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The years after retirement constitute an important stage in the life of every individual. Not only do you get a well-deserved break from the hustle and bustle of your professional life but you can also find time for your hobbies and spend more time with your family! However, this phase can also bring forth health problems and medical emergencies.
To avoid facing a financial lurch during the aforementioned period, it is prudent to find a suitable pension scheme that can provide the necessary support once you retire. Therefore, it is necessary to choose a feasible option from among the various pension plans in India.
Whilst planning for your retirement and selecting a pension plan, it is important to ascertain the magnitude of funds you will need to be able to handle all your expenses after retirement. You can arrive at the aforementioned estimation with the help of a basic pension calculator that is available online.
In India, a pension plan, pension scheme or retirement plan is a retirement benefit that one can avail of from their insurance provider either as a regular stream of income or as a lump sum payout. Pension plans are termed as such because their primary purpose is to cover the financial needs of an individual after their retirement. However, there are also several other investment options for retirees which function as retirement plans.
If you are looking for investment options after retirement, there are multiple avenues you can choose from. You can select the investment tenure and invest your savings to ensure that, at the time of retirement, you will have accumulated enough funds to meet your basic day-to-day expenses as well as any emergency that may arise.
For a senior citizen or a retired person, an ideal investment option would be one that provides a steady stream of income during their post-retirement years. The fund for the corpus will be accumulated over the tenure of the investment and be paid out either as a lump sum at the end of the investment period or as a regular income during the course of the retirement period.
However, there are also investment options that one can opt for closer to their retirement to build their retirement fund.
1. Annuity Plans
Annuity plans are of two types - deferred annuity and immediate annuity. In the first type of annuity plan, the policyholder needs to invest a certain amount of funds as a premium for a specific tenure as a single pay or on yearly basis which can be paid monthly, quarterly, half-yearly or yearly.
Once the premium payment term is complete, the retiree can use this amount to purchase an annuity. It is important to note that under a deferred annuity plan, one can only withdraw a third of their accumulated fund while the remaining amount can be used to buy the annuity.
In the case of an immediate annuity plan, on the other hand, one can pay a lump sum amount to their insurance provider as a hassle-free single premium and avail of the annuity as a guaranteed1 income.
For instance, the Tata AIA life insurance policy – the Tata AIA Life Insurance- Smart Annuity Plan (UIN- 110N150V05) provides three options for you to choose from. An immediate annuity can be a convenient choice for those who have already retired and want to utilise their accumulated funds to receive a stable stream of income.
Therefore, an immediate annuity plan is a flexible and safe investment option for someone who has already retired and would like to start receiving a fixed monthly payment for the subsequent years. Additionally, you can also choose from flexible annuity options, opt for a joint-life annuity, and also choose your preferred mode of annuity payouts.
2. Senior Citizen Savings Scheme (SCSS)
As the name of the scheme suggests, the Senior Citizen Savings Scheme is a retirement programme supported by the Government of India within which senior citizens or retirees can invest lump sum funds and choose to receive payouts in the form of a regular income. To enrol for the aforementioned scheme, an individual should be above 60 years of age or between 55 to 60 years of age if they have opted for the Voluntary Retirement Scheme. It is important to note that Hindu Undivided Families (HUFs) and Non-Resident Indians (NRIs) are not eligible for this scheme.
The aforementioned scheme also comes with tax* benefits, which makes it easier for retired individuals to get more benefits. Furthermore, since it is backed by the government, the scheme is considered reliable. To get started with the SCSS, the retiree should have an SCSS account that pays out the benefits. One can invest any amount between ₹1,000 to ₹15 lakhs through a single payment.
3. National Pension Scheme (NPS)
The National Pension Scheme is an investment option for employees across private and public sectors, which enables them to invest in a pension account during their working years. Once they retire, they can withdraw some of the funds while the rest of the amount will be paid out as a monthly pension thereon.
While the NPS was initially introduced for Central Government employees, all Indian citizens can now invest in the scheme, which offers an interest rate of 7.4% per annum between July 01, 2021, to September 30, 2021. An NPS account can be opened at any authorised bank or a post office and is eligible for tax* benefits under section 80C of the Income Tax Act.
4. Debt-based Mutual Funds
Debt-based mutual funds with a short investment tenure of one to three years can be ideal for a retired individual as they are good for providing a regular and stable interest. However, one can also opt for long-term debt funds, which have a flexible tenure. If one chooses to invest in ultra-short-term debt funds, then they can opt for liquid funds with a maturity of 91 days or fixed maturity plans that have an investment tenure ranging from a few months to a few years.
Debt-based funds aim for returns and, therefore, invest in several types of securities to provide the retiree with decent investment returns. This is one of the reasons why most risk-averse investors such as retired individuals and senior citizens can consider investing in debt-based mutual funds. A useful tip to make the most out of this mutual fund investment is to choose high-rated securities over low-rated ones since they are prone to low volatility.
5. Guaranteed1 Returns Insurance Plan
Life insurance savings plans that provide guaranteed1 returns are one of the preferred investment options for building a corpus for your retirement. A guaranteed1 returns insurance plan can help you systematically plan your savings over the years, fulfil your dreams, and also manage your financial responsibilities.
A guaranteed1 returns insurance plan, as the name suggests, also provides the protection of an insurance cover to you and your loved ones while your savings continue to contribute to your retirement fund. The plan provides you with the flexibility of choosing limited or single premium payment terms so that you can focus better on the savings after fulfilling the premium obligations.
You can also choose the required payout plan and receive regular income to take care of your essential needs and also pay for expenses such as your child’s further education or a lavish holiday. Moreover, the option of adding different riders# to your guaranteed1 returns insurance plan enables you to enhance your insurance coverage and prepares you to better handle emergencies without disturbing your savings!
There are several safe and stable investment avenues available for retired individuals. Out of the investment plans discussed above, pension plans that provide higher returns, including annuity plans, are usually preferred by retirees. Furthermore, annuity pension plans have flexible provisions for payouts, investment amount, etc., while also enabling investors to choose a simple and hassle-free single premium payment.
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Insurance cover is available under the product.
The products are underwritten by Tata AIA Life Insurance Company Ltd.
The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
* Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry
#Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums, and exclusions under the Rider, please refer to riders brochure contact Tata AIA Life's Insurance Advisor/ branch