A Quick Guide to Retirement Plans
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A Quick Guide to Retirement Plans

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  • 21st Sep 2021
  • 154
A Quick Guide to Retirement Plans

Retirement life, ideally, is all about comfort, peace of mind, and taking out the time to actually do those things you have been planning for. It is supposed to be one of the happiest times of your life where you put procrastination aside and make your golden years count by investing time in travelling, sports, passion projects, etc. This can be done by securing your future, and by security, we are referring to retirement plans. It requires adequate financial planning and commitment, which is a lifelong process.

You have the flexibility to start anytime but starting earlier on is always beneficial. A survey by PGIM India Mutual Fund and Nielsen showed that over 51% of Indians had not planned for retirement at all - which is a point of concern. So, let’s see Why it is necessary

Retirement Plans: Your Best Safety Net

A retirement plan is essentially a financial strategy where you equip yourself to live out your post-retirement years as smoothly as possible. It involves gauging and setting a financial goal, streamlining your sources of income, managing risk factors, making investments, predicting future cash influx, looking after assets, and a host of other things. Retirement planning looks into all aspects of your life - financial and non-financial.

Finding a Plan for You

Being aware of insurance plans is one thing but finding an ideal one for yourself can seem a little challenging. Here’s how you may proceed -

Step 1 - Know when to start so that at the end of the line, you are in a safe spot.

Step 2 - Use online calculators to gauge an amount that would be suitable for you and your loved ones post-retirement.

Step 3 - Never lose focus of your financial goals. Track and analyse them regularly.

Step 4 - A plethora of retirement plans are available. Choose the one that best suits your needs and requirements.

Step 5 - Choose how you would like to invest your money in the selected plan.

Retirement Plans: A General Outlook

There are many kinds of pension schemes in India. While each plan has its own features, the basic requirement is to invest till the time you retire. As a result, you will start receiving a steady income post-retirement. Retirement Plans have varying features, but here are a few core ones -

  • They ensure that you get a fixed income after retiring. There are annuity plans that have options for monthly income and annual income, depending on the type of investment you make. You will keep receiving the income up until death or your chosen time period.
  • They have a vesting age which is the age you choose to start receiving your pension. The minimum can be 40 to 50 years, and in many plans, it goes up to 70 years.
  • In the event that you choose to surrender your retirement plan, you will not get its benefits. However, there is a surrender value that will be given back to you, which is pre-mentioned.
  • Many pension plans are highly tax-efficient and provide many tax benefits to policyholders for tax deductions.
  • Pension Schemes sometimes come with death benefits as well. In the case of an eventuality during the payment term, your nominee is liable to receive a percentage of the amount invested in the premiums.

Planning Ahead of Time and its Benefits

You might wonder why “now” is the best time to invest in retirement plans. Here are a few reasons why -

  • You get the benefit of ‘compounding effect’, which results in a bulk gain of wealth as your returns keep adding up.
  • You have the advantage of tackling unforeseeable situations which might require you to churn out a lot of money.
  • It is one of the best ways to secure your assets and property so that you can pass them down to your kids.
  • In case of emergencies like a job change, city change, etc., they serve as great backup plans, thus allowing you to have a smooth transition.

The Eligibility Checklist

To plan ahead of time, you need to prepare yourself to be eligible for such schemes. Companies providing retirement plans also need to ensure that you match their qualifying requirements. There might be plan-specific variations, but let us have a look at the most common ones -

  • Your minimum age must at least be 21 years, although for annuity plans, you should be over 45 years old.
  • You should have worked for a minimum of one year.
  • You should have a minimum of two years of your service if the plan is not under 401(k), which is an employer-sponsored plan.

While there is much to learn from the knowledge, experience, and suggestions of others, retirement planning requires an individual to have a very strong mindset because the end result is your future. A good plan will ensure the happiness and well-being of you and your loved ones. Getting an early start on building the retirement nest can make all the difference!

- A Consumer Education Initiative series by Kotak Life

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