A Complete Guide to Choosing Retirement Plans

Retirement planning is a long-term financial goal. People often have to protect their investments against capital erosion when planning for retirement. When formulating retirement plans, it is important to make sure that you have a regular income that will cover your daily expenses and allow you to live comfortably. It is a good idea to plan your retirement fund as soon as possible. These are some important points to remember when choosing a retirement plan.

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Tips to Choose Retirement Plans

  1. Start early

    Planning for retirement must be started early. How early? Best during your first job. As your income/salary increases, you can increase your contributions.

  2. Do not forget the Equities

    Studies have shown that equities can increase portfolio value over time compared to fixed deposits, bonds, and gold. When you plan for retirement, ensure that equities are included in your plans. This could take in the form of equity funds, stocks, or unit-linked pension plans.

  3. Diversify your assets

    Fixed deposits, bonds, and gold are all good options, as are equities. But aren't we contradicting our previous statement that equities work harder than other assets? The truth is, equities won't solve all your problems. A portfolio that includes equities and other assets such as fixed deposits or gold is necessary. These assets must be given a specific weight or allocation. You can also combine these assets to create a portfolio that will help you reach your post-retirement goals.

  4. Only PPF won't do

    A lot of people make retirement plans with an autopilot approach. They believe that they can retire in comfort if they contribute money to options such as the public provident funds or employee's pension funds. These options are only one of many avenues that we have discussed previously (remember fixed deposits, bonds, and gold). You need to understand that building a portfolio requires more than PPF. You cannot fight inflation with PPF and EPF alone. Imagine this: If long-term inflation is at 6.5% and the PPF rate 8.5%, that leaves just 2.5% net inflation. So think of it this way - you enter PPF believing you will earn Rs.85 for every Rs.1,000. Instead, you end up earning Rs.25 per Rs.1,000 because inflation took the rest of your money.

    *All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
  5. Vesting age 

    Choose a pension plan that has a vesting date that suits your needs. Some pension plans have a vesting age of 40 years. If you are looking for an income stream early in your life, this plan is right for you. If you are looking to retire later, plans that vest at 85 years old may be a good option.

  6. Extensive sum cover

    Choose a pension plan that offers an extensive sum assured on vesting and accrued bonuses or assured benefits.

  7. Assured death benefit 

    You can choose a plan that pays a minimum amount on your death, such as 100% reimbursement of premiums.

  8. Great annuity choice 

    Choose the pension plan with the best annuity option for you. For instance, the lifetime option guarantees annuity for a set number of years, regardless of whether the policyholder survives or passes away. The joint-life/last survivor pension pays pension until the individual is still alive. After death, his/her spouse will receive the pension.

  9. Expenses

    Look for options that offer lower costs/expenses. The more you spend on expenses, the less money you have left for retirement. To find the most cost-effective option, it is a good idea to compare expenses.

  10. Financial planner 

    Retirement planning is like planning for a second life. You should be serious about investing money in a disciplined way. It is important to engage a competent and experienced financial planner to guide you through the entire retirement planning and execution process.

Why Opt for a Retirement Plan?

There can be many reasons to opt for a retirement plan. The most important ones are mentioned below:

  1. High life expectancy ratio

    According to the World Bank, India's 2017 life expectancy rate was 68.78. In the last 20 years, India's life expectancy has increased by almost ten years. Life expectancy measures how much money you will need to retire or live long enough.

  2. Improper social security arrangements in India

    India does not have a social security system like other countries. This is due to the lack of measures taken by the Government to ensure that the Indian population has access to the necessary financial aid when some uncertainty hampers their income. Unfortunately, India also does not have programs or schemes that will assist the elderly and disabled, and retirees.

  3. High inflation & health expenses

    The country has seen a dramatic rise in health costs due to the rising life expectancy. The cost of hospitalization and medication is on the rise. On top of that, inflation affects our economy badly. It has caused the price of goods and services to rise over time. A retirement plan will help you to ease your tension and ensure financial security during your post-retirement years.

    *All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

  4. Consistent income flow

    You can be assured a steady income stream through a pension or retirement plan. This could allow you to live a more relaxed and comfortable lifestyle. You may also be eligible for bonuses under certain traditional plans.

  5. Tax benefits

    It is always best to purchase a pension plan as soon as possible. You will also enjoy tax benefits under Section 80C of the Income Tax Act.

Best Pension Plans That Offer the Best Retirement Solutions

Terms to Know When Doing Retirement Planning

It is important to know the below-mentioned terms while deciding on the best retirement plan:

  • Vesting Age: The age you would like to receive the pension.
  • Annuity: After you reach the vesting age, you will receive a monthly pension.
  • Accumulation Period: This is when you start paying premiums to save for your retirement.
  • Sum Assured: The fund, the nominee gets in case of the policyholder's death during the accumulation period.
  • Surrender Rates: If you cancel your policy before the date of vesting, the insurer may charge additional fees.
  • Participating Plans: These plans provide a portion of the insurance company's profits to policyholders. This share can be adjusted based on the company's financial performance.

Final Word

Planning for your retirement requires you to have the right knowledge and serious consideration. We are sure the above tips will help. Also, when choosing retirement plans, make sure you have adequate life and medical insurance and pay regular premiums. A contingency fund is important for your post-retirement lifestyle.

Written By: PolicyBazaar - Updated: 03 November 2021
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