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Retirement is something that needs meticulous planning and thought, especially in today’s age, with an uncertain economy throwing new financial challenges continuously and inflation always being on the rise. Enter Pension Plans, the financial instruments specially designed to take care of you post-retirement. While a lot of insurance products get wide coverage, pension plan is something that is put on the back burner, but there are many reasons for you to invest in one early. Let us look at some of the benefits that a Pension Plan has for customers and understand why it is a must-have in your financial planning.
What is a Pension Plan?
Pension or retirement plans typically offer a variety of advantages, including investment and insurance coverage. You must pay a fixed amount regularly for the length of these plans. After retiring, you can continue to receive a pension on a monthly or annual basis. A lump sum maturity amount is also offered by some plans upon retirement. In order to benefit from the power of compounding, it is imperative to begin contributing to one of these pension plans at a young age. This will guarantee that you have a sufficient corpus to effectively deal with the steadily rising inflation over the course of 30–40 years. This corpus can take care of a myriad of needs in your old age, from healthcare to a comfortable lifestyle.
What are the Benefits of a Pension Plan?
- Savings in the Long-Term: Starting your retirement planning early in life and buying a pension plan can translate into a large corpus over time, maximizing the gains and ensuring that your retirement turns out to be the golden period of your life.
- A Safety Net Against Inflation: Stemming from the large corpus mentioned above, it can also be your shield against the onslaught of inflation and make sure that you do not have to compromise on the standard of your life just because you have stopped working.
- Extends to the Beneficiaries: Pension plans usually have an element of life insurance as well, where your family can get the benefits of your pension plan after you are gone in the form of a death benefit. Also, you might also get the choice to add a secondary policyholder to the pension plan, usually your spouse, to ensure that even in your absence, they can maintain financial independence and continue living a comfortable life.
- Tax Benefits: Under section 80CCC of the Income Tax Act, 1961: Contributions that you make towards a pension plan of up to ₹1.5 lacs are tax-free, meaning that amount will not be considered a part of your annual income for that year, and thus will bring down your total taxable income. This will lower the taxes that you will be required to pay. This benefit makes Pension Plans great tax-saving instruments as well.
- Compounding Over The Plan Term: Compounding refers to re-investing the accumulated amount to generate wealth. If you happen to opt for a pension plan early in life, you stand to maximize the power of compounding and reap the benefits at the time of your retirement.
- Repayment is Flexible: After the long haul of investing, when it comes to the maturity benefits, you might want a lump sum payout or a partial, monthly payout. Both are available in a pension plan, either solely or in combination, so that you can receive the benefits at your convenience.
Retirement Planning is Prudent
As we can conclude, no matter how early you feel it is, the right time to start planning for your retirement is now. The added advantage of time is something the ‘Future You’ is going to thank you for. A good pension plan can offer you stability and certainty during your retirement years, which is something that many lack today as we face the prospect of an uncertain future job market and skyrocketing life costs by the time of our retirement.
To begin, you can use an online Retirement Calculator that is made available by insurance companies to get an idea of the kind of corpus you will require at the time of retirement based on how much you spend right now and how many years you will require a pension after your retirement. It can be a great tool in your retirement planning and help you choose the right pension plan for yourself.
