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What Is A Retirement Plan

What Is A Retirement Plan

In 2011, there were 104 million elderly people in India and the number has been increasing over the decades. In their old age, most parents and grandparents in India depend on their children for everyday financial requirements. However, with families becoming smaller and the several working individuals staying away from home, there is an increased need for breaking the dependency through retirement planning and financial stability. A retirement plan is especially designed to meet your specific requirements and is an ideal to ensure you lead a stress-free post-retirement life.

These are some of the key features of retirement plans. The features broadly remain similar across retirement plans, but let us take a look at the types of retirement plans.

Unit Linked Insurance Plans for Retirement: Retirement plans can be a mix of investment and insurance. When you choose a ULIP as your retirement plan, a part of the money is used to provide life cover while the other part of the contribution is used to build a corpus for your retirement. After retirement, the accumulated funds are used to provide regular pension to the investor. Retirement plans generally invest the policyholder's money into safer assets like bonds to avoid excessive volatility in returns. However, some unit-linked pension schemes provide an option to invest in equity funds for higher returns. For instance, the Invest 4G unit-linked Insurance Plan from Canara HSBC Oriental Bank of Commerce Life offers an option of 7 investment funds and four portfolio management strategies to safeguard the corpus in the later stages of investment.

Guaranteed Savings Pension Plans for Retirement: Investing in a pension plan is a wise decision in order to build-up a retirement corpus that can be used to provide a steady post retirement income. The Canara HSBC Oriental Bank of Commerce Life Insurance Secure Bhavishya Plan is a product that provides the benefit of equity participation to potentially enhance your retirement corpus and at the same time offers 'capital protection' to your retirement corpus. It offers guaranteed vesting benefit of 101% of premiums paid (including top-up premiums, if any), provided all due premiums are paid.

Mutual funds for Retirement: Some mutual funds offer government-approved pension plans which essentially function as a balanced fund with a 40:60 equity-debt asset allocation. However, unlike unit-linked schemes, these schemes offer a single fund option to investors. If you start contributing early to your retirement plan, you could build a substantial corpus for your post-retirement life. A retirement plan or pension scheme ensures guaranteed regular income post-retirement.

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Before planning to invest in one of the above plans, you should keep the following terms in mind to ensure you make an informed decision:

  • Accumulation stage: The accumulation stage of a retirement plan is the time when the money invested in the plan earns returns. The accumulation stage is more pronounced in the case of deferred annuity plans, that payout a regular pension after a few years of premium payment. The accumulation stage starts with the payment of the first premium
  • Vesting Age: The age at which a retirement plan starts to pay the regular pension is known as the vesting age. Most pension schemes have a minimum vesting age of 45 to 50 years, but some plans allow the vesting age till 90 years.
  • Liquidity: While retirement plans are long-term products and do not encourage withdrawals at the accumulation stage. Some plans, however, permit partial withdrawals to help investors take care of urgent liquidity needs. It is not advisable to utilize retirement funds for other uses though.
  • Surrender value: Most retirement plans are long-term products. If someone chooses to discontinue the plan midway, the company pays a surrender value according to the total amount of premiums paid. However, one should not discontinue a retirement plan as it leads to a loss of the sum assured as well as the life cover
  • Conclusion:

    Retirement planning should ideally start when one is young and not be left for the old age. Regular contributions for a long-term can result in the accumulation of substantial funds for retirement. While the above mentioned plans do offer tax saving benefits, tax-efficiency is an important factor to consider. Besides ensuring a regular income post-retirement, investing in a retirement plan can help you save taxes. Retirement plans can help you lead a respectable and dignified life post-retirement.

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