Retirement Plan: Choosing the right pension plan is a crucial decision to make in one’s life. Selecting the right pension plan is essential to guarantee a secure future for you and your family once you retire.
Pension plans have traditionally been seen as a high priority, particularly among Indian families. Jobs were often selected based on whether or not a pension was provided. Following in their footsteps may not be such a terrible idea.
When investing in a pension plan, you should keep many factors in mind. It is a good idea to begin early since the sooner you begin, the greater the future profits will be due to the power of compounding.
In addition, there will be a little strain on your shoulders in your latter years. Equities should be prioritized in your pension planning since their long-term returns outperform those of other asset groups.
It’s also a good idea to diversify your investments. Fixed deposits, bonds, and gold are just a few examples. Choosing wisely amongst these options will help you achieve your post-retirement goals. It is customary to believe that PPF or EPF would be sufficient for a comfortable post-retirement life. This, however, is not the case.
What are pension plans?
Pension plans, in a nutshell, are retirement programs that require both the individual and the company to contribute cash. This money is put aside for the benefit of the workers. This contributed money is then distributed to the employee at retirement.
There are few pension plans in which an employee may freely choose to invest a portion of his present pay, which would ultimately benefit him and his family members when he retires.
Pension plans are the most often utilized kind of program. The Indian pension system consists of three components. The civil servant’s pension, the mandated pension plans managed by the Employees Provident Fund Organization of India, and the unorganized sector pension known as the National Social Assistance Programme are the three types of pensions (NSAP).
Benefits of Investing In Pension Plans
Rise in Life expectancy rate
According to the World Bank, the average life expectancy in India in 2017 was 68.78 years. In the last 20 years, life expectancy has climbed by over ten years. The greater the life expectancy, the greater the amount required in old age or after retirement.
Lack of Social Security System in India
Unlike other nations, India does not have a social security system (Social security refers to actions done by the Indian government or governing body. When all other sources of income are exhausted, these steps are often done to give money to the person or his family). India needs systems and programs that would take for the disabled as well as retirements, among other things.
Rising health costs & inflation
The country’s healthcare costs have skyrocketed as people’s life expectancy has increased. Medications and hospitalization costs are rising. Inflation has a negative impact on our economy. So much so that the cost of everyday products and services has risen over time. Having a pension plan would undoubtedly relieve stress and give you financial stability in your post-retirement years.
Regular flow of income
A pension or retirement plan ensures a steady source of income once you retire. You may then be able to live a more comfortable and peaceful lifestyle. Certain conventional plans also provide incentives.
Purchasing the best saving plans at a young age is always recommended. This would also provide you with tax advantages under the terms of Section 80C of the Income Tax Act.
How To Do Find The Perfect Pension Plans?
Earlier, the better
Retirement planning should begin as soon as possible. How early is it? Set up some money for a rainy day from the moment you get your first paycheck. Increase your donations over time as your salary/income rises.
Equities are important
Studies have shown that stocks, when compared to other assets such as fixed deposits, bonds, gold, and property, may add considerable value to a portfolio over time. So, when it comes to retirement planning, make sure you include stocks. This might take the shape of unit-linked pension plans, equity funds, or individual stocks.
Fixed deposits, bonds, and gold are all attractive investments. Wait, aren’t we contradicting ourselves when we mentioned that stocks work harder than other assets? True, but it doesn’t mean stocks will cure all of your concerns.
You’ll need a portfolio that includes stocks as well as other assets like fixed deposits and gold. All of these assets must be assigned a weighting or allocation. They constitute a portfolio that may help you reach your post-retirement goals.
PPF will not be enough
Many people approach retirement planning as though they are on autopilot. They put money into choices such as PPF (public provident fund) or EPF (employee’s provident fund) and hope they will be able to retire comfortably.
This is far from the case; at most, these alternatives constitute one of the pathways we outlined before (remember equities, fixed deposits, bonds, gold). In terms of portfolio building, there is more to it than simply PPF. PPF and EPF will not even be adequate to combat inflation.
Choose a pension plan with a vesting age that corresponds to your requirements. Some of the best saving plans have vesting ages that begin at 40 years old. So, if you want an income stream so early in life, opt for a scheme like this. On the other hand, there are plans with a vesting age of 85 years, which is appropriate if you want to retire later in life.
Higher sum assured
Choose a pension plan that pays out the greater of the amount promised on vesting and accumulated bonuses or the assured benefit.
Assured death benefit
Prefer a plan with a minimum payment on death, such as 100% premium reimbursement.
Choose alternatives with reasonable costs and expenditures. Remember that the more money you spend on costs, the less money you save for retirement. This necessitates a cost-benefit analysis of many possibilities in order to choose the most cost-effective one.
Wrapping It Up
Retirement planning is a serious matter. It is important enough for you to invest money in it. And it is severe enough that you should think about hiring an experienced and qualified financial advisor to guide you through the retirement planning and implementation process.