What Benefits Should You Seek in a Pension Plan in India?

You work hard for years to meet the ongoing needs of yours and your financial dependents. In very rare cases, your regular income during your working years is enough to save up sufficient money for your post-retirement phase. This is where retirement planning comes in. It allows you to invest a part of your money during your working years to build a significant corpus. This corpus will turn into your financial support after your retirement when you will have no primary source of income. So, it’s important to start saving for your golden years by choosing the best pension plan in India.

But what benefits should you seek from a retirement plan? Here’s a look.

Regular Income after Retirement

If you receive the sum assured from your retirement plan in the form of regular income, it can help finance various needs. These include living needs, medical expenses and goals like trips you wish to pursue.

Besides, the corpus can also help financially secure you in an emergency. This can be a medical exigency or an urgent need for home renovation or shifting. You will have the safety blanket of the sum assured to fall back on.

Protection Against Inflation

You can expect inflation or the rising cost of goods and services to keep going up with time. The necessities that you buy now can cost several times more, say, in the next 15 years. So, you need to save enough for the long term when prices will have increased manifold. A retirement calculator comes in handy in this case.

The annual rate of inflation in India as of April 2023 is 4.7%. After researching the average rate of inflation in the coming years (after which you expect to retire), insert the value in the calculator. Thus, you can factor in inflation to calculate how much you should save now to smoothly finance your post-retirement years.

Tax Benefits

This is another major benefit to avail from a pension plan. How much would be exempt from your taxable income and what kind of tax benefits you will get depends on the chosen retirement plan.

For instance, a deferred annuity plan allows your income to grow exempt from tax during the accumulation phase. This is the phase during which you need to make regular premium payments. With this tax benefit, you don’t need to pay taxes on the funds that accumulate during the years of your premium payments.

It’s vital to choose the best pension plan in India based on your needs. They will guide you to look for any specific benefits. For instance, if you don’t want to keep paying premiums, you can look for a one-time payment option or a limited premium payment term. If you want to financially secure the future of your spouse, you can look for a joint life option in a suitable pension plan. Among other benefits, you can consider the availability of a loan against the plan after a certain period is over. Any benefit you seek, ensure to choose an esteemed insurance provider in India.

The Benefits and Importance of Mutual Fund Retirement Planning

Retirement planning ensures that you spend the golden years of your life comfortably. And the first step in the process is to identify or estimate your post-retirement financial needs taking into by account your current income, future expenses, and the impact of inflation. The use of a retirement or a pension calculator can help you know how much to invest to build a specific level of corpus.  Once you are clear about the corpus that needs to be built, you can plan your investments from the various mutual fund services available.

Why is Retirement Planning Important?

Some reasons why you should plan for your retirement are:

• Rising prices and their impact on your purchasing power.
• Rising medical expenses
• Falling Interest Rates

All these factors highlight the need to build a corpus that allows you to live a comfortable lifestyle while having adequate funds to deal with medical and other emergencies. Regular savings and timely investments can help you build a corpus that is enough to meet all your retirement funding needs.

Mutual Funds and Retirement Planning

Mutual fund investments play an important role in helping you create a corpus to fund your post-retirement needs. They offer you an opportunity to invest in different asset classes depending on your risk profile, goals, and age. If you start early, you can choose to invest in equity funds that offer good returns over the long run. And this is possible through the SIP or the Systematic Investment Plan route that allows you to start will an amount as low as Rs 500. When you invest in a SIP you commit to saving a fixed amount every month or quarter or half-yearly or yearly for a pre-decided duration. This commitment makes you more disciplined in your expenses and helps you save regularly for investment.

Benefits Offered by Mutual Funds

The SIP route is a good way to plan for your retirement since it:

1. Helps in Disciplined Spending and Investing.
2. Offers the benefit of rupee cost averaging wherein you buy more units when the markets are low and lesser units when the markets are up. This helps you participate in both the ups and downs of the markets and averages the cost of purchase.
3. Is simple to understand and the committed amount can be auto-debited from your bank account ensuring that you do not miss a payment.
4. Offers the benefit of compounding since the returns from your investment are re-invested till the time you continue with the SIP. So, the longer you remain invested, the higher are your earnings.

Choose Mutual Funds That Match Your Goals and Risk Profile

The type of mutual funds that you invest in to achieve your retirement planning goals depends on several factors including the age at which you start, your risk appetite, and the corpus that you wish to build. If you are starting at an early age you can invest more in equity funds that have the potential to generate high returns over the long run. But as you become older and reach the mid-stage of your career, you can opt for hybrid mutual funds that invest in both equities and debt to balance the risk while offering reasonably good returns. And once you reach closer to your retirement age you need to reduce the risk in your investments by shifting to debt-based funds that provide steady returns. You can always use a retirement calculator to identify the pension you require for living a comfortable life.