Retirement plans or pension plans are essentially a category of annuity or life plans that are designed to help meet one’s financial requirements post-retirement, especially medical emergencies and daily living expenses. Such plans are designed to help individuals lead a financially independent life and maintain their current lifestyle long after their retirement. By starting to plan for retirement early in life individuals can build a substantial corpus to support their lifestyle post-retirement and meet their goals without straining their budget or dipping into deposits. It will also help prepare for financial emergencies without straining the immediate budget.
Notably, pension plans and retirement plans are a part of the life insurance category that’s designed to help meet an individual’s insurance and savings needs. However, individuals’ financial dependence and their ability to save their corpus depends on their choice of pension plan.
How Much Would You Need to Save Up for Your Retirement?
Post retirement individuals lose their regular source of income. In this regard, individuals without any savings become dependent on their families to meet their expenses and maintain their living standards.
Similarly, with the cost of living increasing at a fast pace, it is imperative to have a corpus for retirement to support living. Those without any corpus would not only face difficulty in meeting daily expenses but also face financial troubles when meeting unwarranted expenses and medical emergencies. Having a retirement plan and corpus can help them tide off emergencies and retain their lifestyle without dipping into limited savings.
Such plans can help prepare for emergencies and allow individuals to lead a financially comfortable lifestyle even long after retirement. In addition, there could be increased medical expenses. Hence, it is important to calculate your financial requirements for retirement so that you can be prepared well in advance. However, the same would work out only if one can determine the amount that would be adequate to lead a comfortable life after retirement.
To determine this they would need to factor in several things including –
- Daily Expenses
Having an idea about one’s daily expenses would allow one to determine the amount of money they would need to maintain their standard of living or improve the quality of the same post-retirement.
- Milestones to Cover Post-Retirement
Individuals must factor in upcoming financial obligations and responsibilities beforehand to understand which corpus amount can help them meet upcoming milestones such as a child’s education, wedding, or big purchases with ease. Factoring the expenses will help determine a suitable amount to plan retirement effectively and support their goals.
- Retirement Goals
Individuals must also weigh their post-retirement goals like starting their own business, purchasing a property or car, or going on a world tour to understand the required corpus and suitable plans to build it.
- Unforeseen Expenses and Inflation
When seeking a retirement or pension plan it is important to factor in the inflation rate to build a corpus that can help tide over inflationary pressure. The rising cost of living, high cost of food and other essential commodities along with high rents, make it difficult to sustain with limited income. Such a situation is more difficult for retired individuals without alternative sources of income. This is why they must plan their retirement keeping in mind the inflationary pressure.
In addition, they must plan to build a corpus for emergencies to meet unforeseen expenses arising due to health conditions, financial strains, or sudden expenses. Factoring these things will help us understand the financial burden and the required assistance to support the same. Based on such insight they can pick pension plans that would help meet the expenses of retired life with ease.
Tips to Choose a Suitable Pension Plans
Since the success of a registration plan depends a lot on one’s choice of plan, it is important to pick something that matches one’s needs and could support their goals. This is because the features of the plan will help establish its effectiveness and help understand the ease with which one can build a retirement corpus and more importantly lead a financially independent retired life. Also, they should pick a plan after identifying their goals and corpus requirements which they would like to receive in the form of a lump sum or regular income.
To ensure an effective selection, individuals should check these factors and understand their importance for corpus funding –
Returns from the Pension Plan
The corpus is one of the most important things to consider as an individual’s financial freedom depends on the amount they are likely to save or receive post-retirement. This is why it is recommended to pick plans that extend substantial returns which would help meet post-retirement needs and unforeseen emergencies with much ease.
Guaranteed Pension Amount
An individual’s risk appetite tends to fall with increasing age because of their liabilities and responsibilities towards their family. In addition, for retired individuals, the limited sources of income diminish their ability to stomach risk. This is why it is suggested to look for pension plans that extend guaranteed returns that do not respond to market fluctuations. Some pension plans also offer financial support to the pension account holder’s spouse in the event of an unfortunate situation. This helps ensure financial safety and independence for one’s loved ones, allowing them to lead their life on their terms and without seeking other’s help. Besides pension options, individuals may seek alternative investment options like gold and find out how to invest in gold online to plan additional sources of income for retirement.
Flexibility
Pension plans that are flexible allow individuals that customize the scope and tailor the benefits as per their needs. This allows them to plan their retirement better and modify the same as per their changing needs and requirements through the course of retirement planning.
To ensure this, individuals may consider retirement plans that extend flexibility in terms of premium top-ups, increasing the premium amount and payment schedule. Such adjustments can help enhance plans with one’s evolving needs or improve financial standing.
Based on these and one’s requirements, individuals may proceed to select a particular type of pension plan. They may choose any of these for effective retirement planning –
- Immediate Annuity: This plan is deemed suitable for those nearing retirement and who wish to build a source of regular income.
- Deferred Annuity: Those whose retirement is still a few years away can opt for this plan.
- National Pension Scheme: Those early in their career can opt for this scheme to build a substantial retirement corpus over the years by mobilizing a small part of their income regularly.
Regardless of which pension plan one picks, it is important to select a scheme that matches their needs, suits their risk appetite, and more importantly fits their goals. Subsequently, they must read the fine print of the scheme to understand its scope and limitations more effectively.