Retirement life can be very challenging, especially financially. Hence, it is crucial that you start planning for your life after retirement and creating a finance pool. There are many ways to build an excellent financial corpus for your post-retirement days; however, the one that works brilliantly is a pension plan.
In this article, we will take a look at everything you need to know about pension plans and why should you consider it as your go-to investment option.
What are the pension plans?
To say the least about pension plans or retirement plans, as they are more commonly known, are predominantly one of the savings options. They come with a dual benefit of investment and insurance cover. All you have to do is invest a certain amount regularly towards your pension plan, and you will able to build a financial corpus in a phase-by-phase manner. This accumulated money will ensure a steady flow of funds once you retire.
The key is to start accumulating the finances as early as you can. A well-chosen retirement plan can help you rise above inflation and deal with all the uncertain expenses, thanks to the power of compounding.
What are the benefits of a pension plan?
- Guaranteed income:
As the name suggests, pension plans promise you a fixed and steady income after retiring or immediately after you commence the investment. All this based on which type of pension plan you choose. Primarily there are two types of pension plans.
- Deferred plan: Starts giving you a steady income after your retirement.
- Immediate plan: Starts giving you a steady income as soon as you invest.
- Tax benefit:
Another thing about pension plans is, it provides tax exemption specified under Section 80C of the Income Tax Act of India. So, when you invest in a pension plan, then the Income Tax Act, 1961, offers significant tax respite under Chapter VI-A. Section 80C, 80CCC and 80CCD.
- Payment period:
With a pension plan, you get the benefit of accumulating your wealth and channelling its partial or full withdrawals for a specific period. This period of receiving your money is called a payment period. You can choose the length of this period (in years) and if you want to receive a partial payment every month or do you want to opt for a full withdrawal at the end of every year.
Tips to keep in mind while buying a pension plan:
- Decide your financial goals or the have a rough idea of how large do you want your financial corpus to be.
- Considering your current income, keep aside a fixed amount to invest in the plan, monthly.
- Research on the various types of pension plans and take a detailed look at the best pension schemes.
- Before you make the final purchase, understand the offerings of the product and see if it matches your needs.
Once you have found a pension plan that fits your financial goals, you can start investing. A pension plan calculator can come in handy here. It will help you determine the amount of wealth that you will be accumulating at the time of your plan’s maturity.