Types of Retirement Plans
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Types of Retirement Plans

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  • 20th Jun 2022
  • 372

Types of Retirement Plans

You work hard every day to live your life in luxury, but with the current plans and lifestyle choices you make, you should also consider how you can enjoy your life when you no longer have a disposable income to enjoy your retirement. Typically, the retirement age is 60 years; however, you can or may want to take voluntary retirement whenever you wish to. To prepare for retirement, it is suggested that you start planning early and invest in post-retirement plans, tools of investment that help create a retirement fund and give returns in the form of regular income once you retire. This is where the different types of retirement plans come into play.

Every individual has different expectations and financial goals for their retirement. So, the financial market to cater to the needs of different individuals and their retirement goals offers options for choosing from various types of investments for retirement. However, before you opt for a retirement plan, you must look at different retirement plans available in the market. Once you have researched well, you must identify a retirement plan that can best cater to your retirement goals.

Post Retirement Plans: A Boon for After-work life!

The importance of after retirement plans cannot be emphasized enough. You must reap and enjoy maximum retirement benefits, and to do so, you must invest in a retirement plan. There are different types of retirement plans, each with its features and benefits. Not just this, but retirement plans also come with various tax benefits. Thus, creating a corpus will help you support yourself and your loved ones from the regular income that you will get from these plans.

Types of Retirement Plans

The types of retirement plans are as follows:

1) Insurance-Based Plans

Insurance-based plans are post-retirement plans bought directly from the insurance company. They are also known as personal pension plans since there is no involvement of an employer or a government body in purchasing the plan. Such plans have both death benefits and retirement benefits.

Insurance-based after retirement plans can be categorized as deferred annuity plans, immediate annuity plans, pension plans with cover, and pension plans without cover.

a) Deferred Annuity Plan

These retirement plans help create a retirement fund by investing a lump sum or a premium you can only access after a certain period specified in the plan. In addition, such plans further invest your money in low-risk debt plans or equities; the choice lies with you.

b) Immediate Annuity Plans

Under this plan, you invest a lump sum, which you can withdraw at any time and do not have to wait. If you have a big sum lying with you, such a plan is for you.

c) Pension Plans with or Without Cover

These are relatively simpler plans. As the name suggests, the former comes with a life insurance cover, and the latter without a life cover.

2) Employment-Based Retirement Plan

If you work as an employee in some company, your employer will set up a retirement plan. Under such after retirement plans or employee pension schemes, an amount is deposited from both ends - a share from your salary and the remaining added by the employer to create retirement benefits for you. Employees provident fund (EPF) is one such employment-based plan, where both the parties make an equal contribution to the plan. Under this scheme, anyone over the age of 54 can withdraw 90% of their savings.

3) Public Provident Fund

This is a government initiative where one can buy the plan from a Pension Fund regulatory and developmental authority recognized organization. A PPF helps build a retirement fund through the regular payments that you will make. Every year you can invest a minimum of Rs. 500 to a maximum of Rs. 1,50,000 for the tenure of the fund, which is 15 years. Once your tenure is over, you can extend it by five years as many times as possible. A PPF also comes with tax benefits under Section 80C of the Income Tax Act. One benefit of this scheme is that you can withdraw small sums after seven years of tenure.

4) National Pension Scheme

This is a government-based plan (in tier 1) with tax benefits and withdrawal allowed only after ten years of investing, which is the maturity period. Such an after-retirement plan allows only 40% of withdrawal, and the rest is given as regular income. Tier 2, on the other hand, comes with more flexibility in taking your money out and is not exempt from tax.

5) Whole Life ULIPs

One of the most opted-for among the various types of retirement plans, the whole life ULIPs are great for you. In this plan, the policyholders’ money remains invested for their whole life. Once they retire, they can make partial withdrawals from the available funds completely free of tax. Moreover, the policyholders can make withdrawals whenever required or necessary.

Selecting the Right Retirement Plan

Now that you are aware of the different types of retirement plans that you can opt from, it’s time to clarify the types of retirement. There are different types of retirements too.

  • Traditional retirement
  • Temporary retirement
  • Early retirement
  • Semi-retirement

It is advised to invest only in one type of retirement that you are planning to opt for and after considering all the aspects. Nowadays, many people are opting for early retirement and planning aggressive savings at an early age to have enough savings summed up to sustain the rest of their lives.

Initially, the concept of early retirement was western, but today many Indians are also opting for it and investing in current policies like Unit Linked Insurance Plans (ULIPs) to make the most out of their investment and achieve their investment goals quickly for retirement. So, now it must be clear that choosing your retirement plan from the different types of investments for retirement depends on the different types of retirement itself.

Why is a Retirement Plan Important?

As time passes, the value of liquidity generally depletes if it is not invested and earning interests and bonuses on it. Moreover, we are all aware that inflation might leave you financially displaced if you don’t plan your financial future.

There are many types of retirement plans available in the market. However, each one serves the same financial goal through different techniques. From these types of retirement plans, you must choose one that helps you ensure that your savings are intact when you retire and that you have enough monetary resources to take care of yourself in old age.

To Sum It Up

All these retirement plans come with different types of retirement benefits, which you must know and understand before choosing one. However, a personal or government-based plan is usually suggested. Protecting your future in more ways than one is always beneficial, so analyze your needs and goals and make a well-thought-of decision!

Also, you must ensure that your plan is sufficient to adjust the long-term requirement and that you get decent returns to manage the long-term requirements and future financial needs.

- A Consumer Education Initiative series by Kotak Life

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