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Simplifying Life Insurance in India
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Fathima Tabasum
Fathima Tabasum
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Fathima defines Digit's voice in life insurance with her strong command of language. Her creative, clear writing and research skills simplify complex concepts and build trust and engagement.
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Ashok Manwani
Ashok Manwani
Vice President - Products
Ashok is an insurance professional with extensive experience in product development and management. In his role at Digit, he focuses on creating innovative life insurance solutions tailored to meet diverse customer needs.
Secure Your Future with Smart Retirement Investment Plans
Planning for the post-retirement life should be on everyone’s financial goal planning list, as becoming financially independent will allow you to live a worry-free retirement life.
You need to save and invest to build a substantial retirement corpus that can take care of all your daily needs, medical emergencies and fulfil your dreams like travelling, pursuing a hobby, starting a new venture, etc.
Waiting to celebrate your retirement and then thinking of saving can prove a poor life decision; thus, retirement investment planning from an early age is highly encouraged to have peace of mind during the golden years of your life.
Let’s read about everything you need to know about retirement and pension plans.
Table of Contents
What are Retirement Investment Plans?
Retirement pension schemes are schemes that help individuals maintain a financially secure post-retirement life when they no longer have a steady income.
Individuals can accumulate enough funds over time by investing in these retirement pension plans as a lump sum or as regular premium payments. This retirement corpus fund allows retirees to have a steady income stream, save taxes and beat inflation.
The working of retirement pension plans in India includes investing in the fund for a determined period and then, on maturity, purchasing the deferred annuity or immediate annuity. The annuitants have the option to commute some part as lumpsum payout in deferred annuity plans or to receive monthly pension benefits.
What are the Different Types of Retirement Investment Plans?
These are the two main types of retirement investment plans you can opt for:
- Retirement Pension Plans: These types of plans ensure a steady income once you retire, and you can systematically save money over the years. Moreover, a pension plan also helps you beat inflation without compromising your standard of living.
- Retirement Annuity Plans: In an annuity plan, the policyholder either receives lump sum or regular payouts for the rest of their life. The policyholder deposits money in the plan during the policy's accumulation phase. The life insurance company then invests this money and pays the returns generated from it to the policyholder.
Benefits of Retirement Pension Plans
Retirement may seem years away for you, and you may ignore planning for retirement early; however, after reading about the benefits of retirement investment plans given below, you will surely start retirement planning now.
Financial Independence
One of the main benefits of investing in retirement plans is that you enjoy financial independence in the golden years of your life, and you do not have to rely on your children financially. It allows you to fulfil your dreams after retirement and offers peace of mind.
Guaranteed Regular Income
By investing in retirement plans, you are guaranteed a steady income at a time when you no longer work. Such a benefit lets you have peace of mind as you head into the golden years of life and meet life's demands.
Security for Your Family
Most pension plans offer death benefits, meaning that the nominee will get the sum assured or death benefit in case of the policyholder's untimely death. Also, in case you and your spouse are not there, your children will receive the policy benefits, thereby ensuring your family's financial security in your absence.
Emergency Fund
When you no longer have a steady job, unforeseen events like medical emergencies can hit you much harder. Investing in retirement plans prepares you for such situations, as you can secure a sizeable retirement corpus.
Beat Inflation
As inflation increases over the years, it gets more and more expensive to maintain your lifestyle. The cost-of-living increases while the value of money falls. So, the best solution to deal with inflation without compromising your financial expectations upon retiring is planning for retirement early on.
Tax Benefits
Senior citizens can save on their taxes by investing in various schemes, which enables them to save significantly on income tax under Sections 80CCC and Section 10(10A) as per the prevailing tax laws.
Grow Money
Several retirement plans help you save and grow your money over the years. Saving enough helps build a retirement corpus while growing money simultaneously enables you to beat inflation and deal with financial emergencies.
Choice of Early Retirement
The ultra-modern stressful lifestyle has started taking a toll on people nowadays, and you may want to enjoy the retirement phase before a certain age. To achieve this goal, you must start investing in retirement plans now.
Who Should Buy Retirement Plans?
Individuals must buy retirement pension plans if they belong to any of the following categories:
Young Professionals
Young working individuals have the maximum advantage here as having a regular income enables them to invest more. Therefore, they can build up a significant retirement corpus as they have more time and capability to take more risks for higher returns.
Newly Married Couples
Newlyweds must deal with increased financial and family responsibilities, encouraging them to plan for their future when they no longer have to work. Both partners can chart out their future and invest in retirement plans accordingly.
Parents in their 50s
Upon becoming parents, individuals should soon start saving and investing for their financial independence after they retire, as nobody wants to depend on their children in a financial emergency.
Senior Citizens
Early retirees and people in their mid-60s should immediately organise their finances and invest in retirement plans to ensure financial independence and stay prepared for health emergencies.
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How Much Do You Need to Save for Retirement?
In your post-retirement phase, the inflow of steady income stops, so you must ensure that you have enough funds to last for years and can take care of your daily and medical expenses.
Hence, it would be best to calculate all your financial liabilities for your post-retirement life well in advance. Here’s what all you need to consider for getting an estimate of the required amount:
- Your daily expenses to maintain your current lifestyle.
- Your financial responsibilities during retirement, like paying for your children’s higher education, wedding, etc.
- Your post-retirement hobbies and dreams, including travelling, starting your venture, indulging in a new hobby class, etc.
- Any medical emergencies and other unforeseen costs.
- Your retirement fund must offer returns that beat inflation, or the purchasing power of your money will deteriorate.
Why Should You Start Planning Your Retirement Investment Early?
Starting retirement planning at an early age is crucial as it offers various benefits, some of which are:
- Power of Compounding
By investing early in retirement pension plans, you can leverage the power of compound interest over the years and significantly boost your retirement savings.
- Inflation
Inflation reduces the purchasing power of your money over time. So, the only way to beat inflation and fulfil the financial expectations when you retire is by planning for retirement early.
- Better Options and Flexibility
Planning for retirement now will provide you with more and better plan options, like long-term investment instruments generally offering higher returns over time. You also benefit from increased flexibility in choosing your desired investment options.
- Unexpected Events
Unpredictable and unforeseen events can happen to anybody, such as medical emergencies or job loss, impacting your retirement plans. If you start early, you can build an emergency fund to handle unexpected expenses.
Factors to Consider for Buying Retirement Plans
Consider the following factors when you are planning to buy retirement pension schemes:
1. Your Budget
You know your expenses best, as well as any financial liabilities planned. Therefore, you must consider your budget for investing in pension plans, keeping in mind the increasing inflation rate as well.
2. Income Sources
While you may not have a regular stream of income anymore, you may have other earning sources, such as rental income or pension for government employees. So, consider all your income sources before retirement planning.
3. Debts
You may have loans to pay off or other outstanding debts that you do not want to take with you in your post-retirement life. So, as your retirement approaches, plan to pay off your debts as soon as possible.
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How to Choose the Best Retirement Scheme?
Choosing the retirement scheme that best suits your needs is extremely important as your finances post-retirement depend on the plan’s returns.
So, follow these valuable tips to choose among the best retirement plans in India:
- Investment Amount
Different retirement pension plans have varying maximum and minimum investment limits. So, choose the plan that is in your budget.
- Returns from Plan
The most important feature to look for in a retirement pension plan is the potential return it offers. Some plans provide assured returns but at a lower rate of return, while some plans with higher rate of return may not offer guaranteed returns. So, choose a plan that suits your goals and pays off better.
- Risk Involved
Retirees generally have a significantly lower risk appetite, so it's better to choose a retirement pension scheme that offers guaranteed returns and is not market-based. This will ensure your peace of mind and help you fulfil all your retirement goals without risk.
- Liquidity
Some investment plans have a lock-in period during which the policyholder cannot withdraw funds. So, it's best to go with a plan with withdrawal flexibility so that you can access your funds whenever you need them.
- Flexibility
You may have set some retirement milestones you wish to achieve, but they can change over the years. This may require you to increase or decrease your retirement fund amount. So, look for a pension plan that offers the option to change your premium amount and frequency.
Steps to Buy a Retirement Plan
To buy a retirement pension scheme that best suits your needs, follow the given steps:
Set Your Retirement Goals
Determine your retirement goals based on your living standards, medical issues, and other financial obligations.
Calculate Retirement Corpus
Calculate the amount you will need to meet your goals during your retirement.
Compare and Understand the Plan Details
Compare and choose different retirement pension plans based on their features, benefits offered, cost, and payout structures. Read the plan’s terms and conditions thoroughly.
Enroll and Stay Informed
Now, submit the required documents like identity and address proof, income proof, etc., to buy the pension plan. Also, remember to regularly monitor your plan's performance and stay updated about any changes.
Which are the Best Retirement Plans in India?
To ensure financial independence during your post-retirement phase, you have the following financial instruments and schemes to choose from.
Important Terms Related to Retirement Pension Plans
Accumulation Period
The complete plan duration during which an investor pays regular premiums.
Annuity
It is a fixed amount received by the investor each year throughout their life tenure. Annuity can be immediate or deferred based on the plan.
Payment Period
It is the period post-retirement when the investor begins receiving payments.
Sum Assured
It is a definite amount, generally ten times the annual premium or the policy’s fund value, which is given to the nominee at the end of the plan tenure.
Surrender Value
It is the amount that the insurance company pays the policyholder if they surrender the plan before it matures.
Vesting Age
It is the age at which a policyholder starts receiving their pension.
Essential Retirement Planning Tips for Lifelong Peace of Mind
Retirement investment plans help you put money aside today so you can relax tomorrow. By picking options like pension plans, annuities or market-linked funds, you grow your savings steadily through regular deposits and compounding.
These plans usually come with tax breaks and let you choose how and when you receive your income. Starting young boosts your returns and keeps monthly payments affordable. Check your plan now and then makes sure it still fits your goals. With the right retirement plan, you’ll enjoy a secure, worry-free future.
FAQs about Retirement Investment Plans
When should I start retirement planning?
What does vesting date mean?
Can I have multiple retirement pension plans?
Are there any tax benefits on retirement investment plans?
What happens to the retirement pension plans after the policyholder’s death?
Is it a good idea to buy term insurance for retirement planning?
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