bonds. The non-participating plans offer more definite returns and make it easier for people to do their retirement planning. The PPF plan provides an interest on the amount deposited by the individual, which is compounded over its 15 years tenure to build up a large retirement corpus base for the individual. It has a lock-in period of 7 years and allows the investors to make withdrawals saving options for retirement india the eight year onwards, though withdrawal of all the funds is saving options for retirement india only after the maturity period.
The plan can be renewed beyond the initial 15 years for additional periods of 5 years each. Employees' Provident Fund EPF is a provident saving options for retirement india and insurance scheme administered by the Government of India for all employees of various organisations across the country.
The PradhanMantriAtal Pension Yojana or PM pension scheme for short is a unique retirement planning option introduced to bring the rural population under the ambit of pension schemes in India. The retirement planning solution allows any individual within the age group of 18 to 40 to contribute and get the necessary retirement benefits that were hitherto not available for them.
The premium can be paid through monthly, quarterly and half yearly payment options. The National Pension Scheme or the New Pension Scheme is a Government of India initiative to give policyholders a pension plan that will take care of them at old age.
The retirement planning becomes easier with the new pension scheme as the pensioners receive a pension depending on their contribution towards the pension plan during the accumulation stage. The new pension scheme is a voluntary scheme that is open to all people in the age group of 18 to 60 years.
It seeks to inculcate a discipline of savings among Saving options for retirement india to take care of their future. The new pension scheme has a minimum contribution of Rs. There is saving options for retirement india limit on the maximum contribution, though.
The Income Tax Act allows a deduction saving options for retirement india only Rs. The new pension scheme also allows individuals to switch between different investment options and also between different fund managers. Choose the investment option you prefer. Investors can choose the investment option that suits them best under the new pension scheme.