3 Types of Retirement Plans You Must Know
Some people want to travel to places across the world, others want to pursue a certain hobby or go on a pilgrimage. Whatever your idea of retirement is, it is a phase where you expect to break away from the race of life, relax, and enjoy each day without worrying about tomorrow. It is a period when you get to do what you always wished to!
To make this a reality, you need to save up over a period of time. This is where retirement plans in India come into the picture. With the cost of living and inflation rates going up by the day, planning for the later years of life is necessary. But what are these plans, and how do they help? Let’s discuss it in detail.
Retirement Plan: What Is It and How Does It Work
Also known as pension plans, retirement plans are savings policies that enable you to accumulate wealth over a time to provide for you and your family when you retire. The main purpose of retirement plans in India is to offer financial security when you grow old. Some of these plans come with life insurance that covers you against any unforeseen events.
The types of retirement plan you pick and the amount you put in will depend on your age, lifestyle, the number of years in which you wish to retire, and the income that you expect to receive on a monthly or yearly basis post-retirement. Once you have these details, all you need to do is to invest with discipline and let the compounding nature of such plans do the magic. If things go as planned, you receive an annuity or yearly payouts to lead a smooth retirement.
With unpredictability being an inevitable aspect of life and increasing inflation rates, retirement planning is a necessity. When you do that, you can live life without compromising your standard of living even when you are no longer working. To reap these benefits, it is important to choose the right types of retirement saving plan.
Types of Retirement Plans in India
You must have heard people getting pension or income, which is the annuity pay when they retire. Thanks to disciplined investment in retirement policies. You can find a range of such plans to save for retirement offered by both the government and private companies. Listed below are the different types of retirement plan you can choose from.
1. National Pension Scheme
The National Pension Scheme or NPS is one of the widely known options for retirement savings. It is a pension program begun by the government of India to extend financial security to retired folks.
A kind of social security plan, it supports employees from varied sectors who plan to save money for retirement till they turn 60 years old. So, you can invest in the national pension scheme until the age of 60. The money is collected from you in the form of a premium, which is then scattered among four asset classes. These include equity, government bonds, corporate debt, and alternative investment funds. In this plan, the equity exposure is capped at 75%.
Since the national pension scheme focuses on safer investment options by restricting equity investments, it is a low-risk savings option. It offers flexibility by allowing you to switch as per your needs. You can receive a maximum of 60% of the accumulated sum at 60. The remaining amount is returned in the form of annuity payments for the rest of your life.
2. Annuity Plan
As the name suggests, these types of retirement plans will pay you back in the form of an annuity or an annual sum of money. A conventional plan, it is further divided into two types based on the way it pays returns.
A retirement plan with deferred annuity payments lets you gather a substantial amount by paying premiums for the term of the policy. The accumulated sum in the form of premiums and the interest earned make a corpus once the tenure ends. You then receive the funds as pension or annuity regularly.
Then, there is an immediate annuity plan. In this, you can earn income or pension from the month following the month of investment. Akin to earning interest from a fixed deposit with a bank, such a plan provides you with immediate funds to fulfil your goals.
Most of these plans carry a choice of annuity payments, i.e. you can choose to receive them as yearly, half-yearly, quarterly, or monthly payouts. You can also top-up for extra benefits or pick a joint life annuity plan.
3. Unit Linked Pension Plans
Unlike traditional plans for retirement, these are meant for aggressive investors who don’t mind taking risks to earn rewards. Commonly known as Unit Linked Insurance Plans or ULIPs, they are insurance saving plans that help you create wealth for life milestones and insure your loved ones at the same time.
A part of your premium goes toward life insurance, while the other portion is invested in market-linked securities. You have a combination of high-risk and low-risk investment instruments ranging from equity stocks to debt and liquidity funds to choose from. The returns you get are subject to market fluctuations. However, you are free to switch between funds to ensure you earn optimal gains from your investment. They are typically ideal for long-term goals like a retirement plan.
Tata AIA Insurance provides an array of retirement savings plans such as Annuity plans, Guaranteed1 Income Plans and Unit Linked Plans When it comes to planning for old age, the earlier you start, the better returns you get. So, don’t wait for the right time, instead start now!