One can describe pension plans as an investment plan that are designed to help individuals to invest towards their financial needs for a secure retired life.
Today’s Rate
Saturday 23 Nov. 2024
Such a retirement plan helps investors accumulate a pool of funds through regular or strategic lump-sum investments or premium payments.
Almost all pension plans are designed to help individuals generate a steady income flow for their retired life. The success of a pension plan in accumulating wealth depends on the type of plan, and for how long one has invested towards it. This is why many financial advisors recommend starting investing in a pension plan from an early age and continuing the practice until they retire.
That being said, let us take a quick look at some of the best retirement plans.
Pension Plans To Generate Monthly Income
Individuals who plan to generate a regular monthly income have the option to park their money in several schemes.
Some of the best investment options for senior citizens to generate a monthly income include –
- Post Office Monthly Income Scheme Or POMIS
POMIS is an effective investment plan that offers individuals a regular monthly income. These plans typically come with a maturity period of at least 5 years and also offer tax benefits. The tax saver POMIS entitles investors to a tax return of up to Rs. 1.5 lakhs on their deposits. However, the interest on the investment is liable for taxation.
● Fixed and Recurring Deposits
Both fixed deposits and recurring deposits are popular investment options among retired individuals. These options are known to offer higher rates of interest than traditional savings options. The interest rate offered to senior citizens on their deposits is higher than the rate offered to normal customers.
Additionally, Section 80TTB of the Income Tax Act says that senior citizens are exempted from paying taxes on their interest income of up to Rs. 50,000.
Moreover, they do not expose the deposited amount to market volatility, a case that’s quite common with market-linked investment options.
- Senior Citizen Savings Scheme (SCSS)
The Senior Citizen Savings Scheme is one of the best retirement plans for those individuals who want to park their money for the long term. This savings plan is known to provide higher interest earnings than a regular fixed deposit or savings scheme.
Notably, individuals can invest up to Rs. 15 lakhs in their SCSS account annually and the scheme comes with a lock-in period of 5 years. However, individuals can extend the holding period for another 3 years and add a nominee of their choice. Typically, the accumulated funds would be transferred to the beneficiary or nominee of the scheme.
Individuals should note that SCSS holders are also entitled to claim tax benefits of up to Rs. 1.5 lakh under Section 80C annually.
The fact that one can easily apply for this best saving plan in India at their nearest banking institution or post office.
Investment Plan For Growth
Individuals who are planning their retirement have several options to choose from to generate wealth.
Here are some of the most preferred investment options that help retirement planners generate inflation-adjusted returns and mobilize savings –
- National Pension System (NPS)
Individuals who belong to the age group of 18-65 years are eligible to apply for the National Pension Scheme. The said scheme is designed to allow individuals to mobilize savings towards their retirement corpus. It allows account holders to park their hard-earned money in equities, government securities, and government-backed securities.
Based on one’s preference and risk-taking capacity, individuals can decide how much money they want to put into a given type of instrument.
NPS also has auto-choice options that help allocate resources as per an individual’s age and requirements.
By investing in equity-based NPS, individuals can appreciate their capital and generate high returns. However, the percentage of the allocation is capped at 75%.
The scheme allows individuals to extend the investment period and stay invested till they turn 70. This helps them reap the benefits of the scheme and generate substantial returns for their retirement.
This retirement plan is also eligible for tax benefits, thus facilitating greater savings. Notably, Section 80C allows NPS holders to claim tax deductions up to Rs. 1.5 lakhs annually. Additionally, they can claim an additional Rs. 50,000 yearly as per Section 80CCD, accelerating capital appreciation.
- Mutual Funds
Mutual fund investments are also among the most sought-after ways to build wealth. Investing in mutual funds is known to generate inflation-adjusted returns and help accelerate wealth generation.
There are also tax-saving mutual fund options that allow investors to claim tax deductions of a maximum of Rs. 1.5 lakh under Section 80C. Notably, mutual funds also expose investors to market risk and could erode their capital during a market downturn. This is why pensioners must choose funds carefully and only after weighing one’s risk-taking capacity.
Individuals should try to adopt a balanced approach towards investing and focus on those investment instruments that generate a steady return. They should also consider investing for a long period to spread out the risk.
Few Details To Remember About Investing in Retirement Plans
Individuals who meet these three criteria can avail of retirement plans in India –
- Entry Age: Individuals who are above the age of 18 can start investing in a retirement plan. However, there are a few distinct plans that require individuals to be at least 30 years of age to enter. Notably, almost all investment options cap the maximum entry age at 70 years.
- Premium: Individuals should be able to pay their insurance policy premium on time. This ensures their policy doesn’t become invalid and individuals remain covered throughout. Hence, individuals should make sure that they get a policy whose premium suits their budget.
- Vesting Age: This can be described as the age when individuals start to receive their pension. In case of insurance policies, providers set 40 as the vesting, however, the same can vary among companies.
- Pension Calculator: This is essentially a tool that helps to determine how much one would need to build a retirement corpus.
How to Use a Pension Calculator?
One can easily use a pension calculator online to determine the capital required.
Here are a few steps to use the tool –
Step 1: Open an online pension calculator
Step 2: Enter your age
Step 3: Enter monthly expenses
Step 4: Expected age to start receiving pension
Step 5: Click on calculate
Once these steps are covered the details will appear on screen.
Based on this, individuals can tweak their savings, and deposits, and even choose the best retirement plan accordingly.
Also Check- falconmediamarketing
