Types of Retirement Plans

To prepare for retirement, one should 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. Let’s understand the different types of retirement plans that come into play.

You work hard every day to live in luxury, but with your current plans and lifestyle choices, 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; however, you can or may want to take voluntary retirement whenever you wish.

Every individual has different expectations and financial goals for their retirement. To cater to the needs of different individuals and their retirement goals, the financial market offers a variety of retirement investment options.

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; to do so, you must invest in a retirement plan. There are different types of retirement plans, each with its features and benefits. Not only 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 you will get from these plans.

Retirement plans offer a means to save and invest money for the future, ensuring a comfortable and financially secure post-work life. However, with an array of retirement plans available, choosing the one that best suits individual needs can be overwhelming. The types of retirement plans are as follows:

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 no employer or government body is involved in purchasing the plan. Such plans have both death benefits and retirement benefits.

Employment-Based Retirement Plan

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

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 ₹500 to a maximum of ₹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 often 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.

National Pension Scheme

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

Whole Life ULIPs

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

Government Retirement Plans

The Atal Pension Yojana (APY) is a government-sponsored pension scheme targeted at unorganized sector workers and individuals not covered by any social security scheme. It aims to provide a defined pension amount based on the contribution made and the subscriber’s age at joining. The minimum entry age is 18 years, and the maximum is 40 years. The contributions are invested in a pension fund managed by PFRDA (Pension Fund Regulatory and Development Authority). The APY provides a guaranteed minimum pension amount ranging from ₹1,000 to ₹5,000 per month, depending on the contribution and age at entry.

Pradhan Mantri Vay Vandna Yojna (PMVVY)

PMVVY is a pension scheme specifically designed for senior citizens aged 60 years and above. The Government of India offers Pradhan Mantri Vay Vandna Yojna guaranteed pension payouts at a specified rate for ten years. It aims to provide senior citizens with financial stability and income security during retirement.

How to Buy Pension Plans in India?

As people approach retirement, securing a stable and comfortable financial future becomes a top priority. Pension plans are crucial in providing individuals with a regular income post-retirement, ensuring financial independence during the golden years. In India, various pension plans are available, each offering distinct benefits and features.

Step 1: Understand the Types of Pension Plans

Before delving into the buying process, it is essential to familiarize yourself with the different types of pension plans available in India.

Step 2: Assess your Retirement Needs

Analyzing your financial needs and goals during retirement is crucial before selecting a pension plan. Consider factors such as your current lifestyle, expected expenses, and any other sources of income you may have during retirement. This assessment will help determine the ideal pension plan and the contribution required to secure your desired post-retirement income.

Step 3: Research and Compare Pension Plans

With a clear understanding of your retirement needs, it’s time to research and compare various pension plans offered by different insurance providers. Look for features like annuity options, vesting age, flexibility to change premium amounts, and the option to add riders for additional benefits. Online comparison tools and seeking advice from financial advisors can help you make a well-informed decision.

Step 4: Check for Riders and Additional Benefits

Some pension plans offer riders or add-ons that provide extra benefits for specific situations. These may include critical illness coverage, accidental death benefits, disability rider, etc. Evaluate if any of these riders align with your needs and consider their inclusion in your chosen pension plan.

Step 5: Consider the Annuity Options

Annuity options determine how you will receive the pension payouts during retirement. There are different types of annuities, such as:

• Life Annuity: Regular payouts for life.
• Joint Life Annuity: Payouts for the policyholder’s and their spouse’s lifetime.
• Increasing Annuity: Payouts increase annually to counter inflation.
• Deferred Annuity: Accumulation period where the corpus grows before the annuity phase begins.

Select the annuity option that best suits your requirements and offers financial security for you and your loved ones.

Step 6: Check the Vesting Age and Surrender Policies

The vesting age is the age at which you can start receiving the pension. Ensure that the chosen pension plan aligns with your expected retirement age. Additionally, understand the plan’s surrender policies, which come into play if you need to withdraw the funds prematurely. Awareness of any penalties or restrictions involved in early surrender is essential.

Step 7: Review the Charges and Fees

Carefully review the charges and fees associated with the pension plan. These may include premium allocation charges, policy administration fees, fund management charges, etc. Opt for a plan with transparent and reasonable charges to maximize your returns.

Selecting the Right Retirement Plan

Now that you are aware of the different types of retirement plans that you can choose from, it is time to clarify the types of retirement. There are also different types of retirement.

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

It is advised to invest only in one type of retirement 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 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, it must be clear that choosing your retirement plan from the different types of investments depends on the different types of retirement.

Why is a Retirement Plan Important?

As time passes, the value of liquidity generally depletes if it is not invested and earns interest and bonuses on it. Moreover, we know inflation might leave you financially displaced if you don’t plan your 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.

Key Takeaways

• Insurance-based plans are post-retirement plans bought directly from the insurance company.
• Your employer will set up a retirement plan if you work in a company.
• PPF is a government initiative where one can buy the plan from a Pension Fund regulatory and developmental authority-recognized organization.
• The Atal Pension Yojana (APY) is a government-sponsored pension scheme targeted at unorganized sector workers and individuals not covered by any social security scheme.

To Sum it Up

All these retirement plans come with different 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!

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

FAQs on Types of Retirement Plans