A complete guide to choosing retirement plans

Authored by – Mr. Rakesh Goyal, Director, Probus Insurance, Insurtech Broking Company 

A large number of people in their 30s, 40s, and 50s are yet to start saving for their retirement. The planning for ‘sunset years’ has gone through an evolution over the years. Our earlier generation had immense faith in gold, real estate, and fixed deposits (FDs) among others. However, with rising urbanization and higher life expectancy—one needs to have appropriate planning while choosing retirement plans. In this article, we will explain the steps in choosing the right retirement plans.

A complete guide to choosing retirement plans


Set your retirement goals and assess your current financial position

Irrespective of whether you are in your 30s or 50s, a listing of retirement goals is a must in choosing a retirement plan. One must arrange their goals into short-term, medium-term, and long-term goals. Once this exercise is done, the next step is assigning the right amount for each goal. To help you achieve your retirement goals, you need to take look at your comprehensive financial position as of date. A net worth statement will identify all the assets from which retirement income may be derived. Finally, you should decide what will be your budget needs and how will you support your current lifestyle in case there is no regular income after retirement. Typically, one needs at least 60-80 percent of their pre-retirement income to meet their goals in retirement.


What are pension and retirement plans?

Pension plans are investment plans that let policyholders allocate a part of their savings to accumulate over a period and provide them with steady income after retirement. Retirement and pension plans provide them with financial security so that they can enjoy their retirement life peacefully without compromising on their living standards. Given the high cost of living and rising inflation, retirement planning has become important for every individual. Retirement Plans are a category of life or annuity plans that are specially designed to meet your post-retirement needs such as medical and living expenses. Typically, a pension plan ensures that policyholders’ income flow continues well beyond their retirement. Pension plans let them accumulate a corpus of funds through a lump sum investment or premiums that they pay over a period. Upon retirement, policyholders receive regular payments from your corpus to ensure that the expenses can be met, and their future is secured.


Immediate annuities and deferred annuities plan

In annuity plans, policyholders are required to invest a lump sum amount or pay regular premiums which the insurance company invests on their behalf. After retirement, the policyholder can then use the corpus to receive steady income or withdraw the entire corpus at once. Immediate and deferred are two different annuity plans available in India. In immediate annuity plans, you start receiving monthly or annual annuity immediately after you invest. While in a deferred annuity, policyholders invest a lump sum amount or monthly premiums for a fixed duration. The annuity payment begins after a particular term (typically when one turns 60). In choosing the annuities plan age plays an important role. If you are already retired or close to retirement, an immediate annuity can be a great option as it will allow you to start receiving annuity immediately. However, if you are young and have several years for retirement, the deferred annuity is the way to go. With a deferred plan, you will continue investing for a particular duration and then start receiving the annuity once you get retired.


Pension plans with life cover

While we have discussed annuities plans in detail, there are also pension plans that offer the dual benefits of life insurance and investment. One part of your premium is reserved for life insurance, and the remaining is invested in a fund of your choice. On maturity, you can withdraw the entire corpus at once or receive regular payments. If you die during the policy term, your nominee will receive the death benefit. Such is typical insurance plans of longer time horizon and risk-averse investors can look investing in such plans.  While returns might be slightly higher compared to annuities plans, but such plans have a lesser investment horizon. While annuities can be for whole life as well.


Looking at inflation-adjusted returns

One of the important factors to determine which pension plan is best is to see if the plan offers inflation-adjusted returns. Living a financially independent and happy retirement life is something that everyone dreams of. To accomplish this, one of the key factors to consider while evaluating a pension plan is to check if it guarantees pension to your spouse in the event of an untimely demise of the policyholder. This is crucial to safeguard the interest of your spouse when you are not around. The pension plan you choose must cater to the needs of both (yourself and your spouse). A good plan will ensure that your better half continues to get the financial benefit even in your absence. One must arrange continuous for guaranteed income for life. Make sure that you look for a pension plan that offers guaranteed income throughout your post-retirement life.







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