10 Common Features Your Preferred Pension Plan Should Have
Posted: Sep 21, 2019
Nothing good ever comes without planning. It is true for planning for your retirement as well. One needs to begin planning for their retirement early on, to save themselves panic and stress when they reach the late age of 50. It is not an overnight process and not something that you achieve instantly.
Retirement planning has three distinct stages that one needs to follow, if one wishes to lead a happy and stress-free retired life – the first stage is setting aside regular amounts of money for your retirement at the beginning of your professional life, which you can do with the help of a pension plan calculator. The next stage comes in the middle of your career, when you can save and allot money to multiple asset classes, and ensure substantial returns on your investments. The third and final stage is your retirement, when you finally receive returns from all your investments. These steps will also help you if you wish to learn how to retire early.
As a youth, it is difficult to conceive the urgency and importance of investing in retirement pension plans from the beginning. But you need to realize that planning for your retirement will ensure that you have the necessary financial independence and stability to lead a dignified life in your golden years. When you stop earning regularly, you will still require a steady income stream that helps you live comfortably and helps you maintain a certain respectable lifestyle without having to depend on anyone else. The aging process will also naturally bring with it a host of physiological/health problems, and medical expenses are bound to happen. Moreover, your savings will not escape other socio-economic factors such as inflation, rise in cost of living etc. All of these reasons are more than sufficient to get you to start saving money and investing in long-term retirement plans so that you can generate a substantial retirement corpus.
You will have to check different pension plans and choose the best one for yourself that suits your specific requirements. Here are some common features that your chosen pension plan should have:
- Pension guarantee: Pension plans have a guarantee of a steady cash flow after retirement or after investment, depending on the one you have chosen.
- Low Liquidity: Pension plans in general have low liquidity. Some also provide premature withdrawals, of course with tax implications and penalties.
- Tax-Exemptions: Many pension plans are tax-exempt under Section 80C, 80CCC and 80CCD of the Income Tax Act, 1961.
- Vesting Age: Pension plans have a specific age when you start to receive your regular monthly pension money.
- Reduced Tax-Deductions: Pension plans have great tax benefits, in accordance to the respective sections of the Income Tax Act.
- Taxable returns: Most retirement plans have taxable maturity proceeds. Choose a pension plan that grants you tax-free returns.
- Accumulation Period: This is the period, which requires you to invest – either in lump sum or in installments. Very few pension plans will allow withdrawals during this period.
- Payment Period: This is separate from the accumulation phase in most pension plans. In this period, you receive the pension after your retirement.
- Surrender Value: Retirement plans have a surrender value, which is a sum you receive in case you surrender a pension plan before its maturity. You might lose some cover and benefits if you do this.
- Risk Factor: If you wish for high returns on your retirement plan, including high-payout at the time of maturity, then there will be a high risk factor when it comes to market fluctuations. Invest in a retirement plan that allows you to invest as per your risk appetite.
Choosing the right retirement policy for yourself can be a tedious and time-consuming process. Hence, consider these 10 factors before you decide to invest in the perfect pension plan for yourself.
A mother of 2 lovely kids. Digital Marketer by profession and a blogger by passion! Here to inspire and motivate people with my writing.