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5 Reasons you should Buy a Retirement & Pension Plan

dateKnowledge Centre Team dateApril 19, 2021 views421 Views
5 Reasons you should Buy a Retirement & Pension Plan

An increase in average lifespan demands for a solid retirement planning. Most of us think that retirement planning is all about finances. However, it is more about managing your finances in a systematic manner to have enough for your retirement days. You must have a plan about how you want to spend your retirement. And that is the first step of retirement planning. Some of the major reasons for planning your retirement are that you cannot work forever, may help you during contingencies, and you will get a chance to build a saving corpus to boost your wealth creation.

Retirement planning requires a mix of economic and life planning. Personal planning determines your life during retirement. On the other hand, financial planning helps in budgeting income and expenses to support your personal plan.

Why should you Buy a Retirement and Pension Plan?

#1 Enjoy Stress-free Post-retirement Life

You can choose a retirement and pension plan as per your risk appetite and retirement goal. For example, you can use guaranteed savings plan like Guaranteed Income4Life from Canara HSBC Oriental Bank of Commerce Life Insurance, to ensure lifelong pension income.

On the other hand, if you aim to accumulate a large corpus till your retirement 20-30 years away, you can use ULIP like Invest4G. This plan allows you to invest in a dynamic portfolio of equity and fixed-income investments.

The best part is you can automate this portfolio completely so that you benefit from market performance even when not paying attention to it. ULIPs like Invest4G will help you accumulate a large tax-free corpus for your retirement.

#2 Reliable Regular Monthly Income

No matter how much money you have in your bank account, a regular income is an important financial input. It helps you maintain a consistent lifestyle and brings a level of certainty in life.

After retirement, as well, you need a reliable long-term income to enjoy a level of consistency in life, despite having a large corpus. A good pension plan will help you generate this regular income while keeping your remaining corpus safe.

Guaranteed Income4Life is a fine example of such a pension plan.

#3 Tax Benefits after Retirement

The normal monthly pension that you receive after your retirement is taxable as salary income. However, if you plan your retirement income properly, you can receive a large part of this income as tax-free.

Investments in most of the pension and retirement plans qualify for tax benefits. After retirement few of these investments like ULIPs or guaranteed savings plan can provide you with:

  • Tax-exempt partial withdrawals, &
  • Tax-free maturity value

#4 Cost Efficient

Starting your retirement investments early with correct retirement and pension plans can also save you a lot of money.

For instance, ULIP also offers a life cover for which a monthly premium is deducted from the accumulated corpus. However, as your corpus grows the amount of premium for life cover goes down.

So, if you start investing in a ULIP at an early age, you can grow your corpus much faster over time, as the life cover cost will also be lower.

#5 Healthy Returns on Investment

Early investment allows you to take more risk in your investment. And in turn, aim for a higher future value and growth. Time is your best friend when it comes to generate better returns on your investments.

For example, a long-term pension plan from a life insurer, and an NPS Tier-I account can automatically adjust your asset allocation to reduce risk over time. This helps you benefit from the market movements while avoiding negative impacts.

Therefore, proper retirement planning will provide significant returns in the long run. For getting good returns, you have to start saving at an early age. This practice helps in averaging out the impact of market volatility.

ULIPs for planning your retirement

Retirement is one of the most important goals of your financial planning. Although you may not want to put your career hat down, you should have the door open when you do. Retirement and pension plans are investment cum saving plans to help you ensure financial security during your retired life. At the time of retirement or any other such life transition, where your financial needs shift dramatically, you need:

  • A large lump sum amount
  • A reliable source of regular income, preferably monthly

Considering the fact that after retirement, your financial investments are going to be your only source of income, building these two pillars is important. This is where your retirement and pension plans come into play.

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Frequently Asked Questions (FAQs) for Retirement and Pension Plans

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the Premium calculator available in the ‘Tools and Calculator’ section of www.canarahsbclife.com.

The Invest 4G plan offers three benefit options to choose from. If you have opted for the Life Option or Whole Life Option, the insurer will pay the nominee(s) death benefit if the policyholder meets with an unfortunate incident. However, in the Life Option with Premium Funding, the policy continues even after the death of the policyholder. The company pays the remaining premiums until the policy matures.

Life is unpredictable and so it is important to prepare for all eventualities. If you regularly save a substantial amount of your income for retirement, the corpus may expand to a comfortable level before retirement. In case you become disabled and are unable to contribute to the retirement plans, most plans will continue to multiply your savings. The amount already accumulated will continue to grow and besides the existing plans you can also choose to invest in pension schemes specifically designed for people with disability.

Investment in ULIPs like Invest 4G plan qualifies for tax deductions under section 80C of the income tax law. The maturity benefits of ULIPs are also tax-exempt under section 10 (10D) of the Income Tax Act, 1961. However, if the premium paid during the policy term is more than 10% of the sum assured, the maturity proceeds will be taxable.

The concept of early retirement is catching up fast in India, but there are no specified ages for early retirement. While in some western countries the age between 35 and 45 is considered favourable for early retirement, in India the ideal age is 45-50 years. With the right planning and investments, it is not very difficult to retire early.

At the age of 35-40, people generally have several responsibilities such as children’s education and various EMIs. It is difficult to spare a substantial amount of income for retirement. Depending upon the needs of the household and the lifestyle, one should aim to save around 40-50% of his/her income. Around 10% of the income should exclusively be allocated for retirement planning. Here are some tips to choose the best retirement plan.

  • Focus on your needs: It is easier to formulate a strategy when the goal is clear. Make an estimate of the amount required to sustain your life. Take inflation into account and zero in on the targeted corpus.
  • Research thoroughly: Conduct thorough research before investing in any financial product. Read the term and conditions properly and try to understand how an investment product fits your needs.
  • Consider different products: The market is awash with all kinds of investment products. Do not follow conventional advice as the need of every person is different. Take into consideration all the suitable products, conduct an objective analysis and then invest.

Owning a house is a cherished dream for many. There are several ways to save for a new house, but in urgent cases, people may be tempted to withdraw from their retirement fund. There are various financial products for retirement planning, and all have different withdrawal rules. In the case of the National Pension Scheme, partial withdrawals for special purposes like buying a house are allowed only thrice during the policy tenure. However, to avail the withdrawal facility, you should be an NPS investor for at least 10 years and you are permitted to withdraw only 25% of your contribution. If you have a PPF account, you can withdraw 50% of the accumulated amount, but only after staying invested for at least 6 years. The Invest 4G plan also allows partial withdrawals after five years of investment.

The quantum of monthly savings depends on the specific needs of the buyer. Financial advisors, however, suggest people save around 15% of the monthly income for retirement.

Retirement plans such as NPS have a very low entry threshold. It is also open to all and anyone can open an NPS account and start saving. A small business can also invest in Invest 4G plan from Canara HSBC Oriental Bank of Commerce for as low as Rs 5000 every month.

The choice between paying off a student loan or start a retirement account is not a difficult one. Starting early for retirement planning has its own advantages but extending the student loan will increase the interest burden. You will have to find a balance between the two. Try to pay off the student loan as soon as possible, but do not hold back on investing in a retirement account.

Most people nominate their spouse to receive retirement benefits in their absence. But a spouse is not automatically entitled to be the beneficiary of a retirement account owned by the other spouse.

Gold is a safe investment asset and investors often flock to the yellow metal to stabilise their portfolios. Holding a small quantity of gold can be considered as the intrinsic value of gold remains intact. You can also choose to have an exposure to gold through ULIPs. ULIP funds invest in a variety of asset classes and some fund options also have a small exposure to gold. You can choose fund options with gold to have a small and indirect investment in gold.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

The government has allowed all central government pensioners to open a joint account with their spouses.

Vesting date or age signifies when your pension plan’s accumulation phase is over and the distribution phase can begin. For example, in a deferred annuity plan, you may have a vesting date which is 10 to 30 years away depending on your age at entry. You will continue to invest or stay invested till the vesting date. After the vesting date or age, you can start receiving the pension or withdraw the money from the plan.

The steps may differ from plan to plan. However, you can buy the online retirement plans following the steps below:

  • Retirement Calculator: Use a retirement calculator to estimate your corpus need and expected monthly investment amount to achieve it
  • Choose Plan: Select the online retirement plan you want to start investing in
  • Contact Information: Fill in the personal details including the contact information. Make sure to put the correct e-mail ID which you can access since all future communication about the policy will take place via e-mail.
  • Define Your Investment: Select the goal, investment term, investment frequency and amount you want to invest (based on the calculator estimate)
  • Select Fund Allocation: Online retirement plans give you the option to invest in multiple assets including equity funds. You can select the ratio in which your premium will be allocated to these funds as per your risk appetite. Then select one of the portfolio rebalancing strategies.
  • Select Withdrawal Plan: You can withdraw money based on set milestone or systematically from the plan after the lock-in period. Select the options for withdrawal as per your plan.
  • Review Plan & Investment Details & Complete the Application Form

You can pay the premium amount before or after completing the application form to start investing.

The best time to plan your retirement is when you are planning your career. However, this may not be the time when you really start investing money for your retirement. You must start investing in your retirement plan as soon as you start earning.

Retirement is the only financial goal you cannot repair with other means of funding like a loan. Thus, developing the habit of investing with every income you have is the best way to have a comfortable retired life.

Insurance allows your family, especially your dependent spouse to continue living without financial worries if anything happens to you. Also, insurance may help you save enough for retirement in case of permanent disabilities. Additionally, life insurance retirement plans allow you to build a good retirement corpus with bonus additions.

Yes, you can change the nominee of the policy anytime you need. If you are using an Electronic Insurance Account (EIA) to manage your policies, you can change the nominees anytime from this account. Otherwise, you can contact the customer care to update the nominations on your policy.

You can opt for auto-debit of the premiums from your savings account. You can also pay the premiums online using your debit card, credit card or a payment wallet.

You can get Rs. 1 Core pension plan using the online retirement calculator. The calculator will assess your eligibility and provide you with the probable monthly or annual investment to achieve the goal. If the amount seems feasible you can complete the purchase online or set an appointment for a qualified advisor to help you in the process.

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