Planning is a simple yet effective way to prepare for the future. Irrespective of whether you are planning for the uncertainties that are an inherent part of life or certain life events, you can never go amiss with the control that planning entails. One of the major plans you must make as early as possible in life is a retirement plan.
What is a Retirement Plan?
A retirement plan is, as the name suggests, a financial plan for your life after retirement. Once you retire, the regular stream of income that is a characteristic of your professional life and earning years is likely to cease. What is not expected to cease, however, is your expenses, particularly fixed expenses such as rent, food bills, utility bills, and medical bills, to name a few.
It is, therefore, prudent to start retirement planning as soon as you start your professional life and have a steady inflow of income. It is simple to purchase a retirement plan. At Tata AIA Life Insurance, we offer an excellent range of retirement plans. Not only do these plans serve as safe and productive instruments for you to save money for your retirement corpus, but they also provide you with substantial life insurance coverage.
Choosing the Mode of Pension Payout: Regular Pension vs Lump Sum Payout
When finalising a retirement plan and the benefits it offers, one of the key decisions you have to make is whether you wish to opt for a lump sum payout or purchase an annuity. Before comparing and deciding between the two forms of income payouts in a pension plan, it is important to understand what they are and how they work.
A lump sum insurance policy entails that the payout of the entire amount accumulated in your retirement corpus shall happen in one go. This payout option works apt for people who wish to receive their entire retirement fund in the same instalment so as to be able to invest the money as per their financial plan.
A regular annuity plan, in stark contrast with a lump sum policy, offers you the convenience of a steady stream of income even after retirement. What is more, is that the frequency of the payouts from a regular annuity plan can be determined by you. This frequency can be monthly, quarterly, or yearly, depending upon your financial goals and requirements.
With annuity plans, you get the flexibility to choose from two types of payout options based on the time of payout - an immediate annuity and a deferred annuity. Whilst the former entails the beginning of the income payout from your retirement plan immediately after the payment of a one-time lump sum premium, the latter enables you to build your retirement corpus overtime before the payouts start. A deferred annuity plan is often the preferred mode of payout for young professionals who steadily build a corpus for post-retirement income.
In order to decide between a lump sum payout and a regular annuity payout, you must consider the pros and cons of each mode of payout. The following table highlights these elements.
Parameter |
Pros |
Cons |
Lump sum payout |
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Annuity payout |
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You must, therefore, make the decision between an annuity payout and a lump sum payout after due deliberation. It is worth noting here that some retirement plans offer a combination of a lump sum payout and an annuity payout: You can, thus, receive a part of your retirement corpus in the form of a lump sum payment and invest the remainder in an annuity plan.
Salient Features of Life Insurance Retirement Plans
With the dual benefits of investment and insurance in the same retirement plan or pension plan, you do not have to separately allocate funds for a life insurance policy and a retirement plan.
Here are some of the salient features of Life Insurance retirement plans:
A substantial life insurance cover
Regular income
Freedom to choose the mode of premium payment
Choice of the beginning of the income payout period
Flexibility to choose the mode and frequency of the payout of guaranteed1 income
Tax* Benefits as per the prevailing tax* laws
Flexibility to add additional life insurance riders#
Option to take a loan against the plan (available with some plans)
Conclusion
Whether you opt for a lump sum payout in your retirement plan or select a regular payment plan, it is pivotal that the decision is driven by your financial requirements and the analysis and comparison of the different modes of income payout. You can use our online calculator to determine your choice of features and payout modes and choose the plan that matches your needs.
L&C/Advt/2023/Jan/0139