Retirement Planning : Introduction
Pension Plans are also know as Retirement plans. Let us first understand what a Retirement or Pension Policy is. Pension Policy & Retirement Plan/Policy though two different words have one and the same meaning. Each of us tends to move through the family life cycle and thus happen to fall in different age categories from the time of our birth till old age and then finally death. One such stage that each of us is definite to encounter is that of Retirement.
Retirement Plans or Pension Policies helps you plan an income after retirement and also provide you a financial security when your active income stops after retirement. Retirement plans also helps you maintain the same living standards even after retirement if you can properly plan you retirement life in advance. With high cost of living & rising inflation, the current cost of living will be almost 10 times when you retire. It is critical to plan once retirement as early as possible.
While all of us would like to retire comfortably, the complexity and time required in building a successful retirement plan can make the whole process seem nothing short of daunting. However, it can often be done with fewer headaches (and financial pain) than you might think - all it takes is a little homework, an attainable savings and investment plan, and a long-term commitment.
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Retirement Planning : Why do I need to plan my retirement income?
Retirement is one of the most important life events many of us will ever experience. From both a personal and financial perspective, realizing a comfortable retirement is an incredibly extensive process that takes sensible planning and years of persistence. Even once it is reached, managing your retirement is an ongoing responsibility that carries well into one's golden years.
Retirement happens to be an inevitable part of most of our lives. Some people are smitten by the word Retirement, while there is one such lot that has heavy dislike for this word. Individuals in the favor of Retirement view it as one such period in their life that allows them to spend some quality time with their family and friends. However, the group that is not so much in favor of Retirement view this stage as a period of financial crunch. The moral of the story however remains that post retirement regular inflow of income is obstructed and thus it is vital to enjoy sufficient financial back-up. It is this back up that the Pension Policy is believed to provide.
Retirement Planning : When is the best time to plan my retirement income?
A large number of financial and insurance experts tend to give out a common suggestion that highlights the need to invest early into your Pension Policy. Early for them is at the age of 25 or 30 when most of us are at the peak of our careers and are earning a handsome income. It is this time when our income happens to be more than our expenditure and thus we are left with excess amount in our hands. This excess amount can very easily be directed to your Pension Policy.
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What are the Features of a typical Retirement Plan
Indian people are slowly realising the importance of planning their retirement and also the benefits attached to starting a retirement plan early in working life. There is also a sense of being financially independent post retirement as they do not want to depend on their children to make their ends meet.
Retirement Plans with minimum guarantee
Every retirement plan should to have a minimum guarantee of returns as per IRDA guidelines.
Retirement Plans Tax Benefits
The contributions you make towards your retirement plan every year can be deducted from your taxable income. In his Budget proposal for 2015-16, Mr Arun Jaitley our finance minister introduced an additional deduction of Rs. 50,000 for contribution to the New Pension Scheme under Section 80CCD. This change in the budget will increase the total deduction allowed under Section 80C and 80CCD of Income Tax Act to Rs. 2 lakh.
Types of Retirement Plans
Planning for retirement is an important investment decision, because of the rising cost of living & increasing inflation. There are many Retirement plans available in the market having different benefits and features. You can choose the best retirement plan based on your need, a broad classification is given below -
Deferred Annuity Plans: In a deferred retirement/ pension scheme you contribute regularly or a one time investment till your retirement. This helps to accumulate a large corpus or retirement fund. Once the investing term is over typically on retirement, regular pension starts. Deferred pension plans can have many advantages, they help in multiplying your investment due to compounding effect. The other benefit include tax saving on the amount invested in these pension scheme. The investments made by an individual in the scheme is totally tax free & no Tax is levied on the investment amount unless he withdraws it within the vesting period. A deferred pension scheme can be bought any individual by making regular payment or making a one time lump-sum payment.
Retirement Plans With Life Insurance Cover: Some retirement plans offer life insurance cover as a build in feature in the retirement plans. So, in case policyholder dies, a lump-sum amount as per the policy terms is paid to the nominees which could be your family members. The only drawback is the low insurance cover offered in the policy. Tax benefits are available in these policies also.
Retirement Plans With No-Life Insurance Cover: These type retirement plans do not offer any life insurance cover. The nominees get the corpus or retirement fund built till the death of the policyholder (after deduction of any expenses or unpaid premium as per the policy terms). Broadly,a deferred retirement/pension schemes offer life insurance cover and immediate annuity retirement plans do not offer any life insurance cover.
Immediate Annuity Plans: As the name suggests in an immediate annuity plan, the pension starts immediately. This is good for people who have a large corpus fund & want to retire early. In this scheme a person deposits a lump-sum amount & pension starts immediately, the annuity rates per lakh are published or available for different schemes offered by companies, the policyholder can invest in the best annuity rates from the market. There is a choice of how you want your annuities to be paid i.e monthly/ quarterly/ half yearly/ yearly, based on your need you can opt for the ideal payout. Tax benefits are also available for the premiums paid as per IT Rules. The nominee of the policyholder is entitled to get monies, in case of policyholders death.
Annuity Certain: As the name suggests an Annuity Certain is a retirement plan for a specific period. A continuous stream of payments are paid to the annuitant during the term and after the annuitant death, the same annuities continue for his nominee or beneficiary.