Retirement Plans

Retirement planning refers to a multi-step process of defining retirement income goals and the strategy required to achieve the said goals. In general terms, retirement planning involves making financial strategies to save, invest and distribute money for your sustenance and survival during retirement.

Why do You Need a Good Retirement Plan?

Retirement planning is not limited to assets and income. It includes a holistic evaluation of these, along with future costs, liabilities and overall life expectancy. Ideally, it is a life-long process, which can be started at any time. However, it is always best to plan your retirement years well and much in advance.

• Tackle impending medical emergencies: As you age, health problems only increase. This means you would be required to shell out more money towards medical expenses later in life. The inflation rate is predicted to rise by nearly 14-15% each year in this space. So, your savings should also grow at the same rate to match the inflation.
• Effectively combat inflation in the future: Inflation is a sad reality, and in a country like India, inflation is expected to cross standard 5% estimate. This would imply that by the time you retire, your savings would be worth much less in comparison to the present times. A robust retirement plan will ensure that you do not outlive your reserves and have a strong purchasing power even in retirement.
• Substitute the lack of state sponsorships: Unlike the UK and the U.S., there are no specific pension or other retirement plans that Indian government offers to retirees of the private sector. Hence, after retirement, you have to take charge of your livelihood.

What are the Benefits of Retirement Planning?

Retirement planning is a crucial process to ensure you enjoy the non-working years of your life. For this, you need to invest in a reliable retirement plan so that you are secured for life.

• Peace of mind and well-preparedness: A well-planned retirement reduces your stress and also makes you more prepared for uncertainties and emergencies, including medical crises. It provides you with a sense of self-reliance and makes your golden years more relaxed.
• Assurance of savings and steady retirement income: Planning adequately for retirement ensures you have substantial savings to support your standard of living during a time when you do not have a steady source of income.
• Secure property and assets: Without a strong retirement plan, you would more be inclined towards selling off assets and properties to manage your expenses later. However, building a retirement fund will safeguard your assets and property, and allow you to pass it on as a legacy to your children.
• Effective transition from working to non-working mode: An in-depth retirement plan helps you transition smoothly from a working force to a non-working force. You would be in a more secure place and can move on in life easily.
• Reduction in taxes in later years of life: Retirement planning helps you reduce taxes that you would otherwise be liable to pay during retirement. A good retirement plan can also help you to minimise liabilities and taxes for the beneficiaries.
• Minimise costs with lower premiums at a young age: A retirement plan made in the younger years helps you plan and save better. You would be likely to pay lower premiums, and thus, have better chances to save and grow funds.
• Provides guaranteed^ monthly income: Pension plans offer a fixed income in retirement in exchange of investments made today. This allows you to not only make the most of your hard-earned income but also gives you enough flexibility.
• Facilitate encashing on the long-term investment benefits:Retirement plans are long-term plans, and depending on the annuity option you choose, your annuity rates will be decided It allows you a steady income in retirement, helping you live a stress-free life.
• Offer flexibility in payment of premiums: Retirement plans in India allow you to either invest a lump sum and get immediate annuity receipts or select a deferred plan that allows you to pay the premium and decide when you want to start receiving the regular income from.
• Provide death benefits and riders like a life insurance cover: Some pension plans offer a death benefit, where a lump sum is paid to the family or the nominee can opt to buy annuity. You can also buy additional cover through riders for selective plans and strengthen your protection. So, at a minimal cost, you can increase your coverage and avail yourself of numerous additional benefits.
• Offer tax benefits allowing more savings: Retirement plans are eligible for tax benefit under Section 80CCC as per the Income Tax Act, 1961.

What are Retirement Plans?

Retirement plans are reliable financial security solutions, that helps you secure your future financially. The purpose of a pension plan is to safeguard the future years of life and secure a regular income after retirement. A good retirement plan can help maintain your living standard, as well as combat the rising inflation and the overall high cost of living.

What are the Features of Retirement Plan?

A pension plan is a very popular retirement tool. Some of its most significant features and benefits include:

• Tax Efficiency: One of the most talked-about features of a retirement plan is the tax deduction that it offers. Policyholders can avail themselves of tax exemptions under different sections of the Income Tax Act, 1961.
• Accumulation Duration: When policyholders invest in a pension plan, they accrue wealth over time to create a sizeable corpus that includes investment in addition to the gains.
• Vesting Age: Pension plans allow policyholders to have a wide range of vesting age. The minimum age is generally 45-50 years, while the maximum can extend till 70 years. This large vesting age bracket allows policyholders to determine when they wish to receive their regular pension as per their requirements.

What are the Documents Necessary to Buy a Retirement Pension Plan?

Below are the documents necessary to buy the best retirement plan:

FAQs

• 1. What are Retirement Plans?

  Retirement plans are also known as pension plans. They are a type of life insurance plan which are specifically created to fulfil your post-retirement needs. Typically, you would require such plans to provide you with a consistent stream of income, enabling you to meet living expenses and pay medical costs in retirement.

• 2. How do Retirement Plans Work?

  A retirement plan provides you with a much-needed respite, while you are figuring out finances in your retirement. Therefore, it is best that you start investing as early in your career as possible. You can get a standard income flow by paying a lump sum amount or by investing over a period of time. These premiums that you pay in the initial years of life tend to become the regular payments for your future, ensuring your adequate financial security.

• 3. What is the Difference Between a Retirement a TPlan and erm Plan?

  A term plan is different in nature from a retirement plan. Some of the major differences include:

  • A term plan is a pure and simple protection plan that guarantees payment of a definitive death benefit, in case of your demise in the specified term. A term plan does not include any saving or investment component. On the other hand, a retirement plan is a combination of an insurance plan and investment.
  • By investing in a retirement pension plan, you save money for the future, while allowing it to grow as you pay regular premiums. A term plan has no saving or investment option and can only provide adequate life cover at affordable rates and no savings for the future.
  • A term plan offers a guaranteed death benefit in case of your untimely demise. However, a retirement plan offers no death benefit but ensures a regular stream of income for you. Moreover, upon maturity of the pension scheme, you or the nominee (in case of the untimely demise of the insured) receive the corpus-built overtime.

  Overall, both retirement and term plans have their pros and cons. The final choice depends on your financial requirements. A term plan is more a protection plan than a policy, which can secure your future with regular income earnings.

• 4. Why Should I Invest in a Retirement Plan?

  As a prudent planner, you should plan your retirement years well in advance. This provides you with a sense of security and financial independence during the non-working phase of your life. Moreover, it is important that you opt for a retirement plan that offer continuous monthly earnings.

• 5. What is an Income Plan?

  An income plan, like Kotak Lifetime Income Plan, is a very effective retirement investment plan to earn income even while you are not working. An income plan is generally an immediate annuity non-linked, non-participatory life insurance plan. This type of retirement plan aims to provide you with a secure alternative source of earning during retirement to fulfil your needs and manage your standard of living.

  With an assured income plan, you can be sure to let go off all your financial worries for the retirement years. An income plan allows you to live a comfortable and financially independent life post-retirement. With income plans, like Kotak Lifetime Income Plan, you receive an assured pay throughout your life. In case of your absence or untimely demise, the income is given to the spouse or your nominee.

  Income plans by Kotak offer ensure your financial independence post-retirement. They also offer you a wide array of income options to best match your needs. Moreover, you can choose from a range of annuity payout frequencies – yearly, half-yearly, quarterly and monthly – in tune with your financial requirements.

• 6. What is a Pension Plan? 

  Pension plans secure a part of your savings over a long period to provide financial security in the future. After the term ends, you get a part of the benefits as a lump sum and the balance you can invest in the annuity and paid to you at regular intervals after retirement.

• 7.I have Invested in a Provident Fund. Should I Still Buy a Retirement Plan?

  Even if you have invested in a provident fund (PF), it is advisable to invest in a retirement plan.

  Retirement plans support you financially when your income starts to recede. Pension plans allow you to live with pride and maintain a good standard of living, making fewer compromises and more memories. Moreover, by allowing your funds to grow and accumulate over time, you can acquire inflation-adjusted wealth in the long run with channelized income cash flows.

• 8. Why do I Need to Include a Retirement Plan in my Long-Term Financial Plan?

  A retirement plan is one of the most reliable assets for your post-retirement financial security. So, if you are framing your financial plan for the future, it is important to incorporate a retirement plan. Pension plans offer you long term savings, regular income, insurance cover for your family, tax advantages and so much more.

• 9. Can I Invest in Multiple Retirement Plans at a Time?

  Yes, you can invest in multiple retirement plans at a time. You could choose to make retirement investments in different private banks and commercial pension scheme providers.

• 10. Can I Avail Tax Benefits with a Retirement Plan?

  Yes, by investing in a retirement plan, you can avail tax benefits. As per the Income Tax Act, 1961, the pension scheme premiums paid up to a limit of ₹1.5 lacs are exempt from taxes under Section 80CCC.

• 11. What Happens to the Retirement Plan after the Policyholder’s Death?

  In case the policyholder dies while the retirement plan is active, the retirement plan continues for the spouse in case he/ she is added under the same plan. According to the type of retirement plan, the spouse receives the pension benefits after the demise of the policyholder. So, a retirement plan not only serves to provide you with financial security for retirement but also supports your spouse in your absence.