A retirement plan proves useful to inculcate financial discipline and safeguard one’s financial future. It is widely accepted that a pension plan and annuity can help build a reliable corpus for a comfortable lifestyle after retirement. A comprehensive pension plan can offer an avenue for individuals to safely park money into a retirement instrument and accumulate wealth for the future.
Such a plan can help generate a monthly or annual payment payout which may help retain living standards post-retirement. Individuals should be careful about these features and benefits accompanying retirement pension plans as they play a crucial role in helping shape one’s financial future. They should also check and compare different types of pension plans to pick the one that suits them the best.
Types Of Retirement Pension Plans
Retirement pension plan are basically financial instruments designed to help plan for retired life even when pension holders cease to have a steady income.
In a broader sense, there are two types of pension plans, namely –
- Pension Plans: These plans facilitate systematic savings over the years. This helps build a steady income which becomes accessible post retirement. Pension plans are designed to help individuals maintain their financial independence when their income stops and help them lead a comfortable lifestyle.
- Annuity: These plans help individuals safeguard their financial future by offering a regular flow of income payout for the rest of their lives. This plan has an accumulation phase when individuals deposit money into it for some time. Once individuals choose to retire they can purchase an annuity with their accumulated funds. Under the plan’s terms and conditions, the annuity offers individuals with regular payments to lead a comfortable lifestyle.
Annuity Benefits
- Immediate Annuity: This plan starts to offer a monthly payout right after an individual purchases it. This annuity plan proves useful for individuals who have recently retired and have enough corpus to buy an annuity.
- Deferred Annuity: This plan begins with an accumulation phase. Post-purchase, individuals start to park funds into the annuity regularly. The insurer invests this amount to grow the corpus. Subsequently, they select a date from when they wish to receive payouts from the saved corpus.
Why Do We Need Retirement Pension Plans?
To ensure financial independence and secure one’s retirement life, it is crucial to have a functional retirement plan in action. In this regard, retirement pension plans are an effective tool to facilitate the planning process. Such plans help manage finances and allow individuals to develop a stream of steady income.
Pension plans are also designed to help investors’ money grow, ensuring they can maintain their existing lifestyle post-retirement and amid inflationary pressure.
Some annuities also extend joint life options. Such a feature offers a lifelong payout to the insured’s spouse in case of their untimely death. This ensures support for one’s family and allows them to lead a comfortable lifestyle. Life expectancy is increasing in India, making it important for individuals to plan their retirement early and for a longer time to take care of expenses smoothly.
With increasing age, the risk of developing health conditions also increases. Since medical inflation is at its all-time high, individuals must have financial provisions for their retired life to fall upon during a medical emergency. Pension plans that offer monthly or lump sum payout can help individuals plan for their medical expenses and seek timely treatment without denting their limited savings or seeking assistance from others.
This support would help individuals to lead their lives on their own terms without compromising on living standards post-retirement. A large percentage of individuals over 60 depend on others to account for their daily expenses. This further underscores the importance of financial independence, and pension plans can be a tool to ensure it.
This financial safety blanket also acts as a safety net in case of critical illness or disability due to an accident.
How Much Money Should You Save For Your Retirement?
When an individual retires, their regular source of income stops. This is why individuals seek to build a corpus for their retired life to create a source of income. However, to lead a comfortable life it is important to find how much money would be enough to safeguard their financial future.
To assure these they should factor in several situations and requirements. For instance, they should factor the –
Daily Expenses
Factoring these expenses would allow individuals to understand the sum of money they would require to maintain their current living standard after retirement.
Milestones
Events and milestones that individuals plan to achieve after retirement are also important factors to consider. For insurance, milestones such as children’s weddings, higher education, or a big ticket purchase need a significant amount of money.
To further simplify the path to achieve goals towards child’s future, they may rely on additional plans such as Sukanya Samriddhi Yojana interest rates schemes. Having an idea of upcoming milestones and factoring can help streamline retirement planning effectively.
Similarly, factoring one’s long-term goals such as starting a new venture or traveling the world should also be accounted for to develop a reliable retirement plan.
Unforeseen Costs
Those thinking of planning their retirement with the help of a pension plan should also focus on building an emergency corpus that will help account for unforeseen expenses post-retirement smoothly. Medical emergencies and financial crises can come unannounced at any time. Hence, individuals should prepare for such situations financially beforehand to soften the blow during an emergency.
Inflation
To ensure the saved corpus doesn’t fall short, individuals should consider getting pension plans that offer inflation-adjusted returns. This strategy will help inflation-proof corpus and allow individuals to account for the rising cost of living with ease and without compromising their living standards.
Regardless of which type of pension plan individuals choose to shape their financial future, they must begin early. This will help them to mobilize small savings to create a lumpsum retirement corpus and allow them to build a retirement fund gradually. By the time they retire, they will have a reliable corpus to rely on.
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